What's really going on in Citi and BofA's investment banks?

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Citi and BofA have both reported their results for the fourth quarter and full year of 2014. When it comes to their investment banking and markets businesses, neither looks too hot but both do - at least - look more perky than J.P. Morgan. 

What do you need to know? Well....

1. They will not be paying great bonuses 

Neither Citi nor BofA will be paying generous bonuses this year. We knew this already - following conversations with 'insiders', the Wall Street Journal reported last week that bonuses for Citi's traders were going to fall by 5%-10% and that bonuses at BofA would be curbed after a difficult December.

Both banks have now confirmed their parsimony. BofA cites a, 'reduction in revenue-related incentive costs' as a reason for lower expenses in its markets business in the fourth quarter. Citi says higher 'repositioning' and legal costs in its institutional clients group in the fourth quarter were offset by lower pay.

2. They are both heavily focused on cost-cutting 

Cost-cutting remains the mantra. In 2014 BofA was the more successful of the two at extracting expenses. In its global markets (sales and trading) business, costs went from an average of 78% of revenues in 2013 to 73% last year.

Citi is also taking costs out of its Institutional Clients Group (its investment bank), albeit at the gentle pace suggested in the slide below, taken from today's presentation.

Citi cost cutting

Source: Citi 

3. A dreadful thing happened to profits in BofA's trading business in the fourth quarter  

In the first quarter of 2014, BofA's trading acount made a profit of $2.4bn. In the second quarter, it made a profit of $1.8bn. In the third quarter, it made a profit of $1.8bn. And in the fourth quarter it made a profit of $76m. Why was this? BofA says credit and mortgage trading were badly hit by declining activity. Either way, it doesn't augur at all well for bonuses on the BofA trading floor (see point 1).

4. A dreadful thing happened to Citi's fixed income currencies and commodities (FICC) trading business between the third quarter and the fourth quarter 

It was all going OK. Between the second and third quarters of 2014, revenues in Citi's FICC business held steady. But then between the third and fourth quarters they fell by 33%. Citi's traders can at least console themselves with the thought that things were worse at BofA (FICC revenues there declined 35% in the fourth quarter).

5. But BofA's rates professionals did inexplicably well  

While other banks have been complaining about the performance of their rates businesses in the fourth quarter, BofA cited rates as an area of strength, saying that along with FX the business benefited from '"increased volatility.' Citi, on the other hand, said that a, "challenging macroeconomic environment" had  "impacted the rates business," with G10 rates particularly affected.

BofA's rates professionals clearly deserve a reward. That may not be forthcoming.

6. BofA's advisory bankers looked a bit 'weak'

Non-top marks to Christian Meissner, who oversees BofA's investment banking and advisory businesses. Revenues in BofA's advisory operation rose a mere 7% last year compared to 2013. This compares to an increase of 24% at J.P. Morgan and 11% at Citi. It now looks like J.P.'s M&A bankers performed very well indeed last year.

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