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Tumbling revenue from stock trading dragged down global investment banks' earnings below year-ago levels in the first six months of 2012, a report showed on Thursday, underlining how equities divisions are likely destined for big cutbacks.
A big fall in dealmaking also hurt revenues, which dropped more than 7 percent to $86 billion US across the world's top 10 investment banks even as profit engines such as bond trading recovered, according to a study by analytics group Coalition.
Cash equities was a particularly weak spot in the first half, as lower trading volumes and the rise of electronic trading bit into revenues, which fell roughly 30 percent from year-ago levels.
The poor performance of equities units so far this year has made them among the most vulnerable areas for cutbacks, as banks prepare to slash more jobs in September and October to control costs ahead of the year end.
"Cash equities in particular is a lot more expensive to be in than five years ago," one senior equities banker at a European bank said. "Technology and IT costs are higher, as are compliance costs. It is a loss-making business for many."
Revenues overall in equities divisions, including business lines such as derivatives, dropped 16 percent to $18 billion.
The only area that did well in equities was prime services, typically the units which serve hedge funds, the report said.
The banker added that staff expenses only made up about 20 percent of the costs of these divisions. But even so, he and other bankers and headhunters said equities salespeople and traders would be hit hard by cuts later this year.
Equities staffing levels across the top 10 investment banks in the first half of 2012 had already dropped to 19,000 from 20,100 at the end of 2011, according to Coalition.
Improvements in other areas also make stock trading units the most likely to bear the brunt of cuts, alongside advisory units. Revenues from mergers and acquisitions, new stock market flotations and bond issues fell the hardest in the first six months of 2012, down 25 percent on the same period a year ago.
Fixed income - the divisions that usually encompasses rates and credit trading as well as commodities and foreign exchange, and which made up 61 percent of investment bank revenues in the first half - did better than last year, the study showed.
And after a big round of layoffs there recently - fixed income headcount has shrunk to 21,4000 at the top 10 banks from a recent peak of 24,300 in 2010 - productivity in that area was likely to increase, Coalition said.
Coalition's index tracks what it considers to be the 10 largest investment banks globally: Bank of America Merrill Lynch (BAC-N), Barclays, Citi (C-N), Credit Suisse, Deutsche Bank, Goldman Sach (GS-N), JPMorgan (JPM-N), Morgan Stanley (MS-N), Royal Bank of Scotland and UBS.