Revenues in Q2 have started to inch up at the major investment banks, despite less than stellar fixed income and equities results.
Looking at the wider picture, in which market volatility was down, fixed income earnings appear to have been potentially hit thanks to the Federal Reserve dialing back its hawkish stance, saying July will be its last rate hike meaning traders are pricing in a lower interest rate environment, causing bonds sensitive to rates to be hit by lower demand.
Fears around the debt ceiling earlier in the quarter will also have curtailed fixed income activity/performance, especially in the US, which may have impacted some of the bigger Wall St players.
Investment banking has also been hit in recent years, with a deal drought kickstarted by the Covid-19 pandemic and exacerbated on by headwinds including higher interest rates, antitrust movements, rising debt costs, concerns over the global economy and wider geopolitical rumbles.
Regarding equities, volatility and fears of an impending recession, mixed with high inflation, almost certainly impacted bank equities performance. However, the S&P 500 climbed from 4,109.3 on 31 March to 4,450.38 on 31 June.
Q2 2023 revenues at JP Morgan and Citi were down while Bank of America and Morgan Stanley were up, buoyed slightly by fixed income in Bank of America’s case. However, State Street and Wells Fargo saw markets revenues increase thanks to investments, developed equity markets and underlying market conditions.
Equities and fixed income revenues were down for most of the major investment banks, with many blaming wider market conditions and ongoing headwinds.
Bank of America
At Bank of America, in Q2 2023, the firm generated US$7.4 billion in net income, and year-over-year revenue growth of 11% was led by a 14% improvement in net interest income, coupled with a 10% increase in sales and trading results ex-DVA.
According to Dealogic rankings, in H1 2023, Bank of America Securities registered US$356 million in Global ECM Revenue by Bank – H1 2023, up three places from H1 2022.
Dealogic rankings put its Global ECM Volume by Bookrunner – H1 2023 at US$20.5 million, representing 135 deals, up five places from seventh in H1 2022.
Global DCM revenues in H1 2023 for Bank of America stood at US$472 million, ranking the firm first, Dealogic reported.
FICC services improved 18% while equities were down 2% compared to the second quarter of 2022.
On a call with analysts, Bank of America CEO and chair Brian Moynihan said: “While our business has performed well this quarter, I would particularly highlight our global markets and sales and trading team, and our investment banking teams.”
On the same call, Bank of America chief financial officer Alastair Borthwick said: “Wealth management results, earning just under US$1 billion, were down from last year as asset management and brokerage fees felt the negative impact of lower equity, lower fixed income markets, and some market uncertainty, impacting transactional volume.
“Switching to global markets, we had another strong quarter with earnings growing to US$1.2 billion driven by revenue growth of 14% and I’m referring to results excluding DVA as we normally do.”
Citi
At Citigroup, markets revenues were down 13%, driven by both fixed income and equities and thanks to a particularly strong quarter last year coupled with low volatility this quarter.
On a call with analysts, Citigroup chief financial officer Mark Mason said: “Fixed income revenues were down 13% as strength in our rates franchise was more than offset by a decline in currencies and commodities.
“Equities revenues were down 10%, primarily reflecting a decline in equity derivatives. But consistent with our strategy, we continue to grow prime balances driven by client wins. Corporate client flows remain strong and stable, and we continue to make solid progress on our revenue to RWA part.
“Average deposits decreased 1%, largely reflecting our wealth clients putting cash to work in fixed income investments on our platform.”
At Citi, global ECM revenue by bank in H1 2023 was US$237 million, placing it sixth, two places down against H1 2022, according to Dealogic rankings.
Regarding global ECM volume by bookrunner in H1 2023, Citi was also sixth, with US$11,603 million in volumes representing 103 deals, Dealogic reported.
Global DCM revenue in H1 2023 for Citi stood at US$434 million, ranking it third, according to Dealogic rankings.
Goldman Sachs
Goldman Sachs’ net revenues in global banking and markets were US$7.19 billion for the second quarter of 2023, 14% lower than the second quarter of 2022 and 15% lower than the first quarter of 2023.
Net revenues in equities were US$2.97 billion, essentially unchanged compared with the second quarter of 2022 (US$3 billion) due to significantly higher net revenues in equities financing, primarily in prime financing, largely offset by lower net revenues in equities intermediation, primarily in derivatives.
Fixed income earnings in Q2 2023 (US$1.6 trillion) was largely unchanged compared to Q1 2023 (US$1.5 trillion). Fixed income earnings for Q2 2023 were 4.8% higher compared to Q2 2022, which stood at US$1 trillion.
Goldman Sachs’ Global ECM Revenue by Bank – H1 2023 stood at US$441 million, placing it second according to Dealogic, up from fifth place last year. The firm’s Global ECM Volume by Bookrunner – H1 2023 stood at US$21.1 million, representing 144 deals, placing it second in Dealogic’s rankings.
The firm’s Global DCM Revenue by Bank – H1 2023 ranking, according to Dealogic, is seventh, with US$273 million.
