Capital Markets: Overview
The 13 capital markets banks featured in this note reported 3Q17 revenue of $41bn, 8% below 3Q16. In 9m17, revenue totalled $133bn, unchanged from the prior-year period. Banks' pre-reporting guidance on 15-20% y/y decline in sales and trading revenue was spot-on; but strong issuance and advisory softened the blow somewhat...
... as did banks' careful control of costs, which fell exactly in line with revenue, in 3Q17 and year-to-date. FICC bore the brunt of costs reduction in 3Q17, although the overall headcount remained almost unchanged vs prior year; equities costs were slightly lower, and the cost base of primary issuance and advisory units was unchanged vs 3Q16.
As a result, banks' year-to-date pre-tax profits rose by 13% y/y. European banks' overall profit dynamics matched that of US banks, largely on increased profitability in issuance and advisory; US banks, however, outperformed Europeans in both FICC and Equities.
Commercial/Transaction Banking
In the US, after steadily growing since mid-2016, the volume of new commercial banking loans levelled out in 3Q17. Margins flattened, remaining the same as the previous quarter. In Europe, demand for commercial loans strengthened, especially in France; across the EU countries, margins varied greatly but were in aggregate below 3Q16 levels.
In treasury services, payment volumes continued to grow year-on-year, though at a much slower pace than was the case in 1H17. Trade finance activity remained constrained, with markets falling again slightly. Regionally, Europe posted the strongest growth, followed by the Americas and then APAC.
Wealth Management
The six banks in this note reported 9m17 revenue of US$27bn, 7% ahead of the prior-year period, with all four major revenue streams advancing at a healthy clip. Despite the continued and acknowledged industry-wide pressure on margins, banks' combined 9m17 pre-tax profit jumped by 20% y/y.
Banks' hiring in APAC continues, but there are signs of slowdown, largely as the result of increased competition for talent. Among the banks mentioned included in this report, UBS and J.P.Morgan are taking the long view. UBS (with just over 1,000 client advisors, most of whom focus on UHNWs) is finding talent outside of the private banking industry, then trains them internally; it targets c.250. Similarly, J.P.Morgan favours training and promoting internal talent; the bank's end-target is c.600 regional staff, in small steps. Credit Suisse, by contrast, visibly scaled down the extent of its regional ambition. Finally, Citi and Morgan Stanley made no change to their hiring targets, but plan to hire far less than others.
CAPITAL MARKETS
Capital markets’ operating revenue totalled US$132bn in 9m16, 5% below the prior-year period. FICC rates and credit outperformed in 3Q16; primary fees and Equities trading revenue declined vs 3Q15; and FICC prop trading jumped 13% as traders capitalised on market volatility. Banks demonstrated strong cost control: 9m16 operating pre-tax profit fell only 2% y/y. At end-9m16, FICC and Equities front-office headcount was 6% and 5% below 9m15, respectively.
Three recent developments are net positive for banks. Regulators in Europe and Japan are siding with banks and are threatening ‘mutiny’ over 'Basel 4'; the industry claims that proposed revisions would hit some regions (Europe) more than others (USA), and regional regulators are very supportive. In the USA, the President-elect Trump seems determined to repel portions of Dodd-Frank. Finally, rumours emerged that some US banks are considering a legal challenge to aspects of the Fed's annual stress tests; even a mention of a legal challenge is extraordinary.
COMMERCIAL/TRANSACTION BANKING
Commercial banking in the USA benefitted from the improvement in net interest margins and an increase in lending activity. This trend was repeated in most major economies across the globe with the mid-cap/SME segment outperforming the large-cap/MNC.
In treasury services, a 6% y/y decline in trade finance activity, caused by weaker trade flows along APAC trade corridors, depressed revenues. This was, however, more than offset by improved payments flows and liquidity management.
WEALTH MANAGEMENT
APAC continues to produce great challenges, but also long-term opportunities. Banks - Credit Suisse and UBS in particular - continue their heavy investment in the region, but compliance concerns are causing some to shed low-yielding clients. In October, Deutsche Bank's former Head of APAC wealth management Ravi Raju, the key architect of the bank's wealth management operation in the region, left to join UBS.
Lending volumes continued to grow, driven by clients' demand for relatively cheap financing.
