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Global investment banks see 'slowest start to the year' since financial crisis

CNBC CNBC 24/05/2016 Holly Ellyatt
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Economic uncertainty and investor caution resulted in the slowest start to the year since the financial crisis for investment banks, according to a survey of the world's 12 largest investment banks which showed a 25 percent drop in revenues in the first quarter from a year ago.

The quarterly survey compiled by industry analytics firm Coalition tracked the performance of Bank of America Merrill Lynch, Barclays, BNP Paribas, Citigroup, Credit Suisse, Deutsche Bank, Goldman Sachs, HSBC, JPMorgan, Societe Generale, UBS and Morgan Stanley.

The survey showed that in the first quarter of 2016, during which banking stocks experienced much volatility on global markets due to concerns over a slowdown in China, fears over bank exposure to slumping energy prices, low profitability and uncertainty over central bank interest rates, revenues fell 25 percent from the same period in the year before.

The survey measured the overall health of the investment banking industry by looking at the banks' performance in terms of their Fixed Income, Currencies and Commodities (FICC), Equities and the Investment Banking Division (IBD).

For the 12 banks as a whole, the Investment Banking division saw a 25 percent drop in revenues to $7.8 billion in the first quarter from the same period last year, the FICC division saw a 28 percent drop in revenues to $17.8 billion and in banks' Equities divisions, revenues fell 20 percent from a year ago to $11.7 billion.

"Economic uncertainty and investor caution resulted in the slowest start to the year since the financial crisis," Coalition said in its report.

"Following a slow-down in the first quarter of 2015, the growth in IBD witnessed since 2012 saw an abrupt reversal in trend in the first quarter of 2016, with extreme weakness in ECM," the report noted.

"FICC continued its downtrend with weakness in both Spread and Macro businesses. Equities underperformed due to Equity Derivatives, and IBD experienced steep declines in ECM (Equity Capital Markets) and DCM (Debt Capital Markets)."

Many, if not most, banks around the world have been hit by a raft of challenges since the financial crisis and in the first quarter of 2016, most major banks posted sharp declines in profit.

Regulatory challenges (such as the requirement for banks to hold more capital and take fewer risks), the hangover of litigation, flat yield curves, low interest rates and investor nervousness over their ability to make profits in an uncertain global marketplace are among the headwinds banks are facing. 

Banks have responded to uncertainty by trying to streamline their businesses and employee count with thousands of jobs being cut in the banking industry, particularly in Europe. Coalition noted that "headcount continued to decline across Banking and Markets" in the first quarter.

"FICC saw the most cuts (the headcount of front-office staff down 5 percent since the first quarter last year) in-line with business and regional optimization. Equities and IBD remained relatively stable (with both divisions seeing a 1 percent reduction in front office staff)."


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