Sector: Wholesale Banking Results Review 3Q18 / 9Q18

Capital Markets: Overview

The 16 banks’ 9m18 capital markets revenue totalled $148bn, 3% ahead of the prior-year period. Pre-tax profit, however, advanced 11%, mostly on equities; primary fees were solid, but FICC declined. The US banks (again) outpaced their European peers, with 5% and 12% increase in revenue and pre-tax profits, respectively.

The upcoming bonus season looks set to produce few victors. US banks stated that bonuses will be slightly below 2017, or rise by low single digits; European banks were generally quiet – which, in view of unexciting revenues, is not a good sign. Further, allocating those bonuses will be tricky: some products – equity derivatives in particular – did very well, while others dropped sharply.

In Aug-18, China removed the limits on foreign ownership of banks and bad-debt managers; foreign firms will now be treated the same as local companies. UBS was the first to take advantage of this change by increasing its share of the local JV, UBS Securities Co., to 51%.

Commercial/Transaction Banking

In transaction banking, APAC registered the strongest growth in volumes, followed by Americas and EMEA. Payment volumes in 9m18 grew 10% versus the prior-year period. Trade Finance volumes also grew, albeit only 4%.

Corporate lending in the US was largely stagnant, with overall loan balances remaining largely stable. Europe presented a much more variable picture, with only selected pockets of growth – UK CRE among them.

On the fintech front, in Sept-18 Barclays launched a new digital platform, intended to offer the bank’s UK corporate banking products and processes to clients in other countries in the region. The platform is operational in Portugal, Spain, France and Ireland; and will soon be rolled out in Germany, too. Deutsche Bank invested in US-based ModoPayments LLC, a digital payments specialist, to help the bank expand its B2B and B2C payments offering. And HSBC, BNP Paribas, Standard Chartered and several other banks jointly launched a blockchain trade finance platform in Hong Kong; eTrade Connect will aim to speed up the processing of trade loan applications from 36 to just four hours.

Wealth Management

Wealth Management 9m18 revenue at ten firms in this report advanced 4% to $68bn, driven by higher lending and investment management fees; in the same period, pre-tax profits grew 6%.

The industry is in expansionary mode: leaving aside regular updates from Credit Suisse, Barclays is hiring for a push in Scotland and North England; HSBC – which appointed António Simões as Global WM Head in Sept-18 – is hiring 250+ staff in 2H18/1Q19, c.100 of which is for EMEA (HSBC created a new EMEA structure in Apr-18) and the UK, 40 for Singapore and 70 for Hong Kong; Morgan Stanley is eyeing mainland China, and UBS is setting up two new teams there; the list goes on. The war for talent is intensifying, especially in APAC: top relationship managers – those able to bring $400m+ AuM with them – are receiving as much as 30% increase in comp to move firms.

UBS, however, was the source of most interesting news in 3Q18: in Aug-18, the bank shut its UBS SmartWealth UK robo-advice (launched in Feb-17) and sold the intellectual property to SigFig, a startup which sells software to financial institutions. Elements of SmartWealth are incorporated in UBS’s Advice Advantage in the US; still, in the era of robo-everything, this is an unusual move. UBS may be ahead of the curve – the proportion of wealth managers fearing the loss of clients to robo-advisors is dropping fast – but it will be interesting to follow UBS’s progress in this field.