Investment management and brokerage 3Q16 revenue declined versus the prior-year period, due to client's cautious investment behaviour. As volatility returns to the markets, investment revenues may well recover.
Tricumen / Capital Markets: Results Review 3Q14Tricumen Ltd
Capital markets operating revenue at the Top 13 investment banks totalled $144bn at the end of 9m14, barely behind 9m13. During the three months of 3Q14, operating revenues reached $43bn, slightly ahead of 3Q13 as strong ECM, M&A, FX and rates offset falls in DCM and equities revenues. The decline in FICC trading predicted by some market analysts did not materialise in 3Q14; on the contrary, only credit revenues declined – slightly. Revenue/headcount productivity rose sharply in FICC compared to 9m13, partly due to banks’ continued trimming of staff in 2014.
Year-to-date operating expenses grew, however, by 6% to $108bn (excluding prop & principal investments), reducing the cumulative pre-tax profit to $31bn, 21% below 9m13. Banking profitability increased during this period by 10%, but FICC and Equities suffered sharp drops. The drop in equities’ profitability was largely due to the weak 3Q14, and was more pronounced among cash equity ‘flow monsters’.
Capital Markets: Overview
The banks in this note reported US$169bn of operating revenue in FY17, 3% below FY16, and US$35bn in 4Q17, -10% y/y. Primary revenue grew, but Equities slipped and - crucially - FY17 FICC dropped 10% y/y. A fall in per-head FICC productivity led to renewed 'rightsizing' initiatives.
Banks (again) matched their costs to revenue: the average cost/income for banks in this report declined, from 82% in FY16 to 79% in FY17, driven by improvement in FICC and Banking.
Opinions on the impact of MiFID 2 vary widely; we expect it will be significant. For example, when TRACE reporting was introduced in the US, the added transparency on volumes traded (and hence flows) let to a c.30% reduction in bid-offer (or equivalent) margins. A similar phenomenon may be seen in MiFID 2, as it applies to most of the high-volume fixed income instruments. The exact margin reduction is likely to be smaller, as increased use of electronic markets means that the European markets are already more transparent than the US markets were at the time TRACE reports were introduced; still, we would not be surprised to see margin compression of 10-15% with a commensurate impact on revenues.
As we enter the last quarter of 2013, US politicians are once again playing a game of brinkmanship; unfortunately one that could have dire consequences for the world’s economy. Politicians continue to entrench opposing positions rather than engage in positive action. It is highly unlikely that the entire US government will shut down as essential services will remain active, but nevertheless, investors dislike uncertainty and markets have been under pressure as the Third Quarter closed.
Capital Markets: Overview
The 13 capital markets banks featured in this note reported 3Q17 revenue of $41bn, 8% below 3Q16. In 9m17, revenue totalled $133bn, unchanged from the prior-year period. Banks' pre-reporting guidance on 15-20% y/y decline in sales and trading revenue was spot-on; but strong issuance and advisory softened the blow somewhat...
... as did banks' careful control of costs, which fell exactly in line with revenue, in 3Q17 and year-to-date. FICC bore the brunt of costs reduction in 3Q17, although the overall headcount remained almost unchanged vs prior year; equities costs were slightly lower, and the cost base of primary issuance and advisory units was unchanged vs 3Q16.
As a result, banks' year-to-date pre-tax profits rose by 13% y/y. European banks' overall profit dynamics matched that of US banks, largely on increased profitability in issuance and advisory; US banks, however, outperformed Europeans in both FICC and Equities.
Commercial/Transaction Banking
In the US, after steadily growing since mid-2016, the volume of new commercial banking loans levelled out in 3Q17. Margins flattened, remaining the same as the previous quarter. In Europe, demand for commercial loans strengthened, especially in France; across the EU countries, margins varied greatly but were in aggregate below 3Q16 levels.
In treasury services, payment volumes continued to grow year-on-year, though at a much slower pace than was the case in 1H17. Trade finance activity remained constrained, with markets falling again slightly. Regionally, Europe posted the strongest growth, followed by the Americas and then APAC.
