Wednesday, January 30, 2019 Stamford, CT USA — Despite a spike in market volatility down the stretch, headwinds during the latter half of 2018 turned a year that began with optimism into one where the prospect of a full-scale rebound seemed more distant. For the many dealers that weathered a difficult end to 2018, they are seeing a strong beginning to the year, which has renewed optimism that 2019 will be a year of meaningful revenue growth.
Whatever churn there may have been in certain areas of the market in 2018, there was stability in the list of 2018 Greenwich Share and Quality Leaders in Global Fixed Income. Citi remains on top, followed by Goldman Sachs and J.P. Morgan essentially for second in market share, Barclays in fourth, and Morgan Stanley and Bank of America Merrill Lynch statistically tied for the fifth spot, rounding out the 2018 Greenwich Share Leaders in Overall Global Fixed Income. Citi shares the top spot with J.P. Morgan in Credit share and Citi is No. 1 in Rates.
Citi is also the 2018 Greenwich Quality Leader in Overall Global Fixed-Income Service, Global Fixed-Income Sales and Global Fixed-Income Trading. J.P. Morgan claims the title in Global Fixed-Income Research.
In Europe, these and other banks had more to contend with in 2018 than just choppy markets and tentative investors. MiFID II and other regulatory and market structure changes are impacting the way the market operates. The emerging result may be a market with “fewer players, less liquidity and increasing market concentration,” said Greenwich Associates Principal Satnam Sohal.
In the United States, banks were also working through changes in global regulations and market structure. They continued to invest in talent and technology to stay compliant with regulations and to provide new insights and analytics to their clients. Some dealers also looked to expand their footprints and revenue pools by increasing their focus on a broader universe of “middle market” investors.
The APAC region was a weak point for global fixed-income franchises in 2018, amid U.S. rate hikes, Chinese deleveraging, the trade war, and a sell-off in emerging markets that diminished investors’ appetite for risk. Despite these challenging conditions, banks from around the world continue to invest in the market with an eye toward the fast-growing Chinese bond market as well as China-based investors.
Technology Will Drive the Business
There is no question that technology is becoming a bigger driver of the business and that the capital-intensive nature of this model favors the largest dealers and investors. Among the world’s biggest fixed-income dealers, only a handful currently aspire to be leaders across all products and regions.
Even among very large banks, most are responding to the new economics of the business by allocating more resources to products or markets viewed as having the best profit potential, or in which they have some competitive advantage. While regional specialists and other smaller players will maintain their niches, business is increasingly concentrating in the hands of the biggest dealers—a trend that will only intensify as MiFID II plays out and technology takes on a greater role.
“IT costs and the need for scale in lower-margin products point toward increasing concentration of the flow businesses and specialization by dealers with more limited ability to invest in technology,” says Greenwich Associates Managing Director James Borger.
Click here for the list of 2018 Share and Quality Leaders in Global Fixed Income.