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* Trading rev will fall 9 pct by 2016-Deutsche Bank analysts
* Banks may have to exit bond trading-report
* Banks need at least 6 pct market share-report
By Lauren Tara LaCapra
NEW YORK, April 22 (Reuters) - New regulations will wipe out$17 billion in trading revenue for global investment banks andforce some to exit the bond trading business entirely, accordingto a Deutsche Bank report released on Monday.
New rules being implemented in Europe and the United Stateswill push bond and derivatives trading onto exchanges as soon asthis summer, which is expected to reduce the income banks makefrom trading with clients.
Regulations are also boosting capital requirements forbanks, as well as margin and collateral requirements forclients. That raises the cost of doing business and may leadclients to trade less, Deutsche Bank analysts said in thereport.
Their estimate of $17 billion in lost trading revenuerepresents 9 percent of sales and trading revenue for globalinvestment banks in 2012.
"We think that the long-run result of these changes will bea wave of industry exits from fixed income, currency andcommodities sales and trading by second-tier players," theanalysts said. "For the purposes of this report, we view allbanks with less than a 6 percent market share as 'at risk' ofexit from full-service fixed income, currency and commoditiessales and trading."
Banks with more than 6 percent market share include JPMorganChase & Co, Citigroup Inc, Barclays Plc,Bank of America Corp and Goldman Sachs Group Inc,the report said. Deutsche Bank AG did not includeitself in the rankings, but it is also a large player in fixedincome, currency and commodities (FICC) trading.
The report indicated that many more banks will have to exitbond trading. HSBC Holdings Plc, Royal Bank of ScotlandGroup Plc, Credit Suisse Group AG, BNP ParibasSA, Morgan Stanley and Societe Generale were listed as having market shares below 6 percent.
Speculation about the fate of bond-trading businesses atbanks without substantial market share heated up in October,after UBS AG said it would exit FICC trading, cutting10,000 jobs in the process.
But other second-tier players have said they intend to stayin that business. Morgan Stanley executives, for instance, havesaid that by reducing exposure to risky trading areas andincreasing exposure to high-volume, low-cost areas like interestrates derivatives, the bank can stay in the business, despiteskepticism from analysts.
"Instead of competing for business based on the size ofone's balance sheet, we're really competing on our content,coverage and what we've done with technology," Morgan StanleyChief Financial Officer Ruth Porat said in an interview lastweek. "It changes the competitive dynamic, but I don't thinkthere is an inconsistency in some seeing headwinds in certainareas and us not seeing it."
Deutsche Bank analysts said that because trading will getmore expensive for clients and banks, higher volumes may notmake up for narrower spreads. They expect rates trading toexperience the biggest revenue decline - $10.4 billion, or 20percent - due to new regulations. That accounts for nearly 60percent of the total drop in trading revenue.
A Morgan Stanley spokesman declined further comment.