Wealth Management
The six banks in this note reported 9m17 revenue of US$27bn, 7% ahead of the prior-year period, with all four major revenue streams advancing at a healthy clip. Despite the continued and acknowledged industry-wide pressure on margins, banks' combined 9m17 pre-tax profit jumped by 20% y/y.
Banks' hiring in APAC continues, but there are signs of slowdown, largely as the result of increased competition for talent. Among the banks mentioned included in this report, UBS and J.P.Morgan are taking the long view. UBS (with just over 1,000 client advisors, most of whom focus on UHNWs) is finding talent outside of the private banking industry, then trains them internally; it targets c.250. Similarly, J.P.Morgan favours training and promoting internal talent; the bank's end-target is c.600 regional staff, in small steps. Credit Suisse, by contrast, visibly scaled down the extent of its regional ambition. Finally, Citi and Morgan Stanley made no change to their hiring targets, but plan to hire far less than others.
CAPITAL MARKETS
Capital markets’ operating revenue totalled US$132bn in 9m16, 5% below the prior-year period. FICC rates and credit outperformed in 3Q16; primary fees and Equities trading revenue declined vs 3Q15; and FICC prop trading jumped 13% as traders capitalised on market volatility. Banks demonstrated strong cost control: 9m16 operating pre-tax profit fell only 2% y/y. At end-9m16, FICC and Equities front-office headcount was 6% and 5% below 9m15, respectively.
Three recent developments are net positive for banks. Regulators in Europe and Japan are siding with banks and are threatening ‘mutiny’ over 'Basel 4'; the industry claims that proposed revisions would hit some regions (Europe) more than others (USA), and regional regulators are very supportive. In the USA, the President-elect Trump seems determined to repel portions of Dodd-Frank. Finally, rumours emerged that some US banks are considering a legal challenge to aspects of the Fed's annual stress tests; even a mention of a legal challenge is extraordinary.
COMMERCIAL/TRANSACTION BANKING
Commercial banking in the USA benefitted from the improvement in net interest margins and an increase in lending activity. This trend was repeated in most major economies across the globe with the mid-cap/SME segment outperforming the large-cap/MNC.
In treasury services, a 6% y/y decline in trade finance activity, caused by weaker trade flows along APAC trade corridors, depressed revenues. This was, however, more than offset by improved payments flows and liquidity management.
WEALTH MANAGEMENT
APAC continues to produce great challenges, but also long-term opportunities. Banks - Credit Suisse and UBS in particular - continue their heavy investment in the region, but compliance concerns are causing some to shed low-yielding clients. In October, Deutsche Bank's former Head of APAC wealth management Ravi Raju, the key architect of the bank's wealth management operation in the region, left to join UBS.
Lending volumes continued to grow, driven by clients' demand for relatively cheap financing.
Investment management and brokerage 3Q16 revenue declined versus the prior-year period, due to client's cautious investment behaviour. As volatility returns to the markets, investment revenues may well recover.
Tricumen / Capital Markets: Results Review 3Q14Tricumen Ltd
Capital markets operating revenue at the Top 13 investment banks totalled $144bn at the end of 9m14, barely behind 9m13. During the three months of 3Q14, operating revenues reached $43bn, slightly ahead of 3Q13 as strong ECM, M&A, FX and rates offset falls in DCM and equities revenues. The decline in FICC trading predicted by some market analysts did not materialise in 3Q14; on the contrary, only credit revenues declined – slightly. Revenue/headcount productivity rose sharply in FICC compared to 9m13, partly due to banks’ continued trimming of staff in 2014.
Year-to-date operating expenses grew, however, by 6% to $108bn (excluding prop & principal investments), reducing the cumulative pre-tax profit to $31bn, 21% below 9m13. Banking profitability increased during this period by 10%, but FICC and Equities suffered sharp drops. The drop in equities’ profitability was largely due to the weak 3Q14, and was more pronounced among cash equity ‘flow monsters’.
Capital Markets: Overview
The banks in this note reported US$169bn of operating revenue in FY17, 3% below FY16, and US$35bn in 4Q17, -10% y/y. Primary revenue grew, but Equities slipped and - crucially - FY17 FICC dropped 10% y/y. A fall in per-head FICC productivity led to renewed 'rightsizing' initiatives.
Banks (again) matched their costs to revenue: the average cost/income for banks in this report declined, from 82% in FY16 to 79% in FY17, driven by improvement in FICC and Banking.
