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Boom Time in Forexland? The 2002 Profit & Loss FX Revenue League Table

Recent years have seen a trend towards a top group of banks in the FX market, especially in the field of revenues generated from these operations. Many banks calculate their FX results differently, which can make institutional comparisons difficult, but year-on-year the results provide a good barometer of how the banks are faring in what is a rapidly changing market.

Colin Lambert takes a look at the 2001 Profit & Loss FX Trading Revenue League Table.

The refrain from the sell side of our industry has been constant over the past year or two: costs must be cut because margins are being squeezed in an increasingly competitive market. This has become something of a mantra to the industry as a whole, but the latest data, in the form of the Profit & Loss FX Revenue League Table, suggests that times are not as hard as the banks will have us believe.

We have expanded the table to 44 banks this year, from 35 last, and taking all 44 banks’ results from 2000 into account, revenues have risen by 11.8% year on year. Focusing on the upper end of the table reveals that just three of the top 20 banks saw a drop in revenues, and that the average increase of 16 of the 17 banks that saw profits rise, was 27.6%. This number does not include HypoVereinsbank, which registered a massive 90.9% increase in revenue due to the inclusion of Bank Austria’s results in this year’s data.

Of the three banks that saw revenues drop away in 2001, State Street saw a modest decline of 4.9%, and ABN Amro also fell, by 19.3%. By far the biggest drop on the face of it, however, was that registered by JP Morgan, revenues collapsing by 36.8% from $1.465 billion in 2000, to $926 million in 2001.

Muddied Waters

While the JP Morgan numbers have declined, they have not done so to the extent that the headline figures suggest. David Puth, global head of FX at JP Morgan, reveals that the merger of JP_Morgan and Chase Manhattan Bank highlighted the methodology used in putting together the FX revenue numbers. “We felt some years ago that it would be more accurate to separate FX revenues in our reported figures,” he says. “Amongst other items, we have chosen not to put the revenues from our own hedging activities associated with our network of overseas offices.

“More significantly perhaps,” he continues, “Since 1992 we have traded FX and interest rates on the same platform. In practice, this has meant that one trader could be reporting profits in forward FX, futures, interest rate swaps or cash bonds. We have to break this down somehow. Our new, and I believe clearer, method of reporting allows much more accurate comparison of year-on-year figures. We have chosen to report merely the difference between where a cross product position was hedged at, and where it was sold. This may mean we break our numbers out differently, but we believe this to be the most accurate method.”

Puth reveals that using JP Morgan’s new methodology, last year’s numbers were overstated by $400 million and should have been $1.065 billion. Equally, due to an allocation problem in this year’s numbers, the FX revenues were understated by $146 million and should have been $926 million, and not the $780 million previously reported. “This will not result in a need to re-state our overall numbers,” he explains, “However, this $146 million will be re-allocated within the overall figures reported for fixed income and other trading revenue.”

This means that in real terms, JP Morgan produced a 13% drop in FX revenues year-on-year (total JP Morgan trading revenues dropped 12.1%), a fact that Puth acknowledges is disappointing. He is confident, however, that many of the changes made within the FX operation in recent months [which include Puth himself taking sole responsibility for FX] will result in an improvement in revenues. “We are now fully integrated with our derivatives operation, the combination of businesses being very profitable,” he says, “Which means we are now in a position to take our FX operation to a higher level.

“The [revised] 2001 results are an accurate reflection of our revenues and I am pleased with the start we have made to 2002. We have worked hard on integrating our platforms, for example our bullion and FX operations, which will help us reap the benefits of the hard work undertaken since the merger.”

To give the JP Morgan results some perspective, Chase Manhattan Bank registered third in the 1999 and 1998 tables with revenues of $807 million and $936 million respectively, whilst JP Morgan was eighth in 1999 with $550 million and fifth in 1998, with $665 million.

There is something of a precedent for the volatility in JP Morgan’s numbers. Although market and industry conditions are obviously different, the Swiss Bank Corporation/Union Bank of Switzerland merger produced a very high (combined) figure of $1.285 billion for 1998, but this dropped away sharply to $458 million in 1999 under the UBS banner. Since then, results have rebounded, to the extent that UBS Warburg’s numbers this year are approaching the $1 billion mark.

The Big Get Bigger

The 44 banks reported total revenue of $15.496 billion in 2001, from $13.859 billion in 2000, and the underlying trend towards the big banks continued. Market consolidation is nothing new by now, and there are very few in the market that do not see the majority of volume and revenue settling into the hands of a top tier of banks, with regional satellite operations taking up the slack. The share of the top 10 banks rose again in 2001, they accounted for 58.8% of total revenue, as opposed to 56.7% in 2000.

Ivan Ritossa, global head of FX at Barclays Capital, suggests that the market consolidation trend evident in the markets – including the big getting bigger – will continue. “History demonstrates that being a global player is essential, primarily because clients are thinking globally more than ever,” he says. “Even if clients are transacting at a local level they are looking at global influences, and as an institution we have to provide global product offerings, across research, execution and post trade services. You cannot afford to run a regional-centric operation.

