By Steve Slater
LONDON, June 8 (IFR) - Top US investment banks have signaleda rebound in revenue growth in the second quarter from a yearago, potentially bringing relief to the industry after fourquarters of year-on-year declines.
Revenues in May appear to have improved from April, thoughbankers and analysts said not all banks have enjoyed the samelevel of growth and the performance in June will dictate if theoverall industry shows a rise from a year ago.
JP Morgan, Bank of America Merrill Lynch and Citigroupexecutives last week said revenues for their investment banksare on course to be higher than the second quarter of 2015.
"It will be solidly up," said Daniel Pinto, head of JPMorgan's corporate and investment bank. He said revenues shouldbe up by about 15% from a year ago.
While analysts reckon most rivals will struggle to matchthat performance, even a modest increase from a year ago willimprove confidence. Revenues have been on a downward trend sincethe first quarter of 2015 amid uncertainty about US politics andinterest rates, a stuttering Chinese and global economy, low oilprices and more recently Britain's vote on European Unionmembership.
First-quarter revenues from fixed income, currency andcommodities (FICC) across a dozen major banks fell 26% from ayear earlier, and equities and advisory revenues were downone-fifth, according to IFR estimates. That was significant, asthe first quarter is typically the strongest period of the year.
"The market was extremely weak for a month and a half in theyear and then it has a very, very strong recovery," Pinto saidat an industry conference on June 1.
JP Morgan CEO Jamie Dimon appeared to downplay any excessiveoptimism just a day later, noting there was still several weeksto go in the quarter.
"I caution you the quarter last year was not a particularlygood quarter. So that's good. There's a month to go. If you doanalyst projections, don't put the next month up 15% too," Dimonsaid.
BAML CEO Brian Moynihan said he expects revenues to be upabout 5% from a year ago.
"April, May so far have been solid and recovered andconsistent with what you've been hearing out there," Moynihansaid. "We feel that for the quarter we might be mid-singledigits up over last year." He said fixed income was up by doubledigits but equity revenues were down.
Other banks were more vague, but offered some glimmers ofoptimism.
"You will see an investment bank up slightly quarter overquarter," said Mike Corbat, Citigroup CEO. He gave little moredetail, but his guidance indicates revenues will be near flat orslightly 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 volatilityhad also eased, which had hurt equities in the first quarter.But he cautioned: "Client franchise is good, but our clients aredoing less for a variety of different reasons."
At the same event, Deutsche Bank CEO John Cryan said: "Theway the markets are at the moment is ... what I would describeas reasonably constructive."
He said Deutsche Bank was "down" on last year, but that wasby design as it restructures and pulls back from "high-volume,low-margin flow business".
FICC UP, EQUITIES DOWN
FICC revenues have improved, helped bystronger-than-expected US rates trading, while a seasonalslowdown in foreign exchange has been seen, bankers said.
Equities trading has remained sluggish after a weak firstquarter and advisory and capital markets revenues have beenmixed.
Debt capital markets activity has bounced back and a pick-upin equity capital markets follows an awful first quarter.
IPO activity is still muted amid a difficult economicbackdrop while M&A activity remains sporadic, although somebankers said the pipeline is solid.
"M&A bounces around. But some of the chatter on M&A is stillpretty good. There's still a lot of deal activity out there. Alot of cross-border deal activity ... I think we've mentioned topeople that the Chinese have the gold rush strategy," Dimonsaid.
Dimon said the second quarter had seen more normalconditions after people "overreacted" to economic and marketworries. "The markets are wide open now," he said.
Analysts are wary of how far the good performance by some ofthe US banks spreads across the industry. Some expect quarterlyinvestment bank revenues to drop from a year ago.
JP Morgan's guidance for a 15% rise "is likely to be muchbetter than the overall industry and suggests market share gainsin FICC," said Deutsche Bank analyst Matt O'Connor.
Kian Abouhossein, analyst at JP Morgan, this week forecastsecond-quarter FICC revenues across the global investment bankswill be down 12% from a year ago and down 5% from the firstquarter, equities revenues will fall 28% on the year and 9% onthe quarter, and revenues in investment banking divisions willdrop 32% from a year ago but rise 1% from the previous quarter. (Reporting by Steve Slater)
Barclays (BARC)
