The top 12 global securities services banks saw their 2018 revenues grow at their fastest rate and hit their highest level since 2013, according to a sector index released by research firm Coalition on April 11.
The index tracks the following major North American and European institutions: Bank of New York Mellon Corp., Citigroup Inc., JPMorgan Chase & Co., Northern Trust Corp., State Street Corp., Brown Brothers Harriman & Co., Royal Bank of Canada, HSBC Holdings PLC, BNP Paribas SA, Société Générale SA, CACEIS Bank SA and Deutsche Bank AG.
Total annual securities services revenues at these banks rose by 9% year over year to $37.2 billion in 2018. The annual rate of increase stood at 7% in 2017 when revenues reached $34.3 billion and was only 3% in 2016 with revenues at $31.9 billion.
The main drivers of the revenue growth in 2018 were higher equity markets, rising transaction volumes and improved net interest income, according to Coalition. S&P Global Market Intelligence and Coalition are both owned by S&P Global Inc.
The securities services business was less affected by the tough market conditions observed in the first quarter of 2019, which were particularly damaging to global investment bank's origination and advisory business, Eric Li, research and analytics director at Coalition said in an interview.
Securities services are expected to remain more resilient to the market headwinds later in 2019 as well, he added.
Custodian banking outperforms
The strong asset value increase in equity markets boosted the earnings of securities services banks, as the fees they charge for safeguarding clients' assets are based on the aggregate value of those assets. The net interest income growth largely stemmed from rising interest rates, most notably in the U.S. and Asia, according to Li.
Apart from a significant increase in net interest income, revenues in Asia-Pacific were also driven by strong volume growth. The Americas grew at a slower pace despite the boost coming from rate hikes and equity markets due to idiosyncratic challenges for the industry such as fee concessions, Coalition's analysis showed.
On a product-by-product basis, custody services accounted for the bulk of the total revenue growth, booking a 12% year-over-year revenue rise to $19.4 billion in 2018.
Fund services saw a 4% year-over-year increase to $10.0 billion. Revenues from other securities services, including corporate trust, depository receipt, agency securities lending, broker/dealer clearing and settlement, and collateral management, grew by 7% year over year to $7.7 billion.