“Clients want a high level service across a number of products,” he continues, “And it tends to be the bigger institutions that have the sophistication and resources to meet these demands.”

The top five banks all saw revenues increase. The group as a whole rose an average of 33.9%, the best performance by far being that of CSFB, which regained all of the ground it lost last year – and some – rising 53.3% on 2000 to Chf1.648 billion, and 17.5% (in dollar terms) on 1999’s numbers. The top five rated banks were together responsible for 37.4% of total revenue, a sharp increase from last year’s 32.3% (on final data).

It should be noted at this stage, that whilst the market generally talks in terms of the top five getting bigger, there is a case now for the top grouping to be thought of as an octet. JP Morgan clearly remains a major player in the industry, and is easily capable of rebounding strongly in 2002 as Puth feels it will, whilst the UK-based duo of Barclays Bank and the Royal Bank of Scotland both put in strong years to widen the gap between themselves and the following pack. To reinforce this point, the decline in profits at ABN Amro to (in dollar terms) 432 million, means that this is the first table since Profit & Loss started registering these results in which the number of banks making in excess of $500 million has fallen below 10.

Ritossa feels that it is vitally important that Barclays Capital consolidates its position in the top grouping of banks in order to build on what has been a strong year for the FX operation. He acknowledges that whilst market share is important in the current environment, it is not as important as being able to offer an innovative and client focused approach.

“Our results were the result of a number of interlinked issues – we are really one component of the Barclays Capital group that as a whole has achieved very good results – but our focus on, and ability to get close to, the client has been important,” he says. “A growing business such as ours is as much driven by innovation and a strong product offering as it is market share. It is about our ability to meet the needs of our clients and help them exceed their benchmarks.”

Looking at the top of the table, Citigroup returns to the number one spot on the full year table after a one year sojourn at number two (to JP Morgan’s initially released results). Profits rose by just under 33% to $1.464 billion, the bank also surpassed its 1999 results of $1.405 billion.

Second place went to Deutsche Bank, which reported a 25.7% increase in profits to ?1.385 billion ($1.233 billion). This continues a very strong trend by Deutsche Bank, which has risen from 11th in the 1998 table (with profits of $486 million) to its current position. Jim Turley, global head of FX at Deutsche, says, “Deutsche Bank is committed to providing its clients with solutions for their entire spectrum of foreign exchange needs. Clients have rewarded us with a greater share of their business, which is reflected in our profitability and our increasing market share. That is the best possible endorsement for our business strategy.”

HSBC consolidated in third place, with a 16.1% increase to break the billion-dollar barrier, whilst CSFB leapfrogged not only JP Morgan, but also UBS Warburg to take fourth place. The latter also saw a strong increase in revenues, by 41.5% to Chf1.629 billion ($981 million).

The decline in profits at JP Morgan and ABN Amro means that this year represents the first since Profit & Loss commenced its review of banks’ earnings in 1998 that the group of banks ranked from five to 10, has failed to out-earn numbers 11 to 20.

Winners and Losers

Further down the table there were mixed fortunes for many institutions. Aside from the aforementioned HypoVereinsbank move from 22nd to 14th, Commerzbank also rose further up the table, registering an impressive 69.5% increase to ?273 million, to stand 20th (from 29th). Commerzbank notes that 2001 was the best year to date for the treasury and financial products department, of which FX is a part, and highlights how it has “tightened up” its operations by centralising its FX dealing activities whist retaining a decentralised sales structure. The bank says it aims to concentrate its trading activities even more strongly on a few leading global centres, but has no plans to change the sales structure.

Elsewhere, Canadian Imperial Bank of Commerce fell from 17th to 24th, and registered a small 3.1% drop in revenues, but this was nothing compared to the decline in fortunes at Fortis Bank, the bank falling from 18th last year, to 30th this, revenues declining 28.9% to ?167 million.

Of course, when discussing winners and losers, special mention has to go to Allied Irish Banks which reported a ?75 million increase in profits before exceptional items. Unfortunately, the exceptional items will include the losses sustained by the group’s US subsidiary AllFirst Financial, which ran close to $700 million (see Profit & Loss, April 2002). As can be discerned from the accompanying table, all bar seven of the reporting banks would have seen their profits wiped out by the AllFirst losses. For the purposes of this table, these losses have been viewed as exceptional, and not included in the final data.

Regional Strengths

In regional terms, there is a clear winner in percentage terms. Westpac Banking capped what was a very strong year for Australian banks with a 63.4% increase on 2000, only ANZ (which rose by 21.3%) saw profits grow by less than 50%. Within the “four pillars” as the main Australian banks are known, National Australia Bank consolidated its hold on first place in the revenue stakes, rising by 50.6% to A$601 million.

Westpac Banking Corp produced one of the biggest percentage gains of the 44 reporting banks. Ian MacGougan, global head of FX at the bank, says, “We are pleased with our percentage increase which is the result of a great effort from all the team, particularly when taking into account the current global economic climate. The challenge now is to continue to improve on these results to reflect the future ambitions of the group.”