JP Morgan
JP Morgan’s total markets revenue was US$7 billion, down 10% year-on-year with fixed income down 3%.
Chief financial officer Jeremy Barnum said on a call with analysts, “As expected, the macro franchise substantially normalized from last year’s elevated levels of volatility and client flows. This was largely offset by improved performance in the securitised products group and credit.”
Equity markets were also down 20%, against a very strong prior year quarter, noted Barnum, particularly in derivatives.
“For the quarter, record net long-term inflows were US$61 billion, positive across all channels, regions and asset classes, led by fixed-income and equities. And in liquidity, we saw net inflows of US$60 billion,” Barnum said.
In terms of Global ECM Revenue by Bank – H1 2023, the bank placed number one with US$455 million in revenues.
In terms of Global ECM Volume by Bookrunner – H1 2023, the bank ranked fourth, two positions up from last year, with US$18,428 million in trading volume representing 158 deals, according to Dealogic.
Global debt capital markets (DCM) revenue in H1 2023 for JP Morgan stood at US$471 million, ranking it second in Dealogic’s rankings.
Morgan Stanley
In H1 2023, Morgan Stanley’s Global ECM Revenue by Bank hit US$328 million, placing it fourth, up from seventh in H1 2022, according to Dealogic rankings.
The firm’s Global ECM Volume by Bookrunner – H1 2023 stood at US$18.8 million, representing 127 deals, Dealogic reported.
In H1 2023, the firm’s global DCM revenues stood at US$354 million, ranking it fourth, Dealogic reported.
In Q2 2023, Morgan Stanley saw net revenues of US$13.5 billion, up 2% from last year.
On a call with analysts, James Gorman, CEO, Morgan Stanley, said: “Equity revenues were US$2.5 billion, down 14% compared to strong results in the previous second quarter thanks to lower activity and lower market volatility. Prime brokerage revenues were solid, supported by increasing average client balances, consistent with rising market levels.”
Cash and derivatives declined versus last year due to lower global volumes and lower market volatility.
Fixed income revenues of US$1.7 billion decreased compared to last year’s elevated results, Morgan Stanley chief financial officer Sharon Yeshaya said on a call with analysts.
“Solid performance reflects tempered client activity and prudent risk management. However, improved market conditions in June shifted client sentiment and supported the quarter’s overall results,” Yeshaya added.
Morgan Stanley’s macro revenues were down year-over-year, attributed to the decline in foreign exchange as well as a challenging environment and reduced activity, partially offset by the pickup in client engagement following the resolution of the debt ceiling debate and performance in rates.
Micro results declined versus last year, predominantly on the back of lower client activity, Yeshaya added.
State Street
In a call with analysts, State Street’s chair and CEO Ronald O’Hanley said that compared to Q1 2023, market conditions in Q2 2023 were more subdued and global market performance was more varied.
“Financial market conditions in the second quarter were mixed,” he said, on a call to analysts. “Although global equities recorded another sequential quarter of growth, there was weakness in emerging markets, and we witnessed the negative impact of persistent inflation and further central bank rate hikes on fixed-income markets. Meanwhile, both equity and currency volatility continued to decline.”
He continued, “Global equities generated positive returns for the third consecutive quarter as investors saw continued strength in developed equity markets, but weakness in emerging markets.”
State Street’s equities earnings for Q2 2023 stood at US$22.5 trillion, a 7.1% increase on Q1 2023 (US$21 trillion). Comparing Q2 2023 to Q2 2022 (US$22 trillion), earnings saw a 2.3% increase.
State’s Street’s fixed income earnings were up 1.6% Q2 2023 against Q1 2023, from US$10.7 trillion to US$10.9 trillion. Q2 2023 against Q2 2022 (US$10.7 trillion) saw a 09% increase.
Wells Fargo
Wells Fargo’s markets revenues for Q2 2023 have increased by almost a third – 29% – compared to a year ago, driven by higher trading results across most asset classes.
Additionally, strong trading results for H1 2023 reflected “underlying market conditions”, chief financial officer Mike Santomassimo said, as well as investments in technology and talent.
While the firm did not break into the top ten in terms of equity capital markets revenues globally, according to Dealogic, it maintained seventh place year-on-year in Dealogic rankings in terms of US ECM Volume by Bookrunner in H1 2023, with US$3,735 million and 37 deals.
In June 2023, the firm’s FICC revenues were down 12% against Q1 2023, from US$1.3 billion to US$1.1 billion. Against Q2 2022, FICC was up 21% in Q2 2023, from US$934 million.
For equities, the firm’s earnings were down 9% in Q2 2023 against Q1 2023, from US$437 million to US$397 million. Against the same quarter last year, Q2 earnings for equities were up 57%, from US$253 million to US$397 million.
Overall, total markets revenue was up 29% due to higher trading revenue in equities, structured products, credit products, rates, and foreign exchange.
©Markets Media Europe 2023
