Trading and Investment Banking Activities Should Continue to Perform Well for Big Banks in 2010
Noted bank analyst Dick Bove today cut his 2010 earnings estimate for Goldman Sachs, due to expected lower first quarter trading activity. Standard & Poor’s believes securities-related businesses at big banks will continue to perform well in 2010, albeit below the highly robust levels of early 2009. We are pleased to offer a complimentary download of S&P’s Industry Report Card on the topic.
Selected excerpts:
Securities-related businesses’ strong earnings bolstered European and U.S. banks’ overall financial performance in 2009. In certain cases, trading and investment banking results mitigated the effects of credit losses on lending operations. Starting from an exceptionally strong level in first-quarter 2009, securities-related businesses’ aggregate contributions diminished during the year, and were significantly weaker in the fourth quarter than in the prior quarters.
Standard & Poor’s Ratings Services believes these businesses will continue to perform well in 2010–-below the highly robust levels of early 2009, but better than what the fourth quarter might suggest.
However, to varying extents, weak general economic conditions and elevated credit costs continue to weigh on results. Moreover, the fragile recovery and potential regulatory changes pose significant uncertainties. Thus, our outlooks on seven of these 10 companies are negative.
Following the tumultuous fourth-quarter 2008, trading revenues jumped surprisingly in early 2009-–especially for fixed-income trading. Fixed-income trading encompasses a range of different product groups, including currencies, interest rates, credit, commodities, and mortgages; each of which has somewhat distinct dynamics. However, broadly speaking, fixed-income trading markets suddenly became awash in liquidity in early 2009, as clients started returning to the market.
We estimate that overall trading revenues for the 10 companies covered in this report totaled $208 billion in 2009, up just more than 100% compared to $103 billion in 2008, and up 23% from $169 billion in 2007. Trading revenues were $39 billion in fourth-quarter 2009, off 47% from $73 billion in first-quarter 2009.
Investment-banking revenues-–a relatively smaller source of revenues compared to trading–followed a different trend: Advisory and underwriting activity increased during 2009. Capital markets activity recovered across products, industries, and regions, particularly in the fourth quarter. Announced and completed merger and acquisition (M&A) volumes increased significantly. Equity issuance benefited from a high level of IPO activity, and there was a significant rise in high-grade, high-yield, and municipal debt issuance across global markets.
The report includes credit profiles for Bank of America (BAC), Barclays (BARC), BNP Paribas (BNP), Citigroup (C), Credit Suisse (CSGN), Deutsche Bank (DBK), Goldman Sachs (GS), JPMorgan Chase (JPM), Morgan Stanley and UBS (UBS).
Industry Report Card: Global Banks’ And Brokers’ Securities-Related Businesses Weakened In Fourth-Quarter 2009, But Remained Substantial Contributors has been made available free of charge to Research Recap users for 30 days by special arrangement with Standard & Poor’s, an Alacra content partner. After 30 days, the report will revert to its regular Alacra Store price of $750.00)
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