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Global investment bank revenues fall to post-crisis low in 'challenging' 2017


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Global investment bank revenues fall to post-crisis low in 'challenging' 2017

A meltdown in fixed-income, currencies and commodities trading dragged down investment banking revenues at major U.S. and European institutions in 2017, according to research firm Coalition.

In its annual "IB Index" report, Coalition said the banks in its sample saw revenues from investment banking hit their lowest level since 2008. The report tracks Barclays Plc, BNP Paribas SA, Citigroup Inc., Credit Suisse Group AG, Deutsche Bank AG, Goldman Sachs Group Inc., HSBC Holdings Plc, JPMorgan Chase & Co., Morgan Stanley, Société Générale SA, UBS Group AG and Bank of America Merrill Lynch.

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Overall revenues at these banks fell by 4% year over year to $150.4 billion in 2017, with FICC revenues plummeting by 11% to $68.0 billion. A slightly better, but still weak, performance in equities — where annual revenues were 4% lower than in 2016, at $41.8 billion — as well as a healthy 10% rise in investment banking division revenues to $40.6 billion were not enough to offset the drop in FICC.

"2017 has been an absolutely challenging year. Almost every single asset class across sales and trading declined," George Kuznetsov, head of research and analytics at Coalition, said in an interview.

FICC meltdown

FICC trading was hit by "exceptionally low volatility," which caused revenue declines across all products except securitization. G10 FX and commodities booked their weakest performance since 2006, with lack of volatility and reduced client activity affecting both, and weak trading additionally burdening commodities.

Commodities revenues dropped by 42% year over year to $2.5 billion and G10 FX slid 21% to $7.1 billion.

Even in securitization the development has been more about recovery than real growth, Kuznetsov said. On a year-over-year basis there is an improvement, but on a long-term horizon securitization is simply coming back to the levels it was at before the downturn in 2015, he said.

Securitization revenues grew 15% year over year to $11.4 billion in 2017, up from $9.9 billion in 2016 and $9.3 billion in 2015. However, revenues were far below the $12.4 billion generated in 2014, Coalition data showed.

Equities drop on weak cash, derivatives

The small decline in equities was driven by "light weakness across all products," but equity derivatives were hit hardest. The product saw a 6% year-over-year drop in revenues last year, primarily due to weakness in flow derivatives and strategic equity transactions.

Strong competition put significant pressure on margins in cash equities where revenues slid to their lowest level since 2006, falling 3% year over year to $9.2 billion in 2017.

Revenues also fell by 3% in both prime services and futures and options.

Banks more active in 2018

Volatility has returned in the first few weeks of 2018, which will have a positive impact on exchange and flow rates products and potentially flow credit, but could affect some of the banking business, Kuznetsov said.

"The area where we probably will see some slowdown is potentially banking, where a lot of cross-border and large ... transactions are either constrained or put on hold when there is a significant increase in volatility," he said.

Credit Suisse CEO Tidjane Thiam said Feb. 14 that while volatility has driven the group's trading revenues, it could have a negative impact on the advisory business as clients prefer calmer markets for new stock and bond issuance.

Nevertheless, banks are expected to become more active in the course of 2018, according to Kuznetsov.

"Our main hypothesis for 2018 is that we will see a relatively similar revenue environment to 2017 but our view is that we'll also see intensifying competition across a lot of different products," he said. "We see more activity coming from the banks, which have been suffering through restructuring over the past two, three years."

Bank of America Merrill Lynch is the marketing name for the global banking and global markets business of Bank of America Corp.

Coalition is owned by CRISIL. S&P Global Market Intelligence and CRISIL are owned by S&P Global Inc.

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