Restructuring in FICC Inevitable'

FICC rest ructuring ' inevitable' at second tier banks Matt Turner 15 Jun 2011 A restructuring of the fixed income, currencies and commodities divisions at UBS, Morgan Stanley and Credit Suisse is inevitable, according to JP Morgan analysts, as c ompensati on regulation is leading to a high fixed cost base in a business with volatile revenues. In a note published yesterday, JP Morgan analysts led by Kian Abouhossein said that compensation regulat ion had meant that a restruct ur ing of inv estment banks with a " tier tw o" fixed income, currencies and commodities franchise was now inevitable. Th e note sai d: "In creased regulat ion of e mploy ee bonu s co mpensation h as trig gered i ncreasing salaries and led to a higher propo rtion of deferred c ompensation lev els leadi ng to a concern ing highly f ixed cost base for a volatile revenue business." Job cut s are a like ly resu lt of the reduced flex ibi lity, according to the note, as b anks are forced to cut staff rath er than simply redu ce the bonus pool, wh ich pre-crisi s made up a greater proportion of the cos t base. Financial News reported o n Monday t hat a sharp drop in trading i n th e past few months and a slowdown in i nv estment banking activity has rai sed concerns among senior executives i n the indust ry th at banks will have to cut thousands of jobs. Th e red uced flex ibi lity du ring the downtu rn is likely to impa ct th e b anks with wh at JP Morgan ide nt ifie s as "tier two" franchises in FICC, such as Credit Suisse, Morgan Stanl ey an d UBS. The note said: "This puts tier two players which lack revenue scale particularly in FICC in a very tight spot in our view, and hence we believe at some point the management of these tier two investment banks will

Restructuring in FICC Inevitable'

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