MORGAN STANLEY: A major revenue driver for banks is dying out

European banks have enough trouble staying profitable at the best of times but this past quarter may have been one of the worst since 2009 for their fixed income, commodities and currencies trading arms.

The so-called FICC business has been the major driver of investment banking revenues in recent years but a new note from Huw Van Steenis and his team at Morgan Stanley shows the good times could be coming to an end.

Morgan Stanley estimates FICC revenues "may be down 10-25%" year-on-year in the third quarter for European banks, led down by volatility in the credit markets.

While one bad quarter alone might not worry managing directors at investment banks, the medium term trend will.

Morgan Stanley has a chart showing the steady decline of the FICC business from a $157 billion (£104 billion) powerhouse in 2009 t0 almost half that by 2017:

People may initially blame commodities for FICC performance, after all commodities hit record lows this year. However, the slow death of credit trading - which includes bonds, distressed debt and derivatives such as credit default swaps - is the main culprit for the decline in FICC.

The value of corporate debt has dropped, and credit spreads have widened, as investors have grown increasingly concerned about companies paying back their debt piles amid sluggish global growth, a Chinese slowdown and the prospect of an interest rate hike from the US Federal Reserve.

Banks take a hit because the bonds on their trading books are valued at the market price.

As my US colleague Matt Turner reported earlier, the traders themselves are trying to get out of the business. Around 43% of those working in credit sales and trading said they would choose a different occupation. That's according to a survey of traders above vice-president level at US banks, carried out by recruitment-firm Options Group between August 18 and September 10.

Overall, Morgan Stanley sees trading revenues diving at the major investment banks this year, with only Barclays growing slightly. Might be time to save, rather than spend, that bonus come 2016: