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Global i-banks see weakest Q1 in three years with revenue drops across the board


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Global i-banks see weakest Q1 in three years with revenue drops across the board

First-quarter revenues at the 12 leading global investment banks fell for the first time in three years as all major business divisions recorded lower revenues than a year ago, according to a sector index released by research firm Coalition May 30.

Total revenues at the major U.S. and European banks tracked by Coalition plummeted 11% year over year to $39.1 billion in the first three months of 2019. The index features U.S.-based Bank of America Corp., Citigroup Inc., Goldman Sachs Group Inc., JPMorgan Chase & Co., and Morgan Stanley, and European groups Barclays PLC, BNP Paribas SA, Credit Suisse Group AG, Deutsche Bank AG, HSBC Holdings PLC, Société Générale SA and UBS Group AG.

The first quarter was marked by a slowdown in equities, a continued decline in fixed income, currencies, and commodities, or FICC, and weaker equity and debt origination in the investment banking divisions of global institutions, according to Coalition's research.

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After full-year FICC revenues fell in 2018 to their lowest level since the global financial crisis, they fell 6% year over year to $18.8 billion in the first quarter of 2019. Earnings from most FICC products were down year over year led by G10 Rates and emerging markets macro products, which fell by 12% and 8% year over year, respectively, according to Coalition data.

G10 Rates revenues were at their lowest level since the first quarter of 2006, dampened by the subdued client activity in both the markets in Europe, the Middle East, and Africa and Asia-Pacific. Low volatility was a key factor for the revenue 6% year over year decline in G10 foreign exchange.

Revenues were also down in credit and securitization. Commodities were the only bright spot in FICC, booking a 6% revenue increase compared to a year earlier. The growth here was mainly driven by oil, as U.S. power and gas, as well as metals revenues, were down on the prior-year quarter.

Equities trading runs out of steam

Equities trading, which was a key growth driver in 2018, ending the year with a healthy 10% revenue bump, was the worst performer in the first quarter with a revenue drop of 21%. The decline was driven by a 32% slump in equity derivatives' and a 22% fall in prime services' revenues.

Equity derivatives which benefited from a volatility spike in early 2018, underperformed in the first quarter of 2019 without such one-off boosters. Prime services were affected by the lower client activity across the EMEA coupled with growing margin pressure in the U.S.

Cash equities revenues were down 8%, while futures and options saw a 7% year-over-year rise in the first quarter.

First-quarter revenues in investment banking division services, including origination and advisory, fell by 7% year over year mainly due to the 29% decline in equity capital markets. Debt capital markets fell 5%, while earnings from the global banks' mergers and acquisitions advisory services went up 8%.

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Following on from the cuts in 2018, headcount reduction continued across all three major divisions. The global investment banks tracked by Coalition lowered first-quarter staff numbers by 1% year over year in all FICC, equities and origination and advisory.

The total number of employed dropped to 517,000 in the quarter to March 31, from 521,000 a year ago. FICC headcount cuts were focused primarily in trading, G10 Rates, and EM macro, while in equities, the biggest cuts were made across cash equities research units. Most cuts in origination and advisory divisions were in sector coverage.