Capital Markets: Overview
The FY16 revenue of Top 13 investment banks reached $172bn, -2% vs FY15. European banks continue to lose ground: while the US banks grew revenue 2% (4Q16: 17%), EMEA banks’ fell 8%. The US banks’ lead is even more stark in terms of profitability: their FY16 pre-tax profits surged 44% (and more than doubled in FICC), while Europeans’ profits were unchanged as the plunge in FICC profits (partly due to litigation hits) more than offset healthy profits in Banking and Equities.
Global banks reacted quickly to British Prime Minister’s announcement that the UK will be leaving the EU single market. Goldman Sachs will shift personnel to Frankfurt, Poland, France and Spain; UBS already started moving staff, 300 of which may go to Spain and many more elsewhere; Citi chose Dublin (900 staff) and Frankfurt, as did Morgan Stanley (300); HSBC may move staff who generate 20% of capital markets revenue to Paris; Lloyds Banking Group picked Berlin for its EU hub; the list goes on. Support roles are most at risk, followed by the front-line equity and rates derivatives. However, top executives reportedly mentioned that Euro swaps clearing business may stay in London, as imposing controls on the currency may damage its reserve status.
Following a steep growth in loans in 1H17, commercial lending volumes steadied in 4Q16. Banks raised interest rates in December, a move which has continued into January.
In Treasury services, FY16 payments grew 7% y/y with APAC and Americas being the greatest beneficiaries. Trade finance volumes declined 6% y/y in FY16 in the wake of weaker APAC economies and protectionist sentiment in the US and parts of Europe. Citigroup is considering changing its transaction banking platform from ‘hub-and-spoke model’ to a ‘network model’ in the light of the Trump administration’s protectionist leanings with regard to global trade. J.P.Morgan is building out its corporate banking presence in southeastern US – and making senior hires.
In Greater China, banks are focused on their competitive positioning. HSBC named Frank Fang new Head of Commercial Banking for China; it also appointed Terence Chiu (ex-Head of Global Trade and Receivables Finance) as Head of Corporate Banking in Hong Kong. Elsewhere, Mahesh Kini was hired as Deutsche Bank’s Head of Global Transaction Banking in China; and Sridhar Kanthadai joins J.P. Morgan in Apr-17 as Head of Treasury Services for APAC, based in Hong Kong.
Lending revenues grew by 35% y/y in FY16 on higher interest rates.
Investment management and brokerage assets at banks grew by 6-9% FY16/FY15 in the US. The growth in Europe was a more muted 3%; this was partly due to investors – spooked by the political uncertainty surrounding various political events in Europe – being reluctant to invest in fee-earning products. APAC remains a more complex and fluid market, with investors favouring direct, co-investments, such as venture capital, private equity and real estate. APAC recorded the world’s highest growth rate in AuM in FY16; some of the banks we track grew market share aggressively and growing AuM at double-digit rates, while others lost ground.
In 4Q16, UBS suffered $15bn withdrawals from clients seeking to avoid Switzerland’s full disclosure; Credit Suisse, though, expects a pick-up in Europe. Meanwhile, US banks are investing. Bank of America rolled out a robo-advisor called Merrill Edge Guided Investing, which combines the online brokerage advice from Merrill Lynch and US Trust; BAML is also adding 100 wealth advisers for ultra-rich, bringing the total headcount to 450. J.P.Morgan’s investment in InvestCloud’s tech is now a CRM system for wealth management and a data-mining tool for product suggestions.