Business World

Sunday 17 December 2017

Euro stability cuts foreign exchange fees and global bank profits

Jessica Mortimer

SHRINKING global trade in currencies is stinging bank profits and leading to fears that dealers face job cuts if volumes drop further next year.

Falling business since the middle of 2012 as the eurozone crisis abates, accompanied by lower market volatility, have left banks struggling to make money out of currency dealing.

"The drop in volumes in the market has impacted everyone, every bank on the street," said George Athanasopoulos, who co-heads global foreign exchange and precious metals at UBS.

A global economic slowdown has helped to dampen volumes for some time, along with ultra-low interest rates in many countries which have dimmed the appeal of buying one major currency against another.

European Central Bank president Mario Draghi seems, probably unintentionally, to have accelerated the trend when he promised in late July to do "whatever it takes to preserve the euro".

Bond buying

Mr Draghi's comments, followed up by a conditional ECB plan to buy the bonds of troubled eurozone governments, restored relative calm to the markets and limited the euro's fall.

This in turn helped to reduce the currency swings which normally allow foreign exchange dealers to make profits.

Between August and November, volume on the CLS system, which settles the vast majority of currency transactions, fell by 11pc year-on-year. The two major electronic trading systems meanwhile reported annual falls in trades of one currency for another of at least 25pc.

"The whole industry's volumes are lower. This year has been relatively devoid of directional trends, which has made it a more challenging year for many participants," said Adrian McGowan, head of FX trading for Europe at Barclays.

Exacerbating the drop in volumes, shallow price swings in currency markets have reduced the opportunity for high-frequency trading, a strategy that uses technology and computer algorithms to carry out a large number of transactions rapidly.

Continued low volumes could see banks cut back further on their foreign exchange headcount, with desks already smaller due to the expansion of electronic trading in recent years.

Mike Goggin, managing director at London recruitment firm Brookleigh, said banks had cut foreign exchange staff, although not by as much as in other asset classes. There were likely to be more cuts in FX sales staff than among traders, simply because trading desks were already small.


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