UBS: Bleak 3Q13 Picture For Brokers, Universal Banks

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It was not a pretty picture for 3Q13 earnings at U.S. brokers and universal banks.

UBS Equity Global Research analysts Brennan Hawken, Derek De Vries and David Eads review the sector’s latest earnings trends in their work “3Q13 Earnings: The quarter in pictures.”

Overall, there was significant pressure on revenue accompanied by a declining expense trend and lower comp accruals.

Fixed Income, commodities and currencies (FICC) – a dismal picture

Revenues were lower by over 20% on both q-on-q and year-on-year bases, and 10% YTD due mainly to seasonal factors, the ‘taper’ threat, and the shutdown effect.


According to UBS the outlook is bleak

According to UBS the outlook is bleak, as “pressure on revenues could remain high as the impact of pending regulations around capital and market structure continues to be felt across the industry.”

Equities revenues – a brighter scenario

Revenues in the equities segment were marked by a divergent trend – a solid performance on a year-on-year basis (+20% average), but not so good quarter-on-quarter (-10% average).


However, the YTD performance (+10% compared to last year) gives cause for comfort, and UBS expects that Morgan Stanley (NYSE:MS) could be a beneficiary.

Advisory revenues – also slow

The slowdown in M&A activity took its toll on advisory revenues, which were down on both quarter-on-quarter, as well as year-on-year basis.


Similar to equities, the outlook forward is brighter. This is apparent from September volumes and strong backlogs in Investment Banking Divisions at Morgan Stanley (NYSE:MS) and Goldman Sachs Group Inc (NYSE:GS).

ECM – Steady show

Across the board, ECM revenues were down on a q-on-q basis but healthily up on a year-on-year basis.


However, October trends/pipeline are a strong indication that the fourth quarter would be excellent and the outlook here is good.

DCM – better-than-expected

The sector weathered the turmoil and volatility due to the rise in interest rates in the early part of the quarter, and the removal of the taper threat subsequently. Considering all this, the segment did not do too badly by reporting an average revenue decline of 15% quarter-on-quarter and flat on an annualized basis, though September showed excellent volumes.


Compensation accruals and expense ratios

The pressure on revenues led to firms lowering their comp accruals sharply, particularly in the case of Goldman Sachs Group Inc (NYSE:GS) and JPMorgan Chase & Co. (NYSE:JPM). Consolidated expense ratios show a declining trend compared to 2012.


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