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Investment banks voice cautious optimism for Q2 rise
[LONDON] Top US investment banks have signaled a rebound in revenue growth in the second quarter from a year ago, potentially bringing relief to the industry after four quarters of year-on-year declines.
Revenues in May appear to have improved from April, though bankers and analysts said not all banks have enjoyed the same level of growth and the performance in June will dictate if the overall industry shows a rise from a year ago.
JP Morgan, Bank of America Merrill Lynch and Citigroup executives last week said revenues for their investment banks are on course to be higher than the second quarter of 2015.
"It will be solidly up," said Daniel Pinto, head of JP Morgan's corporate and investment bank. He said revenues should be up by about 15 per cent from a year ago.
While analysts reckon most rivals will struggle to match that performance, even a modest increase from a year ago will improve confidence. Revenues have been on a downward trend since the first quarter of 2015 amid uncertainty about US politics and interest rates, a stuttering Chinese and global economy, low oil prices and more recently Britain's vote on European Union membership.
First-quarter revenues from fixed income, currency and commodities (FICC) across a dozen major banks fell 26 per cent from a year earlier, and equities and advisory revenues were down one-fifth, according to IFR estimates. That was significant, as the first quarter is typically the strongest period of the year.
"The market was extremely weak for a month and a half in the year and then it has a very, very strong recovery," Mr Pinto said at an industry conference on June 1.
JP Morgan CEO Jamie Dimon appeared to downplay any excessive optimism just a day later, noting there was still several weeks to go in the quarter.
"I caution you the quarter last year was not a particularly good quarter. So that's good. There's a month to go. If you do analyst projections, don't put the next month up 15 per cent too," Mr Dimon said.
Brian Moynihan said he expects revenues to be up about 5 per cent from a year ago. "April, May so far have been solid and recovered and consistent with what you've been hearing out there," Mr Moynihan said. "We feel that for the quarter we might be mid-single digits up over last year." He said fixed income was up by double digits but equity revenues were down.
Other banks were more vague, but offered some glimmers of optimism.
"You will see an investment bank up slightly quarter over quarter," said Mike Corbat, Citigroup CEO. He gave little more detail, but his guidance indicates revenues will be near flat or slightly up on the year.
Goldman Sachs rarely gives intra-quarter trading updates, but Gary Cohn, its president, last week said economic growth "may be getting better in the second quarter."
Market volatility had also eased, which had hurt equities in the first quarter. But he cautioned: "Client franchise is good, but our clients are doing less for a variety of different reasons."
At the same event, Deutsche Bank CEO John Cryan said: "The way the markets are at the moment is ... what I would describe as reasonably constructive." He said Deutsche Bank was "down" on last year, but that was by design as it restructures and pulls back from "high-volume, low-margin flow business".
FICC revenues have improved, helped by stronger-than-expected US rates trading, while a seasonal slowdown in foreign exchange has been seen, bankers said.
Equities trading has remained sluggish after a weak first quarter and advisory and capital markets revenues have been mixed.
Debt capital markets activity has bounced back and a pick-up in equity capital markets follows an awful first quarter.
IPO activity is still muted amid a difficult economic backdrop while M&A activity remains sporadic, although some bankers said the pipeline is solid.
"M&A bounces around. But some of the chatter on M&A is still pretty good. There's still a lot of deal activity out there. A lot of cross-border deal activity ... I think we've mentioned to people that the Chinese have the gold rush strategy," Mr Dimon said.
Mr Dimon said the second quarter had seen more normal conditions after people "overreacted" to economic and market worries. "The markets are wide open now," he said.
Analysts are wary of how far the good performance by some of the US banks spreads across the industry. Some expect quarterly investment bank revenues to drop from a year ago.
JP Morgan's guidance for a 15 per cent rise "is likely to be much better than the overall industry and suggests market share gains in FICC," said Deutsche Bank analyst Matt O'Connor.
Kian Abouhossein, analyst at JP Morgan, this week forecast second-quarter FICC revenues across the global investment banks will be down 12 per cent from a year ago and down 5 per cent from the first quarter, equities revenues will fall 28 per cent on the year and 9 per cent on the quarter, and revenues in investment banking divisions will drop 32 per cent from a year ago but rise 1 per cent from the previous quarter.