Strong Q3 sets FICC up for 5% annual rise -Coalition

LONDON, Nov 17 (IFR) - A rebound in fixed income revenues this year may not be enough to offset a drop in equities and advisory and underwriting fees, which is likely to leave investment bank revenues down for a fourth successive year, consulting firm Coalition said.

Coalition said on Thursday revenues from fixed income, currency and commodities (FICC) in 2016 should reach US$73.4bn at the 12 largest investment banks, which would be up 5% from 2015 and end three years of declines.

But equities revenues are on course to fall 15% from a year ago to US$42.3bn and investment banking division (IBD) revenues are set to fall 10% to US$36.5bn, Coalition estimates.

That would leave investment bank revenues at the 12 firms of US$152.2bn, down 5% from 2015 and down 13% from revenues of US$175bn across those product areas in 2012.

Banks continued to reduce their front office headcount in the first nine months of the year, although Coalition said the pace of the cuts slowed in the second and third quarters. It estimated the dozen banks had 53,300 front-office staff across FICC, equities and IBD at the end of September, down 4% from a year earlier and 16% lower than four years earlier.

The rebound in FICC revenues stops a rot seen since 2012, which has eased concern the industry was on a long, steady decline.

After a weak first quarter, FICC revenues have surged and in the third quarter they were up 36% from a year earlier, Coalition estimates.

"It's been a roller-coaster. We started at an all-time low, the first quarter was a disaster, but in fixed income we've seen an amazing second quarter and third quarter," said George Kuznetsov, head of research and analytics at Coalition.

The recovery has been underpinned by a rise in credit-linked products and G10 rates due to narrower credit spreads, increased client activity and improved liquidity, Coalition said.

In equities, weakness in cash and derivative products has continued, while investment banking divisions have been hit by reduced IPO and follow-on activity, especially in Europe.

After the first three quarters of 2016, FICC revenues were up 2% from a year ago, equities revenues were down 16% and IBD was down 12%, Coalition estimates. In aggregate, revenues were down 7%. (Reporting by Steve Slater)