Sector: Capital Markets: Results Review 2Q16 / 6m16

The 1H16 operating revenue reported by banks in this report totalled $86bn, 14% below 1H15. The 2Q16 revenue reached $31bn, 12% down from a prior-year period. In US dollar terms, issuance and advisory fees dropped 28% vs 2Q15 and equities by 20%, while FICC was essentially flat, with several banks reporting a surge in revenue spurred by Brexit. US banks increased their share of the peer group’s pre-tax profit.

European Banking Authority’s (EBA) stress test, published in July, managed to satisfy almost no-one: some deemed it too benign, others unrealistic. Both arguments make sense: EBA’s test did not include sovereign defaults, mitigating actions by banks, Brexit, or an extended period of low-interest rate environment. Also, the EBA’s test focuses on prudential regulatory measures which, in our view, do not reflect true market risks – and those, if the US regulators have their way, could feature in Basel 4, along with stronger capital rules for bank leverage.

Our early view of the potential impact of Brexit on several banks is shown on bank pages.

This issue features reorganised definitions for several FICC products.

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