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Tuesday, 24 October 2017

Investment bank income seen down 19% in Q3 from rocky markets

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(Reuters) - Investment banks’ revenue is likely to drop by almost a fifth in the third quarter from the previous three months as volatile market conditions hurt equities and credit trading and deal activity, analysts at JPMorgan said.

JPMorgan analyst Kian Abouhossein forecast revenue for major investment banks, including Morgan Stanley, Deutsche Bank and Barclays, would fall 19 percent on average in July-September from the second quarter.

He predicted an 18 percent drop in fixed income, currencies and commodities (FICC) revenues, a 20 percent fall in equities trading and a 17 percent decline in advisory and investment banking fees.

Some market volatility can boost investment banks’ revenue by increasing trading activity in foreign exchange, equities, and other products, but concerns about China’s economy have led to a spike in volatility and stormy global financial markets in recent weeks that could hurt income.

“Recent strong turnover, especially in equities could decline materially once markets settle –- not just in Asia but globally,” Abouhossein said in a note for clients.

He said potential defaults could impact spread levels and client activity in credit trading, while volatility could impact deal completion for the rest of this year in advisory and underwriting activity.

Abouhossein cut his earnings per share forecasts for the banks by 2-3 percent on average for 2015-17.

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