Deutsche Bank issued its Q1 2014 figures today. In the quarter, net income before taxes declined 30% to €1.7 billion from the same period in 2013. The earnings contraction took place as total net revenues fell 11% to €8.4 billion. Among weaker performers, Corporate Banking and Securities suffered the largest fall as group revenues declined by €471 million to €4.076 billion. Commenting on the decline, Deutsche Bank singled out Sales and Trading as they stated, “The decrease was mainly attributable to reduced revenues in Sales & Trading (debt and other products), which were down by EUR 285 million, or 10 %, compared to Q1 2013, resulting from lower client activity reflecting low volatility and ongoing uncertainty around emerging markets.”
FX “Significantly Lower”
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Within Sales and Trading, Deutsche Bank reported performance declines among various units, among them, FX, Credit Solutions, Commercial Real Estate and Emerging Markets. However, of the units FX was specifically mentioned as experiencing weakness as the bank stated, “Revenues in Foreign Exchange were significantly lower than the prior year quarter due to lower client activity reflecting lower volatility and challenging trading environment.” Year-over-year comps in FX were also made more difficult due to Q1 last year being specifically active in the overall sector.
The decline in FX at Deutsche Bank follows a similar performance that was experienced in the second half of 2013. Despite a strong start to 2013, in its Annual Report Deutsche Bank reported that FX revenues declined during the year. The bank blamed margin compression taking place, which mitigated improvements in trading volumes.
In our just published Forex Magnates Q1 Industry Report, among topics was a look at dealer FX liquidity and its connection to Fixed Income trading. The report analyzed whether FX pricing was being adversely affected by a decline in Fixed Income revenues during the second half of 2013. Among sources that Forex Magnates contacted, the prevalent opinion was that spreads had remained tight, with several firms seeing pricing become even more competitive. Overall, as FX liquidity is becoming commoditized, it has created fewer pockets of weak pricing in the market, with nearly every region in the world able to source competitive spreads. However, as seen in Deutsche Bank’s results, even as FX volumes rose in 2013, the buyer’s market has created a difficult environment for primary dealers to succeed in.