By Steve Slater
LONDON, March 9 (IFR) - Citigroup has warned that revenuesfrom trading and advisory are set to drop sharply in the firstquarter from a year earlier, joining rivals in setting the scenefor another grim quarter for the industry.
Citigroup said its markets revenues are running 15% lowerthan the first quarter of 2015 and its advisory and investmentbanking revenues are off by 25%.
"It has been a tough quarter," Citigroup chief financialofficer John Gerspach said on Tuesday at an investor conference.
January-March is typically the most important quarter forinvestment banks, often accounting for more than a third ofannual income.
As a result, the grim forecasts from Citigroup and some ofits rivals have set off alarm bells that a weak second half of2015 will continue and could prompt another bout of job lossesas banks seek to cut costs.
Gerspach said Citigroup expected to take a US$400m charge inthe first quarter "to resize both our infrastructure andcapacity" in response to the tough environment.
Other banks have also warned of a slow start to the year. JPMorgan's investment banking fee revenues are down 25% in thequarter so far from a year earlier and its trading revenues are20% lower, Daniel Pinto, head of its corporate and investmentbank, said on February 23. He said some of the decline intrading was due to a strong year-earlier performance.
Barclays said on March 1 that earnings at its investmentbank in the first quarter are on track to drop from 2015. Itsaid January and February were flat from a year earlier, but itdoes not expect to match the strong March it had last year.
Gerspach provided the most detailed assessment to date onprospects, saying market volatility had hurt both trading andnew issuance.
"In fixed income, we see spread products continuing to havepressure," he said. "In rates and currencies the bank was facinga tough comparison against a good year-ago quarter.
"In equity markets, there it has been a tough market,obviously. There's been certainly a downturn as far as newissuance level and just overall lack of customer activity," hesaid.
Gerspach said the fall in investment banking was largely dueto a downturn in issuance in both debt and equity capitalmarkets, while M&A activity had another tough comparison withthe start of last year.
"It's pretty much a global reduction as far as issuance atthis point in time. There's been some pickup in the debtmarkets, maybe in the last week or so, but up until now itreally has been pretty muted," Gerspach said.
He said he was optimistic some of the first quarter declinecould be recaptured during the rest of the year, citing a goodpipeline for M&A deals.
Kian Abouhossein, analyst at JP Morgan, last month estimatedrevenues across the industry could decline by 21% this year from2015.
Citing "a challenging credit trading environment, low levelof deal flow and lower equity markets," he predicted an 18% dropin fixed income, currencies and commodities revenues, a 16% fallin equities and a 29% slump in advisory and investment banking. (Reporting by Steve Slater)
Barclays (BARC)