By John Carney
12/16/2014
The ruble rumble is a mixed blessing for U.S. banks.
It has awoken markets that spent much of the year in a deep sleep. The
Rising volatility generates trading volume, producing revenue for fixed-income, currency and commodity trading desks. It also can generate income for derivatives units, as investors hedge positions.
Of course, volatility isn’t without its risks. Even though banks now hold less trading inventory than they did in past eras, traders can get caught on the wrong side of a market move. That is what appeared to have happened recently at Jefferies. It disclosed Tuesday that fixed-income revenue for its fiscal fourth quarter had declined 73%, in part because of a selloff following a late September legal ruling involving
There is also some risk of losses at banks stemming directly from Russia.
The flattening of the yield curve, as investors flee to the safety of U.S. Treasurys, may put pressure on bank earnings, as well, by squeezing net interest margins. But this is likely to be offset by the rising value of bonds held by banks thanks to falling long-term interest rates.
For now, banks look like they could come out of this fight without too many bruises.
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