Financial markets will permanently be more volatile thanks to regulations that have squeezed liquidity out of the market, according to HSBC’s chief executive Stuart Gulliver.
Across the world, investment banks’ profits tumbled in the first three months of this year because of stock markets crashing and bond prices yo-yoing, preventing companies from floating on the stock markets and reducing demand from clients for trading services. HSBC was no different – profits in its global banking and markets division dived by 30pc year on year to $2.1bn.
Mr Gulliver warned that the “extreme levels of volatility” in the first quarter would not be a one-off.
“There is a great deal less liquidity now in markets than we had prior to all of the reforms that have gone through the banking system,” said Mr Gulliver. “There is some evidence – which is still subject to a lot of debate – that there is amplification as market moves. There is less liquidity to find to trade large amounts without moving the price.
“I think there is perhaps a structural change where we will have greater volatility than we had previously.”
He was speaking as HSBC reported a 14pc fall in pre-tax profits, which dropped to $6.1bn in the first quarter.