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Equities Seen Driving Bank Growth

Banks must look to equities to replace fixed income revenues, a JPMorgan report contends.
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) -- Equities, particularly equity derivatives, present the biggest growth opportunity for banks as fixed income profits look unsustainable, according to a report from

JP Morgan Chase

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Last year was "the best year ever for fixed income," states the report by JPMorgan analyst Kian Abouhossein. "We believe it is fair to say that the record performance is unlikely to be repeated, given the exceptionally favorable market conditions

in 2009."

Abouhossein argues

Credit Suisse

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are the best positioned to benefit from a shift to equities, where he estimates the asset class will account for 35% of investment banking revenues in 2011.

Goldman Sachs

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Morgan Stanley

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are not far behind, as Abouhossein sees it. He estimates they will get 30% of investment banking revenues from equities in 2011. Nonetheless, Abouhossein prefers the U.S. banks over the European ones as he believes they are better capitalized, giving them the ability to buy back shares.

Despite his view that equities represents the best revenue opportunity for banks, Abouhossein is muted in his enthusiasm for the global investment banking sector.

"The investment banking business is becoming more like utilities with growth just above GDP and lower long term ROE of 15% rather than 20% with regulatory changes structurally reducing profitability," Abouhossein writes.


Written by Dan Freed in New York


Disclosure: TheStreet's editorial policy prohibits staff editors, reporters and analysts from holding positions in any individual stocks.