Sector: Wholesale Banking Results Review 1Q19

Capital Markets: Summary

The banks in this report reported operating revenue of $48bn in 1Q19, 12% down y/y. This was a difficult quarter, characterised by a rally in govies, flattening of yield curves in the USA and Europe and low volatility in key products; all this led to depressed client activity, especially in January/February. Equities revenue suffered the most relative to the strong 1Q18, followed by FICC and prop/PI.

In response, banks curtailed costs – most notably, bonus accruals. Based on current revenue trends and management comments, we expect further cuts to bonuses in 2019/18: 15-20% in equity sales and trading (unless Larry Fink’s prediction of a boom comes true – see below) and ECM, and a slightly more modest decline in FICC and DCM.

Barclays, Deutsche Bank, RBS and UBS are all under fire from market participants advocating severe cuts to capital markets activities. We doubt that Edward Bramsom will meet with much success at Barclays; but the other three are more vulnerable.

Commercial Banking & Treasury Services

New arrival: Societe Generale

Wealth Management

The peer group combined revenues dipped in 1Q19 relative to prior-year quarter, due to weaker investment management and brokerage revenue and, in some cases, lower deposit spreads. European banks underperformed their Americas rivals, in terms of both revenue and profits.

Established players may soon be facing fresh, and well-funded new entrants: alternative asset managers.  Private equity/debt specialists and hedge funds have accelerated hiring of experienced wealth managers in recent times and are targeting family office as well as ultra-rich private clients.

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