Third-quarter results of top five market sensitive banks / brokers reveal all of them, except Goldman Sachs Group Inc (NYSE:GS), gained from strong equity trading.
Matt O’Connor and David Ho of Deutsche Bank AG (ETR:DBK) (FRA:DBK) (NYSE:DB) predict the banks / brokers may continue to benefit from equity trading in the fourth quarter as well.
Weak market share revenue from FICC
Analyzing the third quarter results of five market-sensitive banks and brokers such as Bank of America Corp (NYSE:BAC), Citigroup Inc (NYSE:C), Goldman Sachs Group Inc (NYSE:GS), JPMorgan Chase & Co. (NYSE:JPM) and Morgan Stanley, Deutsche analysts observe FICC is weak across the board, declining over 26% in the third quarter on average compared to last year.
Interestingly, universal banks such as Citi, JPMorgan Chase & Co. (NYSE:JPM) and Bank of America lost only 18% on average, while Goldman and Morgan Stanley experienced a substantial 45% fall in their market share revenue. On a rolling four-quarter basis, Citi and JPMorgan Chase & Co. (NYSE:JPM) gained 246 and 156 basis points respectively.
Strong equity trading
In contrast, four of the top five banks / brokers experienced strong market share revenue growth between 20 and 36% on year-on-year basis. However, Goldman Sachs Group Inc (NYSE:GS) was the sole exception as its share of revenue fell by 9%, even excluding the impact of the reinsurance unit sale. The analysts point out that on a rolling four quarter basis, Goldman Sachs share went down by 400 basis points.
On the fees generated from IB, Deutsche analysts point out revenue of these banks / brokers was almost flat on a year-on-year basis, while on a rolling four-quarter basis, Goldman Sachs’ market share gained over 101 basis points.
Deutsche analysts’ outlook
Deutsche analysts predict that during the fourth quarter, FICC revenue will be up by 5 to 10% on a year-on-year basis, while the top banks / brokers will continue to benefit from equity trading, aided by improvement in risk management within derivatives. The analysts point out the top banks’ revenue from equity trading constitutes 25% out of their total capital market revenues, YTD. The share of equity trading stood at 22% on average between 2009 and 2012.
Deutsche Bank AG (ETR:DBK) (FRA:DBK) (NYSE:DB) analysts predict IB fees will get a boost during the fourth quarter, with the M&A deals announced during the third quarter rising by 40% year-on-year.
The following table summarizes the analysis of Deutsche Bank’s research team:
Analyzing U.S. large-cap and mid-cap banks, Jason M. Goldberg and the team at Barclays report linked quarter, investment banking fees at the top banks declined between 12 and 19%, driven by decreases in both debt and equity underwriting, while the banks posted mixed performance on the advisory front.
Positive rating on U.S. large-cap banks
In their recent report, Barclays’ analysts retained their Positive rating on U.S. large-cap banks, while retaining their Neutral rating on U.S. mid-cap banks.