J.P. Morgan's banking analysts, led by the ever-productive Kian Abouhossein, have produced a new state of the nation report on investment banks. Mostly, things are not so good. Mostly they expect revenues in 2016 to fall compared to revenues in 2015, but there are some faint glimmers of light.
Credit Suisse's equities business didn't have such a good first quarter: revenues fell 29% year-on-year and only Goldman Sachs performed worse. J.P. Morgan's analysts are predicting that Credit Suisse's equities business will continue in this fashion and be the worst performer of the lot in 2016 as a whole.
Nor do J.P. Morgan's analysts think Credit Suisse's fixed income sales and trading business will have a good 2016. This doesn't bode well, given that the cost income ratio in Credit Suisse's global markets division was....158% in the first quarter.
As the chart above shows, Morgan Stanley's FICC business is expected to be the worst performing bank of all in revenue terms in 2016. OK, this might be because Morgan Stanley has pursued a deliberate policy of pulling back from fixed income, but it may also be because of the way Morgan Stanley's business is structured. And just because Morgan Stanley has cut fixed income traders already, don't assume it won't be cutting more soon.
J.P. Morgan's analysts note that Morgan Stanley's FICC business is "very geared to credit and securitized products," both of which are expected to be weak in 2016. "MS may have to have another review of its FICC business," they suggest.
BNP Paribas, Barclays and Standard Chartered have all made cuts to their equities teams in Asia. This looks foresightful. J.P. Morgan's analysts are predicting that Asian equities revenues will be particularly weak this year, and that this will help drive a 9% quarter-on-quarter decline in equities sales and trading revenues in the second quarter. This is worse than J.P.M's predictions for fixed income sales and trading, where they expect revenues to fall a mere 5%.
Banks that are over-exposed to Asian equities are expected to have a particularly bad second quarter. Think UBS, SocGen and Credit Suisse.
So, where is safe? Try M&A at Morgan Stanley. This is the only business at any bank which is expected to increase its revenues this year compared to last. Unfortunately, revenues are only expected to increase by 1%.
Some selective areas of debt capital markets businesses are also looking unexpectedly perky. In high yield, for example, issuance fees are expected to up 70% quarter-on-quarter in the three months to June. Sounds good. - But it isn't stopping BNP Paribas from cutting 50% of its London securitization team.