It's the season for staring into the future. Barclays' banking analysts have already issued their appraisal of the shapes in the banking ether. Now Morgan Stanley's banking analysts are having their own go at calling the year ahead. How will 2015 pan out? This is the verdict of Huw Van Steenis and his team.
Morgan Stanley's analysts think 2014 ended horribly for fixed income sales and trading professionals. Unfortunately, they don't predict much respite for fixed income woes in the year ahead.
"For 2015 in Europe our base case we expect FICC to shrink again by a few percent (in $ terms)," says van Steenis et al. This follows their estimated 7% reduction in fixed income sales and trading revenues in 2014.
Barclays' analysts are predicting stasis for combined equities and advisory revenues in the 23 months ahead. Morgan Stanley's analysts are predicting that equities sales and trading revenues will be 'marginally positive' this year. They think equities revenues fell 5% in 2014.
You almost certainly do not want to work in debt capital markets (DCM) for Credit Suisse in the year ahead. Morgan Stanley's analysts note that CS is disproportionately exposed to the high yield market. And needless to say, the high yield market is not looking healthy. Morgan Stanley's analysts say this is one reason why revenues in Credit Suisse's DCM business fell more rapidly than at other banks in the fourth quarter.
This may not be a good year to work for a European bank. Low volatility, weak European growth, 'Balkanisation' of banking markets, regulatory change, and litigation risk are all expected to exact a greater toll in Europe than in the US. IBD bankers in the US will have an especially good year compared to European rivals in 2015.
As they seek to 'adapt to the challenge', Morgan Stanley says European banks will have a 'ruthless focus' on 'automation to drive cost-cutting.'
In other words, it's bad news if you work in sales and trading in a product area that can be automated.
Morgan Stanley has been keen on UBS for a long time. That keenness hasn't dissipated in 2015.
As the chart below shows, UBS is expected to generate the highest return on equity by 2016.
Any hopes that banks dispensed with their litigation in 2014 look very premature. Morgan Stanley predicts that European banks alone face another $50bn in litigation related to FX and mortgages in 2015.
Deutsche Bank looks especially exposed. Morgan Stanley points out that the German bank's litigation buffer is, "modest" if worst case litigation risks come to pass.
While Morgan Stanley's predictions for 2015 seem pretty bearish overall, there could be some good news.
The ECB moving to QE, "could provide a real fillip to earnings," say the analysts. European banks could benefit from stronger dollar earnings and "decisive QE" could even boost revenues in fixed income sales and trading. Watch this space.