The banks and their divisions that are starting 2019 with a big cost problem
As we move into the second quarter of 2019, leading banks will be hoping for a reprieve from the first quarter. JPMorgan said in late February that its sales and trading revenues were down in the "high teens" in percentage terms compared to the start of 2018. Analysts at KBW agree that banks' Q1 fixed income trading revenues will be down anything from 3% (Goldman Sachs) to 16% (JPM) and that equities revenues will be down anything from 1% (HSBC) to 16% (BNP Paribas) over the same period. The second quarter had better be good.
What if it's not? Market intelligence firm Tricumen has just issued some new data on which banks could be swimming naked when the revenue tide goes out. It's not entirely pretty. Some are far fatter than others.
In fixed income, currencies and commodities (FICC) trading, Tricumen suggests Deutsche Bank has a problem. The chart below shows the comparative cost-income ratios in FICC at 10 leading banks for 2018. Tricumen says Deutsche is by far the worst, followed by BNP and Morgan Stanley.
Comparative cost income ratios, 2018, FICC
Guess who's cost a problem in equities trading? Yes, it's Deutsche Bank (which allegedly lost $750m in equities last year) again. Tricumen says Deutsche's cost-revenue ratio was awful compared to other banks in 2018. After Deutsche, Morgan Stanley and Bank of America Merrill Lynch (now known as Bank of America Securities) are the most encumbered.
Comparative cost income ratios, 2018, equities
Comparative cost income ratios, 2018, banking
Lastly, Tricumen took a look at the comparative cost income ratios for banking divisions in 2018. It defines 'banking' as: debt capital markets bonds and loans, securitisation, equity capital markets, and M&A (ie. the traditional investment banking division or IBD). Here, it's not Deutsche Bank that's overweight (surprise!), but Credit Suisse and UBS. Deutsche is on a par with Barclays.
If you've been looking carefully, it may not have escaped your attention that JPMorgan's investment bank seems in particularly good shape for 2019. Its cost ratio is one of the best in every market. Not for nothing did Daniel Pinto say recently that JPMorgan's fixed income returns are “very high." And the same seems to apply to every other area.
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