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Investment Banking And Trading Revenues Off To A Strong Start: Jefferies

On a core basis, for the five domestic and four European banks tracked by Jefferies, total investment banking and trading revenues were up 4% y-o-y and 45% q-o-q in the first quarter of 2015.

Ken Usdin and team at Jefferies in their May 11, 2015 research note states that aggregate equity capital markets (ECM) fees witnessed a strong start to the year.

First quarter clocks solid start to the year

According to the Jefferies analysts, investment banking and trading results in the nine firms in their coverage universe increased 4% y-o-y, as most products outside of DCM were flat-to-up. The nine banks they cover include Bank of America, Citigroup, JPMorgan, domestic brokers Goldman Sachs and Morgan Stanley and bulge bracket European peers Barclays, Credit Suisse, Deutsche Bank and UBS. They point out that total i-banking and trading revenues were strongest for Morgan Stanley, Goldman Sachs, UBS and JPMorgan in 1Q15:

Investment Banking and trading revenues

Usdin et al. note first quarter investment banking fees (advisory, ECM and DCM) were up 2% y-o-y, with meaningful divergence between the U.S. banks (up 8% y-o-y) and the European banks (down 11% y-o-y).

Divergence in Investment Banking revenues

The analysts note strength in advisory (up 34% y-o-y) and equities (up 15% y-o-y) helped outrun weaker DCM (down 16%) and flat FICC revenues.

Investment Banking Strong advisory fees

2Q revenues could be softer

The analysts point out that an early look at 2Q proxies indicates that the 1Q strength didn’t carry into April. They anticipate trading revenues at this point could be down low single-digits y-o-y.

As can be deduced from the following table, forward-looking commentary was generally optimistic, though a number of players indicated that 2Q revenues could be softer after some large transactions closed in 1Q:

Investment Banking pipeline

The analysts note that through May 7th, investment banking volumes and revenue trends look materially weaker year-over-year. They point out that the weakness is broad-based, with no real pockets of strength. They notice a perceptible decline in loan syndications, a trend which the analysts believe could weigh on investment banking results for the regional banks as well:

QTD Investment Banking volumes and revenues

Usdin and colleagues note aggregate equities trading revenues (ex CVA/DVA/FVA gains and losses) were up 1.5% y-o-y (on average), while on q-o-q basis, revenues were up 32%, outpacing typical seasonal activity. They highlight strong equity trading results for Goldman Sachs, Morgan Stanley and JP Morgan Chase in the first quarter:

Investment Banking Equity trading revenues

The Jefferies team also note FICC trading revenues were down 1% y-o-y, with some market share shifting around the group. The analysts point out that product mix had a big impact on results in the first quarter. They highlight that those weighted towards macro products thrived, while those levered to credit products lagged, as the latter camp had to deal with lower debt capital markets issuance, inventory marks on wider spreads and tough y-o-y comparisons:

Investment Banking Fixed income trading revenues

The analysts prefer Bank of America and JPMorgan over Citigroup, though the gap has closed given their valuation bands and the positive/negative thesis drivers for each.