Like armoured knights on a muddy field – the future of FICC June 27, 2012 at 7:41 am
A man wearing fourteenth century armour walking across a muddy field won’t travel particularly quickly. Put him in a crowd with longbows firing at him, and he is likely to have a very bad day. The Hundred Years war, from Crécy to Agincourt, showed that that expensive creation the armoured knight was no longer the cutting edge of warfare. The longbow was the crucial piece of technology that rendered him obsolete.
This all comes to mind reading a great piece of Citibank research on the profitability of the big investment banks. Basel 2.5 was the beginning of the end – FICC’s Crécy – and Basel 3 was the definitive engagement – FICC’s Agincourt. As Citi says:
the cuirass in global banks.
- Assuming a full capital allocation on Basel 3, we estimate fixed income trading ROEs in 2011 were in the mid-single digits
- …Which would correspond to 13-14% ROE in a “normal” macro environment and no impact from regulatory headwinds…
- …But falls to 10-12% when we factor in our estimated impact to revenue pool from regulatory reform, although there will be a wide disparity.