Unfortunately, 2012 is likely to prove volatile. At least, 96% of fund managers think so.
In the event of continued volatility, financial services market intelligence firm Tricumen, has come up with some helpful suggestions of the best banks to work for and the banks to avoid.
Avoid: Derivatives houses (BNP Paribas. SocGen and BarCap)
Target: Big electronic trading houses (Citi, Credit Suisse) and JPMorgan
In equities, Tricumen points out that the big derivatives players have the highest revenue variance during periods of volatility. By comparison, electronic trading houses deliver comparatively steady revenues across the cycle.
JPMorgan also has low revenue variance, seen as symptomatic of its: ‘excellent risk management and balanced revenue mix.’
Avoid: Bank of America Merrill Lynch, JPMorgan, Goldman Sachs, Citi and UBS
Target: Barclays and Deutsche (with caveats)
The best FX business to work for in volatile times is less clear-cut. FX revenues are less adversely affected by volatility. Nor, however, is any bank’s FX business immune entirely.
On one hand, Tricumen says organisations like BAML, Goldman Sachs and JPMorgan, Citi and UBS tend to outperform in calmer markets. In the case of BAML and JPMorgan, it suggests this is due to captive businesses related to treasury and securities services operations. In the case of Citi and UBS, it attributes this to a higher flow of FX trades from their private banks during calmer times.
On the other hand, banks like BarCap and Deutsche have greater potential to generate high FX revenues in any market. Tricumen suggests that both derive a high proportion of revenues from their online FX businesses and then use the flow this generates to take proprietary positions in the market. If these prop positions go well, gains can be sizeable. If they don’t, losses can far outweigh any gains.