2011 much better than 2010? RBS much better than BarCap?

We'll know more when US banks start reporting their results later this week, but it seems 2010 was NOT a great year for investment banks,

Analysts have been issuing their predictions for full year revenues and their predictions are not good. Year-on-year, revenues are likely to be down.

Across 9 major banks, analysts at Nomura Europe predict an average 16% drop in global capital markets revenues between 2009 and 2010, an 18% drop in global fixed income currency and commodity (FICC) sales and trading revenues and a 10% drop in equities sales and trading revenues.

In the US, analysts at Bernstein Research are predicting a 13% drop in revenues at Goldman Sachs over the past 12 months.

2011, on the other hand, is expected to be far friendlier all round (except, possibly, FICC).

Nomura analysts are predicting an 8% increase in capital markets revenues over the year to come, stable FICC revenues and a 15% increase in equities sales and trading revenues. M&A is widely expected to take off again. Analysts at Bernstein are predicting that 2011 revenues at Goldman will increase 12%, more than at any time since 2007.

While 2010 compensation hasn't been paid yet, predictions are already being made for the state of pay in 2011. For example, Bernstein predicts that the total comp bill at Goldman will rise 10% for example, after remaining roughly static in 2010.

Nomura's revenue predictions, bank by bank

Source: Nomura

2011 NOT a good year for BarCap

However, while lots of investment banks should have a good 2011, one may not.

That one is BarCap. As the table above shows, Nomura analysts are predicting zero growth in every single business area.

While Bob Diamond is eviscerated by Select Committee this morning, much is also being made of a report by UBS analysts John Paul Crutchley and Alistair Ryan. This says both that BarCap needs to create a bad bank for its legacy investment banking assets and that RBS is in better shape.

In particular, Crutchley and Ryan say BarCap would have produced a ROE of 10% in the first half of 2010 under Basel III, while RBS (which has already restructured) would have produced 14%. Both banks are aiming for 15%. They conclude that:

...achieving a target RoE of 15% is a realistic objective for RBS but presents a more significant challenge for Barclays

To overcome this, Crutchley and Ryan predict Barclays will need to set up a bad bank to shrink its risk assets by c.205bn on a Basel III basis over the next three years. However, they also predict this that will involve costs of between 12bn and 18bn, necessitating that Barclays -

...effectively gives up profits generated by the "good" bank over this period to offset the cost of losses incurred on exiting the non-core bank assets...

Either way, it sounds like the future for BarCap could be painful. Bob Diamond's Select Committee experience could be just the start of a bad year, both for himself and for all the BarCap bankers waiting to get paid.