Deutsche Bank Currency Crown Lost to Citigroup on Low Volatility

Photographer: Jin Lee/Bloomberg

Kevin Rodgers, global head of foreign exchange at Deutsche Bank in London, said, “We’re a big euro bank and it’s not helped that the euro has not been a focus of attention over the past 18 months.” Close

Kevin Rodgers, global head of foreign exchange at Deutsche Bank in London, said, “We’re... Read More

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Photographer: Jin Lee/Bloomberg

Kevin Rodgers, global head of foreign exchange at Deutsche Bank in London, said, “We’re a big euro bank and it’s not helped that the euro has not been a focus of attention over the past 18 months.”

Deutsche Bank AG was dethroned after a nine-year reign as the world’s biggest currency trader by Citigroup Inc. (C), a Euromoney Institutional Investor Plc survey showed, as subdued volatility depressed trading in the euro.

Citigroup, which last led the ranking in 2002, claimed 16.04 percent market share, beating Deutsche Bank’s 15.67 percent, Euromoney said in a statement. The U.S. bank trailed its German rival by just 0.28 percentage point in the 2013 poll, the second-slimmest margin since it began in 1976. Barclays Plc (BARC) was the third-largest trader, with a 10.91 percent share.

The biggest dealers in the $5.3 trillion-a-day foreign-exchange market are facing reduced revenues after stimulus efforts by central banks around the world muffled many of the trends that traders and investors use to make money. That’s adding to competition among banks, which are pushing more trading onto electronic platforms to boost market share.

“We’re a big euro bank and it’s not helped that the euro has not been a focus of attention over the past 18 months,” said Kevin Rodgers, global head of foreign exchange at Deutsche Bank in London. “Currency volatility in my career hasn’t been down at these levels for any length of time, ever. What will cause it to bounce, I don’t know.”

The euro traded in its narrowest range against the dollar since its 1999 debut in the last week of April, moving just 0.7 U.S. cent between $1.3785 and $1.3855. It was at $1.3756 at 1:54 p.m. in New York. Three-month implied volatility on the currency pair dropped to 5.5475 percent on May 2, the lowest since 2007.

Citigroup’s Crown

The Euromoney rankings are drawn from a survey of traders in the foreign-exchange markets. This year’s was based on 14,050 responses, representing $225 trillion of turnover, London-based Euromoney said. Deutsche Bank was ranked number one since 2005.

The Frankfurt-based bank jointly led a survey of 2013 market share published by research company Greenwich Associates in March, along with UBS AG.

Citigroup’s move to the top spot “is a validation of our continuing effort to better serve our clients by providing them the best pricing, trade execution and advisory services,” Nadir Mahmud, the bank’s global head of foreign exchange and local markets, said in an e-mailed statement. The bank headed the rankings for the survey’s first 23 years, according to Euromoney.

Trading Heads

Citigroup named Mahmud as successor to Anil Prasad in February, agreeing for him to move to London from Singapore, where he led the bank’s markets business in the Asia-Pacific region. Prasad left to “pursue other interests,” Citigroup said at the time.

Deutsche Bank’s Rodgers will retire in June to focus on academic and musical interests, according to the Frankfurt-based lender.

Mahmud assumed his position against the backdrop of allegations, first reported in June by Bloomberg News, that traders at currency dealers colluded to manipulate benchmark rates. More than 30 people from 11 firms having been fired, suspended, taken leave of absence or retired since October, when regulators said they were investigating the market, according to data compiled by Bloomberg. No firms or individuals have been accused of wrongdoing by government authorities.

Currency Revenue

Citigroup relies on currency trading for a higher percentage of its revenue than peers, according to Sanford C. Bernstein & Co. It gets roughly 4 percent to 5 percent of revenue from foreign exchange, according to a report yesterday from John McDonald, an analyst at Sanford Bernstein.

Mark Costiglio, a bank spokesman, declined to comment on the Bernstein report.

“The macro challenge is for FX market users to be confident that it is a legitimate, transparent and fair market to operate in,” said James Wood-Collins, chief executive officer of U.K.-based currency manager Record Plc. “It’s an exceptionally well-functioning market. It’s particularly important our clients are aware of that and aren’t put off sensible risk management or return-seeking activity.”

Subdued price swings are starting to take their toll on bank earnings. Foreign-exchange revenue at Deutsche Bank dropped in the first quarter “due to lower client activity reflecting lower volatility and challenging trading environment,” it said in its April 29 earnings statement.

Tighter Grip

JPMorgan Chase & Co.’s Group of Seven FX Volatility Index, a measure of currency fluctuations, touched 6.00 percent today, the least since 2007 and down from last year’s peak of 11.96 percent set on June 24, and was at 6.1 percent.

The top five banks are tightening their grip on the market, according to the Euromoney data. Their combined share accounted for 61 percent of trading, up from 57 percent in 2013, and exceeding 60 percent for the first time since 2009.

UBS was ranked fourth with a market share of 10.88 percent and HSBC Holdings Plc was fifth with 7.12 percent.

Barclays, which announced yesterday it would cut 7,000 jobs at its investment bank, said earlier this week a decline in revenue from trading bonds, currencies and commodities cut the division’s earnings by 49 percent.

“In FX we’ve been through a couple of years of very fierce competition amongst the top three dealers,” said Mike Bagguley, head of macro products at Barclays in London. “So you’ve had stagnant volumes, very low margins and very low volatility, which have clearly been disruptive for revenue. There’s no way you’re going to make a good return for your bank in this business unless you’re a really efficient scale provider.”

Bank                2014                     2013
                    Rank      Share (%)      Rank      Share (%)
Citigroup           1         16.04           2         14.90
Deutsche Bank       2         15.67           1         15.18
Barclays            3         10.91           3         10.24
UBS                 4         10.88           4         10.11
HSBC                5          7.12           5         6.93
JPMorgan            6          5.55           6         6.07
BofA Merrill Lynch  7          4.38           10        3.08
RBS                 8          3.25           7         5.62
BNP Paribas         9          3.10           12        2.52
Goldman Sachs       10         2.53           11        2.75

(An earlier version of this story was corrected to remove the characterization in the 12th paragraph that Citigroup’s revenue is at risk.)

To contact the reporter on this story: Lucy Meakin in London at lmeakin1@bloomberg.net

To contact the editors responsible for this story: Paul Dobson at pdobson2@bloomberg.net Kenneth Pringle, Paul Cox

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