CIB Review 3Q22/9m22

Capital Markets

In difficult markets, banks’ earnings remained weak – weaker, in fact, than was the case in 1H22. In 9m22, the 14 banks in this note reported operating revenue of $154bn, 16% below the prior-year period. Revenue in 3Q22 totalled $46bn, 21% down y/y. Primary/issuance fees halved vs 9m21 and 3Q21 and Equities revenue dipped 7% vs 9m21. FICC, however, advanced, as strong macro revenue more than offset weakness in spread products.

Banks’ reduced their cost base by 11% overall, to $95bn in 9m22. Banking bore the brunt of these initiatives, but Equities and FICC also saw reductions. There were no large-scale redundancies so far, several banks are ready to ‘rightsize’ and severely reduce bonuses.

The peer group’s pre-tax profit declined 41% y/y in 3Q22 and by 24% y/y in 9m22.

Commercial Banking & Treasury Services

Banking revenue grew vs 3Q21 and was marginally ahead of 2Q22. Gains were driven by higher margins coupled with continued momentum in volumes and balance sheet growth. Net interest income also advanced, on strong loan and deposit growth. Coupons for senior middle-market loans increased 50–100bps in 3Q22. Rising interest rates and slowing economic growth encouraged direct lenders to demand higher yields for financing to troubled sectors. However, the outlook is uncertain: rising interest rates and higher borrowing costs are reducing demand for loans.

In Transaction Banking, cash management reported strong growth in 3Q22. Rapid increases in interest rates boosted liquidity management. Payment volumes continue to grow, and difficulties in crypto markets boosted traditional cross-border payments. Key drivers of growth in trade finance were supply chain and commodity trade finance.

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