Sector: Wholesale Banking Results Review 3Q17 / 9m17

Capital Markets: Overview

The 13 capital markets banks featured in this note reported 3Q17 revenue of $41bn, 8% below 3Q16. In 9m17, revenue totalled $133bn, unchanged from the prior-year period. Banks’ pre-reporting guidance on 15-20% y/y decline in sales and trading revenue was spot-on; but strong issuance and advisory softened the blow somewhat…

… as did banks’ careful control of costs, which fell exactly in line with revenue, in 3Q17 and year-to-date. FICC bore the brunt of costs reduction in 3Q17, although the overall headcount remained almost unchanged vs prior year; equities costs were slightly lower, and the cost base of primary issuance and advisory units was unchanged vs 3Q16.

As a result, banks’ year-to-date pre-tax profits rose by 13% y/y. European banks’ overall profit dynamics matched that of US banks, largely on increased profitability in issuance and advisory; US banks, however, outperformed Europeans in both FICC and Equities.

Commercial/Transaction Banking

In the US, after steadily growing since mid-2016, the volume of new commercial banking loans levelled out in 3Q17. Margins flattened, remaining the same as the previous quarter. In Europe, demand for commercial loans strengthened, especially in France; across the EU countries, margins varied greatly but were in aggregate below 3Q16 levels.

In treasury services, payment volumes continued to grow year-on-year, though at a much slower pace than was the case in 1H17. Trade finance activity remained constrained, with markets falling again slightly. Regionally, Europe posted the strongest growth, followed by the Americas and then APAC.

Wealth Management

The six banks in this note reported 9m17 revenue of US$27bn, 7% ahead of the prior-year period, with all four major revenue streams advancing at a healthy clip. Despite the continued and acknowledged industry-wide pressure on margins, banks’ combined 9m17 pre-tax profit jumped by 20% y/y.

Banks’ hiring in APAC continues, but there are signs of slowdown, largely as the result of increased competition for talent. Among the banks mentioned included in this report, UBS and J.P.Morgan are taking the long view. UBS (with just over 1,000 client advisors, most of whom focus on UHNWs) is finding talent outside of the private banking industry, then trains them internally; it targets c.250. Similarly, J.P.Morgan favours training and promoting internal talent; the bank’s end-target is c.600 regional staff, in small steps. Credit Suisse, by contrast, visibly scaled down the extent of its regional ambition. Finally, Citi and Morgan Stanley made no change to their hiring targets, but plan to hire far less than others.

Sector: Wholesale Banking Results Review 3Q17 / 9m17