Bulge Equities Revenues Rebounded In First Quarter 2016 But Credit Suisse Faltered


Equity revenues for the top nine investment banks rebounded by 18.5% in the first quarter of 2016 from the weak final quarter of 2015, but were down 17.6% from the banner first quarter of 2015.

Top Equities Franchises

Morgan Stanley continued to be the pace setter, with over $2 billion in equity revenues for the first quarter. Goldman was the worst performer among the US investment banks, but held on to the second spot, despite a strong showing by JP Morgan which surged 48% from the prior quarter.  JP Morgan had the best year-over-year results, off less than 5% from the prior year.

Bank of America Merrill Lynch also had a decent quarter for its equity business, down only 9% from prior year and placing fourth for the quarter.

Credit Suisse Stumbles

The non-US banks did not fare as well.  Credit Suisse was the biggest loser, falling nearly 13% from the previous quarter and 33% from the prior year.  It fell to sixth place from fourth a year earlier.

Credit Suisse said that its equities business was “negatively impacted by challenging market conditions and reduced leverage exposure levels compared to 1Q15” and vowed to invest in the unit because it is a core focus of the bank’s strategy.

UBS had mixed results.  While its equities revenues surpassed arch-rival Credit Suisse, rising 25% sequentially, it was still down 20% year-over-year.  UBS blamed the decline on derivatives, partly offset from strong results in the Americas across all products.

Deutsche and Barclays Recover

Deutsche Bank’s equity business rebounded nicely (38.4%) from a dismal fourth quarter, but was still down nearly 30% from the prior year.  Deutsche said equity derivatives were significantly lower y-o-y, cash equities were lower and prime brokerage was flat.

The best sequential growth belonged to Barclays, whose equity revenues jumped 61% from the fourth quarter, returning Citigroup to the bottom of the bulge barrel.  Barclays also cited derivatives as the source of its 13% y-o-y decline.

Barclays restated its historical equities, as the other non-US banks did last quarter.  Comparing its first quarter results to originally reported equities numbers, the bank was still up 58% sequentially, but down 17% y-o-y.

Our Take

Credit Suisse’s organizational turmoil is clearly impacting its equities franchise, as we predicted after the latest reorganization in March.  Credit Suisse’s equities business has had to deal with a downsized prime brokerage group, a reorganized derivatives unit which is more distant organizationally, and a separate Asian unit that incorporates equities.  It is little wonder the business has suffered.

Conversely, Deutsche’s equities unit seems be shrugging off its doldrums after senior management pledged in March to rebuild the business.

Nevertheless, except for Citigroup, the US banks seem to have benefited from the disarray of the non-US bulge firms, currently occupying the top four slots.


About Author

Sandy Bragg is a principal at Integrity Research Associates. He has over thirty years experience as an investment research professional. Prior to joining Integrity in 2006, he was an Executive Managing Director at Standard & Poors, managing S&P’s equity research business and fund information properties. Sandy has an MBA from New York University and BA from Williams College. Email: Sanford.Bragg@integrity-research.com

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