Sector: Wholesale Banking Results Review 2Q17 / 6m17

Capital Markets: Overview

Capital markets’ unit of banks in this report recorded $92bn operating revenue in 6m17, +6% y/y. Primary activities did well, and FICC advanced slightly; but Equities dipped. US banks did better than their European counterparts – especially in FICC – and top competitors extended their lead. There was a significant slowdown in 2Q17: $44bn revenue was down 10% q/q and 6% y/y.

Banks kept tight reign over costs, however. In 6m17, profit jumped to $27bn (3/4 of that by US banks), +14% y/y, on strong primary and FICC results. A 4% y/y decline in Equities’ profits tracked the drop in revenue. Banks achieved a slight increase in per-head productivity in 2Q17.

The European Commission’s idea of sovereign bond-backed paper addresses an important issue: European banks generally favour bonds issued by their own governments, which increases the risk that concerns over national finances infect that country’s banking system. The EC’s proposal of bundling national governments’ paper into a single instrument is pointless, however, unless it is jointly guaranteed by the eurozone governments. Could this be a mere opening for further steps?

Wealth Management

As in previous periods, lending revenue continued to benefit from the favourable rate environment. Investment management and, to a lesser extent, brokerage fees, remain the key revenue drivers.

On the bank front, Credit Suisse in Aug-17 announced the creation of Investment Advisory & Solutions unit, led by Reto Hossli, a Credit Suisse veteran. It will cater to clients with $50m+ of investable assets, including UHNWIs, family offices and institutions – in the Swiss Universal Bank division, which was slated for sale only months ago. We will include the UHNWIs-related revenue in the bank’s wealth management revenue.

Private banks are expanding their UK operations, attracted by the surge in AuM in the country – 57% between 2013-2016, according to British Bankers Association. Deutsche Bank brought in Michael Morley, ex-CEO of Coutts, to run its expanding its UK operation: at present, it has only 10 bankers focused on UK wealth and is looking to double that number in 2017, while also hiring in Switzerland, Italy and ME. Credit Suisse, Pictet, Societe Generale and UBS (which already has 230 client advisers in the UK), among others, have announced their intention to expand their UK units.