Opinions on the impact of MiFID 2 vary widely; we expect it will be significant. For example, when TRACE reporting was introduced in the US, the added transparency on volumes traded (and hence flows) let to a c.30% reduction in bid-offer (or equivalent) margins. A similar phenomenon may be seen in MiFID 2, as it applies to most of the high-volume fixed income instruments. The exact margin reduction is likely to be smaller, as increased use of electronic markets means that the European markets are already more transparent than the US markets were at the time TRACE reports were introduced; still, we would not be surprised to see margin compression of 10-15% with a commensurate impact on revenues.
As we enter the last quarter of 2013, US politicians are once again playing a game of brinkmanship; unfortunately one that could have dire consequences for the world’s economy. Politicians continue to entrench opposing positions rather than engage in positive action. It is highly unlikely that the entire US government will shut down as essential services will remain active, but nevertheless, investors dislike uncertainty and markets have been under pressure as the Third Quarter closed.
Marcopolo Prototyping company based in India with offices in Noida, Ahmedabad. SLA, SLS, CNC Machining , Casting, Rubber Moulding, Soft Moulding with Silicon Moulds, Painting facilities available.
This is a template that MBA or undergraduate business students can use for case study presentations for class or case competitions. It's bare bones, meant to explain the flow of information and suggest some frameworks to use to discuss the problem in a case.
SFW - FOFA implications, Sum of parts valuation, possible acquirers George Gabriel
This research note analyses potential acquirer of the SFW business, and looks at Future of Financial Advice (FOFA) reforms and values SFW on a sum of the parts basis (a relevant valuation methodology for any business with multiple business segments).
Financial services sector - implications of FOFA, possible acquires of SFW, S...George Gabriel
SFG Australia was an ASX listed financial stock. In this note, we analysed (i) the Future of Financial Advice (FOFA) laws; (ii) sum of the parts (SOTP) valuation of SFW; and (iii) possible acquirers of the business
Marcopolo Prototyping company based in India with offices in Noida, Ahmedabad. SLA, SLS, CNC Machining , Casting, Rubber Moulding, Soft Moulding with Silicon Moulds, Painting facilities available.
This is a template that MBA or undergraduate business students can use for case study presentations for class or case competitions. It's bare bones, meant to explain the flow of information and suggest some frameworks to use to discuss the problem in a case.
SFW - FOFA implications, Sum of parts valuation, possible acquirers George Gabriel
This research note analyses potential acquirer of the SFW business, and looks at Future of Financial Advice (FOFA) reforms and values SFW on a sum of the parts basis (a relevant valuation methodology for any business with multiple business segments).
Financial services sector - implications of FOFA, possible acquires of SFW, S...George Gabriel
SFG Australia was an ASX listed financial stock. In this note, we analysed (i) the Future of Financial Advice (FOFA) laws; (ii) sum of the parts (SOTP) valuation of SFW; and (iii) possible acquirers of the business
1. Disclosure of Results for 1Q03 Presentation Carlos Zignani Investor Relations Director João Luiz Borsoi Investor Relations Manager José Antônio Valiati Financial Administrative Director Caxias do Sul, May 05 2003. José Rubens De La Rosa Chief Executive Officer
2.
3. Global Production - Marcopolo (in units) 13,7% (1) E = FORECAST FOR 2003. (1) CAGR: 14.6% (triennial) 3
4. Net Revenues (in millions of reais) 32,0% (1) E = FORECAST FOR 2003. (1) CAGR: 33.3% (triennial) 4
14. Observation: This presentation contains future information. Such information is not simply historical facts, but reflects the desires and the expectations of the Company’s leadership. The words anticipates, desires, hopes, forecasts, intends, plans, predicts, projects, wishes and similar ones, intend to identify affirmations that necessarily involve known and unknown risks. Known risks include uncertainties that are not limited to the impact of the competitiveness of the prices and services, market acceptance of services, the Company’s service transitions and its competitors, the approval of regulations, currency, fluctuation in the exchange rate, changes in the mix of services offered, and other risks described in the reports of the Company. This presentantion is updated until the present date. However, Marcopolo is not obligated to update it with new information and/or future events. 14