By Anjuli Davies
LONDON, March 31 (Reuters) - The return of volatility inglobal financial markets is expected to provide a boost toinvestment banking trading revenues in the first quarter afteryears in the doldrums.
The first quarter is typically the strongest period of theyear for investment bank income, and revenues for the top firmsin the three months is likely to be up 7 percent from a yearago, analysts at JPMorgan said this week.
Fixed income, currencies and commodities (FICC) businesses,which account for about half investment banks' revenues, couldsee a 9 percent increase year-on-year, with currencies the bestperformer, after slumping in recent years on the back of tougherregulations and low market volatility.
Banks have been reshaping themselves to increaseprofitability by cutting staff and business lines as regulationsbrought in after the financial crisis restrict the amount ofcapital banks can put to work, and a decline in volatility hasled to fewer trading opportunities.
Since 2009 revenues in FICC have declined by about 50percent at the top 10 investment banks globally, data fromindustry analytics firm Coalition shows.
Shock moves by the Swiss National Bank (SNB) in January toremove its cap on the Swiss franc, the launch of the EuropeanCentral Bank's (ECB) trillion-euro quantitative easing (QE)programme and moves by the Federal Reserve to tighten monetarypolicy have created price fluctuations that traders thrive off.
FX volatility is up 30 percent in G7 currencies and volumeswith it, and higher rates volatility is leading to highertrading volumes and margins, according to JPMorgan analysts.
JPMorgan and Wells Fargo will kick offfirst-quarter earnings seasons for the banks on April 14.
EUROPE VS UNITED STATES
Analysts at Deutsche Bank also forecast trading incomestreams to rise year-on-year, strongly beating marketexpectations, especially for European Banks. Their top picksinclude UBS, Credit Suisse, Barclays and Societe Generale in Europe.
JPMorgan's investment banking chief, Daniel Pinto, said inFebruary the first few weeks of the trading year had been "verystrong" and trading revenues for the first quarter had been oncourse for a rise from a year earlier.
Citi's CFO John Gerspach said in March that if not forthe hit the company took when the Swiss franc was allowed torise in January, a revenue increase in the interest rates andcurrencies business would have been "strong".
Goldman Sachs analysts lowered their estimates for the bigWall Street banks -- JPMorgan, Citi, Morgan Stanley andBank of America Merrill Lynch -- by about 6 percent forthe first quarter, saying a fall in FICC revenues would morethan offset a rise in advisory income.
U.S. investment bank Jefferies has already said its FICCrevenues in the three months to the end of February were down 56percent from a year before and the market was "tepid".
Barclays (BARC)