Capital is expensive and getting more expensive. But the problem is proving a much harder one to manage in Europe, with European banks continuing to deleverage and already complying with the principles of Basel III while US banks have their capital houses (relatively) in order. The impact of this dichotomy is broad, but one impact already playing out is the growth of US banks in the European Fixed Income market. Recently published Greenwich research based on roughly 1200 European buy side interviews found that every US bank in the top 15 fixed income dealer list gained share in 2013, while every European bank’s market share was either flat or down. The primary reason uncovered was the cost of and ability to commit capital.
European investors, seeing that the world has changed, are looking to new sources of liquidity as well. New liquidity providers, more electronic trading and new smart matching tools all are seeing increased adoption and success. The report, available to our Market Structure and Technology customers, examines how individual dealers are fairing, detailed trends in electronic trading adoption and suggested new tools for finding liquidity in the bond market.
I’ll also be walking through the findings at a webinar on March 18th. So please do click the button below to register. Bond market dynamics are, well, very dynamic. The market has fundamentally changed in the past 5 years and will continue to do so. Not because of new technology or new entrants, but because capital is more expensive for dealers to commit to the business and that cost is forcing the market’s major dealers to scale back their fixed income dealing activities. This pullback is driving investors to seek out new ways to find the credit and rates exposure they need, which is where the opportunity for new entrants, new technology and new methods of weeding out like buyers and sellers enters the picture.
And as the US Banks squeeze the Europeans in London – keep an eye on the back door and the Canadians into NY and Chicago (they are strong ones benefiting from Tarullo)
The fact that the increase in income of US banks is growing is well known, the question is when it will end (if any) and the banks will stop making money on the backs of the citizens.