If you think you're going to get paid nicely for 2019, you might want put your head above the parapet and inhale the winds that were wafting around at this week's Barclays Global Financial Services Conference in New York. JPMorgan, Bank of America, Morgan Stanley and Citi were there and they weren't exactly positive about the state of revenues in their markets and banking businesses in the third quarter.
JPMorgan was the most upbeat. Jamie Dimon said sales and trading revenues at JPM are up 10% year-on-year so far for the quarter, with equities outpacing fixed income. In investment banking, however, Dimon said revenues are flat.
Citi was the most gloomy. Citi CFO Mark Mason said Citi's trading revenues are on track to fall this quarter compared to last year, as are Citi's investment banking revenues.
At Bank of America, Tom Montag said investment banking revenues are up and equities revenues are up, but fixed income currencies and commodities revenues are down so far in the third quarter.
And at Morgan Stanley, CFO Jonathan Pruzan said equities revenues are below their level in the third quarter of 2018. By comparison, Pruzan said credit trading revenues are up, but macro trading revenues (and FX in particular) aren't so great. Investment banking revenues at MS are tbd - it all depends whether clients come through.
Given the comparatively weak first half of the year, when big banks' revenues were at a 13-year low according to research firm Coalition, none of this augurs well for the 2019 bonus pools. Citi's Mason even said explicitly that "incentive compensation" will fall if revenues "soften."
Based on last week's presentations, it's becoming clear what the messaging will be when smaller payments are allocated. Expect to be told one of the following:
"It's the 'complex geopolitics'"
There's a, "mounting series of stuff" on corporate CEO's minds, said Jamie Dimon last week. Most mounting are trade worries, said Dimon. Corporate confidence has plummeted.
Citi's Mark Mason agreed. "Tensions" on trade are "influencing the dialogue" with clients, said Mason. So too is Brexit. So too are Mexico and Argentina, or China and the U.S.
"It's the low interest rates"
The lower rates go, the harder it is for banks to earn net interest income. This matters for overall profitability. "I don't think we'll have zero rates in the United States, but we're thinking about how to be prepared for it," said Dimon.
"The money's being spent on technology"
"We have a list by business of 50 big projects...that we're doing and funding," said Dimon. "And I have no problem if someone walks in today and says, we've got this idea. The competitors are doing it. We need to do it. It's not in the budget, but I want to do it. No problem. Zero problem. I don't give a damn about the budget.... If we don't build, we lose."
Dimon also said that some of the money for new technology investments came from the falling unit cost of previous investments. But technology is the priority: "The battle is more in the technology world at this point than in just having brilliant traders and stuff," he added.
Elsewhere at the conference, BofA's Tom Montag waxed lyrical about the bank's 'Data Innovation Group,' which is developing artificial intelligence driven trading signals, real time pricing and liquidity and delivering content to clients (presumably without the intervention of salespeople).
It's the low volatility
Morgan Stanley's Pruzan blamed low volatility for the bank's poor FX revenues. There's also, of course, 'the wrong kind of volatility.'
The pipeline was good but the fees didn't come through
This is the excuse most likely to be expressed to M&A bankers, who will no doubt be well aware that it's coming. Both Morgan Stanley and Citi made references to the healthiness of their investment banking pipelines while also acknowledging that their pipelines might not produce much in terms of fees. Mason said Citi has been having "good dialogue" with the "client base" but that the "wallet is down meaningfully." Morgan Stanley said the pipeline was healthy, but deals might not close. For investment bankers, it's been a year of schmoozing, with little result.
Photo by Vitaly Taranov on Unsplash
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