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from Breakingviews:

FX business now shares equities’ harsh economics

By Dominic Elliott

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

Currency trading is taking over from equities as the challenged business in investment banking. Resurgent volatility in foreign exchange markets during September and October is unlikely to offer more than a temporary respite for the business.

Margins in FX have been declining steadily this decade amid the rise of electronic trading. At the same time, a regulatory clampdown has forced banks to switch away from a so-called principal model, acting as a currency wholesaler, to a less lucrative agency model, matching buyers and sellers. An agency-brokered $1 million spot euro/dollar trade generates just $2 in commissions, 90 percent lower than a principal-dealing approach, according to capital markets consultancy GreySpark Partners.

FX trading platforms are expensive to maintain. To cover the cost of equity in the business a bank might need to make $1.3 billion in revenue, according to Greenwich Associates. Only a few will have achieved that last year.

from Breakingviews:

Goldman pulls every lever to make machine run

By Antony Currie

The author is a Reuters Breakingviews columnist. The opinions expressed are his own. 

Goldman Sachs pulled every lever to ensure its machine ran properly over the summer. The bank earned $2.1 billion in the three months to September, blowing past Wall Street expectations. Its dealmakers and traders played their part, as did the firm’s own investments. The real fillip, however, to the bank’s annualized 11.8 percent return on equity came from socking away less for pay.

from Breakingviews:

Jamie Dimon returns to challenges old and new

By Antony Currie

The author is a Reuters Breakingview columnist. The opinions expressed are his own. 

Jamie Dimon is back in the saddle after battling cancer – just in time for the JPMorgan boss to face challenges old and new. Overall results in the third quarter released on Tuesday missed estimates thanks to rising costs. The group’s investment bank is punching below its weight. Cybersecurity is a growing worry. Even the timing of the bank’s earnings was off.

from Breakingviews:

Traders need help to make Wall Street shine

By Antony Currie

The author is a Reuters Breakingviews columnist. The opinions expressed are his own. 

Wall Street’s fixed income trading desks welcomed a rare return of volatility. It probably hasn’t been enough, though, to ensure decent profitability for Goldman Sachs, JPMorgan and Morgan Stanley in the quarter just ended. They’d need to generate up to $12 billion of extra revenue among them trading bonds, foreign exchange and commodities to achieve a return on equity of 15 percent.

from Unstructured Finance:

How Babel became Symphony

The communications platform announced this week went through several different names before Symphony.

The idea for a communications platform went through several names before Symphony.

In late-2012, Goldman Sachs traders started to notice something unusual. News was sometimes breaking on social media faster than it was breaking on sophisticated information terminals that cost the bank millions of dollars each year.

from Breakingviews:

Why Citigroup would be better in bits

By Rob Cox

The author is a Breakingviews columnist. The opinions expressed are his own. 

Nine years ago, Breakingviews proposed an “extreme idea” to Citigroup’s then-leader Charles Prince. The $240 billion New York bank’s market capitalization was lower than the worth of its parts valued separately. By splitting into three separate units, the idea was, Prince could hand shareholders an extra $50 billion or so, the equivalent of one entire U.S. Bancorp at the time.

As it turned out, Citi had bigger concerns ahead. The housing crash exposed spectacular losses, wiping out capital and necessitating a government bailout. Prince was sent dancing onto the golf course. With the crisis now fairly distant in the rear-view mirror, however, it’s time for current Chief Executive Michael Corbat to revisit the case for a breakup.

from Breakingviews:

S&P 500 at 2,000 invites “new normal” thinking

By Martin Hutchinson

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

Beware new paradigms. The S&P 500 Index’s first trades above 2,000 on Monday invite the idea of a new normal in markets. The price-to-earnings ratio is under 20, only moderately above average, and interest rates remain low. But U.S. earnings are at a peak relative to GDP. Assume they adjust back to the long-term norm, and the stock benchmark would be a third lower.

from Breakingviews:

Dollar set to take pound’s strong currency title

By Swaha Pattanaik

The author is a Reuters Breakingviews columnist. The opinions expressed are her own.

Sterling emerged as the currency market strongman over the past year because investors grew increasingly confident the UK would be the first big economy to raise interest rates. The dollar now looks set to wrest the title from the pound.

from Breakingviews:

Deutsche/UBS: there’s life in EU bond trading yet

By Dominic Elliott

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

Deutsche Bank and UBS have shown there is life in Europe’s bond traders yet. The two banks and Credit Suisse have been losing share to Wall Street since last year, but in the second quarter they hit back. Fixed-income revenue at Deutsche was flat year-on-year, and down just 2 percent at UBS – against a 9 percent average fall at American banks.

from Anatole Kaletsky:

Yellen’s remarkably unremarkable news conference – and why it’s a good thing

Yellen holds a news conference following two-day Federal Open Market Committee meeting at the Federal Reserve in WashingtonJohn Maynard Keynes famously said that his highest ambition was to make economic policy as boring as dentistry. In this respect, as in so many others, Federal Reserve Chair Janet Yellen is proving to be a loyal Keynesian.

Yellen’s second news conference as Fed chair conveyed no new information about the timing of future interest rate moves. She gave no hints about an “exit strategy” for the Fed to return the $3 trillion of bonds it has acquired to the private sector. She told us nothing about the Fed’s expectations on inflation, employment and economic growth -- not even about the board’s views on financial volatility, regulation, asset prices or bank credit policies.

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