(The opinions expressed here are those of the author, a columnist for Reuters.)
By Jamie McGeever
LONDON, May 24 (Reuters) - The first quarter of 2018 was a rollercoaster for investment banks, involving record highs for stocks, the biggest bout of market volatility in years and the strongest ever start to a year for merger and acquisition activity.
It was a challenging period for the top U.S. and European banks alike. While equity trading was highly and surprisingly lucrative, two familiar trends were clear: U.S. banks lording it over European banks, and shrinking bond trading activity.
Wall Street's top five banks earned billions more from financial market trading, advisory fees and investment banking activity than Europe's seven biggest banks, and there's no indication that the gap is about to close.
Quite the opposite. Figures from industry analysts Coalition show that the top 12 U.S. and European banks raked in $43.83 billion in Q1, of which Wall Street's five powerhouses accounted for $27.29 billion and the seven European banks $16.55 billion.
That revenue split of 62 percent vs 38 percent in favour of the U.S. banks is the widest gap since Coalition started tracking comparable data in 2012.
JP Morgan, the world's biggest bank, occupies first or second spot in almost all the sector rankings, while other U.S. banks have made big strides in recent years, like Morgan Stanley in equities and Bank of America Merrill Lynch in credit.
Europe's big banks are struggling in the face of intense pressure from U.S. rivals aggressively grabbing market share, so much so that many are reducing their presence in certain markets. Some are pulling out altogether.
Can Europe reverse the trend? Without consolidation at the top it looks unlikely to happen soon. Some banks, such as Credit Suisse and Deutsche, have cut back so much in recent years that challenging the Wall Street behemoths again seems impossible.
Deutsche, which has had four chief executives in six years, is slashing thousands of jobs, with equities sales and trading staff falling by 25 percent. And sources close to Barclays deny reports that the bank is seeking to merge with rivals.
Barclays is probably one of only two European banks that could challenge Wall Street's hegemony, the other being HSBC. But with U.S. banks occupying the top five places in the rankings, and their dominance increasing, it's a tall order.
Overall revenue across the top U.S. and European banks was up three percent in Q1 from the same period a year ago. This was driven by a 28 percent surge in equity revenue to $13.8 billion, the second best Q1 since the financial crisis and biggest Q1 rise since Coalition began analysing this data in 2006.
Within that, equity derivatives revenue soared 56 percent to $5.3 billion. Growth was strong across all regions but particularly in the Americas, which would have benefited the U.S. banks most.
The strong performance of equities in Q1 confirms that the 'volmageddon' episode in early February, when a burst of implied volatility on the S&P 500 spread like wildfire through global markets, was good for banks' trading desks.
The first three months of the year is often the quarter when banks accrue most revenue as clients take trading positions and put money to work, while companies and governments raise funding for the year ahead.
But fixed income, currency and commodity (FICC) trading, also referred to simply as bond trading, performed poorly yet again. Total FICC revenue fell 6 percent to $20.1 billion, the second worst Q1 since the global crisis. In Q1 2010, FICC revenue at the top 12 banks was $36 billion.
Revenue from G10 rates trading, still the biggest component of FICC, slumped 18 percent on the same period a year earlier to $6.1 billion. That was the lowest Q1 since Coalition started tracking the figures in 2006.
Despite the surge in stock market volatility in early February, bond and FX volatility has remained stubbornly low, making it difficult for market participants to make money from FICC trading.
Even the rise in U.S. bond yields to multi-year highs as the Federal Reserve presses on with its rate increases has been fairly steady and predictable, certainly not enough to catch traders off guard or inject a meaningful dose of volatility into the market.
*Wall Street dominance over Europe's struggling banks hits record
*UPDATE 3-Barclays has no plans for tie-up with rival banks - sources
*UPDATE 3-Deutsche Bank to cut thousands of staff in investment bank revamp
Reporting by Jamie McGeever; editing by David Stamp