Rocky markets in September compound weak Q3 for investment banks

By Steve Slater

LONDON, Oct 5 (Reuters) - A weak performance in Septembercould leave investment banks' revenues in the third quarter downabout 10 percent from a year ago, putting 2015 revenues on trackto fall from a year ago and intensifying pressure on Europeanfirms to scale back.

Several banks, including Citigroup and JPMorgan, warned in mid-September that Q3 markets revenues werelikely to be down by about 5 percent from a year ago, and weakmarkets since then are likely to have left income even lower,analysts and bankers said.

"September was a difficult month, with the lead indicatorsall pointing towards a tough Q3 earnings season for theinvestment banks," said Matt Spick, analyst at Deutsche Bank."We see plenty of reasons to be pessimistic heading into Q3earnings season for investment banks."

Revenues from fixed income, currencies and commodities(FICC), which include bond trading and account for almost halfof investment bank revenues, are likely to be down 10-25 percentin Q3 from a year before, Morgan Stanley analyst Huw van Steenissaid in a note on Monday.

Revenues from investment banking divisions (IBD), whichinclude M&A advisory and capital markets underwriting fees,would be down 10-20 percent, while equities revenues should beup about 5 percent, van Steenis estimated.

The third quarter was a torrid time for global markets, asinvestors were concerned about a slowdown in China's economy andother Asian markets and uncertainty over U.S. interest ratepolicy.

Although some volatility can be good for trading revenues,the scale of turmoil has hurt most areas.

Analysts said rates trading was slow and IBD fees fell 30percent from the previous quarter as equity capital marketincome fell, Thomson Reuters data showed.

Equities trading income could benefit from lively markets,however, and stock exchange Euronext said on MondaySeptember was its most active month since 2008.

JPMorgan reports third quarter results on Oct. 13 and itsU.S. peers follow shortly afterwards. Most European banks aredue to report at the end of October or the first week ofNovember.

Analysts said the grim summer puts revenues this year ontrack to fall from 2014, despite a strong start to the year, andadds pressure on European banks in particular to cut costs andimprove profitability.

"We expect total industry revenue pools to be flattish in2015, underscoring the need for share gains and restructuring,"van Steenis said.

The big banks will bring in about $193 billion in investmentbank revenues this year, compared to $195 billion in 2014 anddown more than a quarter from $265 billion in 2009, MorganStanley estimated. It predicted revenues will be little changedfor the next two years.

European firms are expected to continue losing market shareto their big Wall Street rivals, and new bosses at Credit Suisse, Deutsche Bank and Barclays areall expected to cut their investment banks' size.

The Morgan Stanley analysts predicted European investmentbanks will see revenues fall 4 percent this year from 2014,while revenues at U.S. banks hold flat. (Reporting by Steve Slater; editing by Adrian Croft)