MacGougan notes that Westpac has spent a considerable amount of time during the past 12 months refining the bank’s strategic direction and looking at new product opportunities to add value to Westpac’s existing customer base. “As part of this, we have focused on the implementation of existing marketing strategies for both our corporate and institutional sales teams, with each unit holding clear accountability for their own performance.

“We have also aligned all groups on a global basis,” he continues, “Which continues the theme of accountability, while ensuring a consistent and truly customer focused orientation.”

It was a similar picture in Canada, where the Royal Bank of Canada consolidated its position as the leading local bank, revenues climbing a modest 8.7% to C$652 million. Following – at some distance – are TD Securities (+8.1%) and Scotiabank (+62.8%) at C$361 and C$355 million, respectively.

It was something of a mixed bag for those banks that make up places 21 through 44 in the table, 14 of whom registered increased profits, 10 reduced. As a group, the bottom 14 institutions managed to increase profitability by just 3.6% or $106 million. Whilst this compares well with the section representing positions six to 10 (which fell 9.5%), the top five banks saw revenues increase 29% and those ranked 11 through 20 saw an increase of 20.4%.

Efficiencies Working Through

Although there are no definable numbers available in the banks’ full year results, efficiencies do appear to be working through, especially for the top grouping of banks. Although the waters get a little muddier below the top 30, the fact that only six of the top 30 registered lower revenues, suggests that greater efficiencies brought about by advances in STP and online trading in general, are starting to have an effect.

There is also evidence that banks further down the ladder are focusing more on their core competencies and, in the case of Australia, and to an extent Canada, this is paying off. The surge in Australian banks’ revenues has already been noted, and whilst the percentage increases in the Canadian banks was less impressive, over the past three years, Canadian banks’ forex earnings have multiplied more than threefold in general.

Westpac’s MacGougan says, “We have worked on driving efficiencies in the business and looking at ways that we can diversify our revenue stream, whilst at the same time increasing our risk profile into selected areas where our market position allowed a competitive advantage.”

He also underlines the benefit that e-trading is having on Westpac’s business, noting selective investments made in the e-space are bearing fruition in the form of increased customer activity over both Westpac’s proprietary and aggregate models. Ritossa at Barclays Capital agrees that the e-commerce space is a very important area to enable banks to keep a lid on costs, something he says contributed to Barclays’ very strong 2001 showing. “We have a very strong, award winning offering,” he says, “Which we are continuing to roll out to clients. This increases our flexibility of services – our clients want choice of execution – but also greatly enhances efficiencies both sides of the value chain.”


Although the tables accompanying this report are arbitrary in many ways – many banks such as the French, Italian, Spanish and Japanese institutions, and the US investment houses such as Merrill Lynch, Goldman Sachs, Lehman Brothers and Morgan Stanley do not report FX earnings – they do provide a good barometer of individual and segment performance. It should also be noted that different banks have different accounting practices and calculate their revenue in different ways, still others have different reporting periods (see notes accompanying tables).

In terms of the impact of exchange rates on this year’s dollar-denominated table, those banks reporting in euros have suffered a 5.2% decline in conversion, the Swiss reporting banks a 2.4% impact, while sterling results have suffered by 2.75%. Larger impacts were felt by the Australian banks (8.7% or 14.6% depending upon the reporting period), the Swedish (-10.1%), Danish (-5.1%) and Canadian (-6.35%).

Clearly, the big are getting bigger, and there are few in the industry that dispute this will continue to be the case. However, revenues all the way down the ladder are also showing healthy tendencies, which would suggest that, overall, the FX market is not in as bad shape as some would have us believe.


Profit & Loss

2001 Full Year FX Trading Revenue League Table

(in USD millions)

((00*) 01











+ 32.7%



Deutsche Bank




+ 19.1%







+ 16.1%







+ 49.8%



UBS Warburg




+ 38.2%



$5.791 bln

$4.476 bln




JP Morgan




– 36.8%



Barclays Bank




+ 31.6%



The Royal Bank of Scotland




+ 18.9%



Bank of America



+ 0.9%



ABN Amro




– 19.3%



$3.316 bln

$3.666 bln




ING Barings




+ 16.3%



Royal Bank of Canada

8 & 22



+ 4.3%



Standard Chartered Bank




+ 15.1%






+ 80.6%



State Street



– 4.9%



Bank of New York




+ 29.5%



National Australia Bank




+ 37.5%



Dresdner Bank







Fleet Bank



+ 21.5%







+ 60.9%



$3.344 bln

$2.778 bln




Lloyds TSB




+ 9.0%



TD Securities

14 & 22



+ 4.1%




15 & 22



+ 56%




8 & 22



– 7.0%



Mellon Bank




+ 9.0%



ANZ Bank




+ 11.0%






– 0.6%



Westpac Banking




+ 40.0%



Wells Fargo Bank



+ 41.5%



Fortis Bank1




– 32.6%



Profit & Loss

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