Now that most banks have reported their results for the first quarter, JPMorgan's team of European banking analysts led by Kian Abouhossein have issued their verdict on what's coming next. For plenty of people working in investment banks, it seems that 2020 won't actually be a bad year after all.
Another good quarter to be a fixed income trader, another bad one to work in an investment banking division (IBD)
JPMorgan's analysts are predicting that fixed income currencies and commodities (FICC) sales and trading revenues will continue rising in the second quarter and will be up in 2020 on 2019. Although revenue growth is expected to moderate from the heady days of March, they predict that fixed income sales and trading revenues will rise 14% this year.
By comparison, equities sales and trading revenues are expected to be flat in 2020. And revenues in the investment banking division are expected to fall nearly 20%.
Within fixed income trading, JPMorgan's analysts say rates desks, FX desks and credit desks (especially investment grade) are all likely to have a strong second quarter. And they think the big first quarter mark to market credit losses at the likes of Nomura and Deutsche Bank are unlikely to be repeated there or anywhere else in Q2.
Employees in investment banking divisions (M&A, ECM, DCM) are in for a more turbulent time. There, the analysts are predicting revenues will decline over 40% in Q2 2020 versus the same period of 2019.
A good quarter to work in investment grade debt issuance
Not everyone in IBD will suffer equally, however. While JPMorgan's analysts expect revenues in M&A and equity capital markets to decline in the second quarter, they think revenues in debt capital markets could rise nearly 40% year-on-year, driven by strong debt issuance of investment grade debt.
A good quarter to work in U.S. cash equities
Although JPMorgan's analysts are predicting flat revenues in equities sales and trading in Q2, they point out that U.S. cash equities desks had a good April - trading volumes were up 63% year-on-year.
However, the analysts suggest too that prime finance divisions could suffer in Q2 as hedge funds' declining March balances still hadn't fully recovered in April. - Could it be that Deutsche Bank sold its prime business to BNP Paribas at just the right moment?
There's a long way down from the peak
Before anyone gets too excited about the prospect of a return to hiring in investment banks in 2020, it's probably also worth taking a look at the chart below, included in JPMorgan's report.
In New York City, official figures suggest that employment in financial services activities rose around 12% from a low in late 2012 to a high in early 2019. Numbers have fallen back slightly since, but are still around 40,000 jobs above the trough. Cuts may not be over yet.
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