OPINION: High volatility allows banks to quote wide gaps between the prices at which they will buy and sell all sorts of assets - that’s where they make their money.
It has been a nerve-wracking time for investors in recent months. They have been calling their brokers and bankers more than normal while fretting about war in Ukraine, high inflation and the wild lurches of financial markets.As markets heaved and churned in the first quarter, the banks’ business of standing between trades in commodities, currencies, government bonds and equities boomed.
What is certain is that high volatility allows banks to quote much larger gaps between the prices at which they will buy and sell all sorts of assets. And these bid-offer spreads are where they make their money. Or at least they do as long as nothing goes wrong; higher volatility means higher risk for the intermediary, which is why a bank can quote a wider spread in the first place.
Mason said that Citi’s commodities revenue in the first quarter was up 173 per cent compared with results in the period a year earlier and that foreign exchange had also done well. Its total FICC revenue of $US4.3 billion was down marginally from last year but still ahead of forecasts.
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