Citigroup's M&A business is disintegrating, UBS's FICC dreams are in trouble, and other conclusions from Citi and BofA's results
Citigroup and Bank of America continue the 2Q earnings season today, with both revealing how they've done over the past few months.
Implications of this afternoon's revelations are as follows.
1) UBS is going to be in trouble
UBS wants to increase its FICC revenues to $7.5bn by the end of 2011. Yesterday's results from JP Morgan and today's from Citigroup and BofA make this look about as likely as a levitating pig.
In the second quarter, year-on-year FICC revenues were down 33% at Citicorp, and 14% at BofA Merrill. For UBS to increase its FICC revenues to $7.5bn, it will need to achieve a massive increase on the revenues it earned from the business in 2009. Even after a strong first quarter, this seems unlikely.
This being the case, and given that UBS has hired a lot of fixed income staff on guarantees this year, UBS staff in equities and investment banking are likely to take a bonus hit when the desired FICC revenues don't come through. Expect departures as a result.
2) Citigroup's M&A business IS falling apart
As we have noted, Citigroup has been losing a lot of M&A professionals.
Today's results help explain why. Citigroup's investment banking advisory revenues were down 52% year-on-year and 38% quarter-on-quarter. At Bank of America Merrill Lynch, which seems to have turned a corner in its M&A business, year-on-year advisory revenues were down 17% and quarter-on-quarter revenues were actually up 45%.
Conclusion: Citigroup desperately needs to stabilise its M&A franchise. Expect more departures, or retention payments.
3) The bonus outlook is not great
There are signs that costs may be becoming an issue. At BofA Merrill, where a $425m hit from the UK bonus tax admittedly had an effect, the return on equity in the global banking and markets business plummeted to 7% in the second quarter, while the efficiency ratio of expenses over revenues, rose to 80%.
In the second quarter of 2009, the comparable figures were 32% and 38% respectively. With profitability declining this much, big bonuses look out of the question.
4) There is hiring, but not huge hiring
Bank of America is interested in hiring outside the US. It is particularly interested in hiring investment bankers with key relationships (Citigroup M&A bankers may want to take note). However, it says recruitment will be in the hundreds, not the thousands.
