Investment banks: update summary and conclusion
The world of capital markets is now shaping up to be not only a vintage year in 2009
but possibly the best year ever. In fact, we are raising our forecasts for the global
investment banking revenue pool in 2009 from USD263bn to USD326bn (+24%),
which in turn compares with the previous peak year (2006) revenues of USD306bn.
We estimate that first-half revenues totalled USD207bn, leaving just USD119bn to be
achieved in the second to achieve this goal (providing for a 63%:37% 1H:2H split).
We are also raising our 2010 estimate modestly to USD334bn (from USD318bn,
+5%) continuing to suggest that 2010 revenues will surpass 2009 in setting yet
another new record for the industry.
Key trends in capital markets
Revenues in all key capital market categories (fixed income, equities and advisory)
came in ahead of expectations during the first half with trends also looking set to
continue into the second half. In particular, we highlight the following.
• Not only did the rates business show gains from a record prior year but credit
markets also came back to life with strong investment grade trading activity
offsetting an absence of structured product revenues.
• Equity volumes moved ahead of 2008 despite the downturn in markets. Customer
business, proprietary trading and, increasingly through the year, derivatives
provided strong support for revenues.
• Normal cyclical downturns see advisory revenues fall 55% peak to trough but the
decline in 2009 looks closer to 35% providing a positive first-half surprise. ECM
provided big gains with record capital raisings from the financial sector, especially
in light of the need to repay Troubled Asset Relief Program (TARP).
Barclays moves up rankings. While the overall revenue pool has been raised, the
distribution of these gains between banks has been anything but equal. The
requirement to adapt the business model to the post crisis world has left some banks
vulnerable while others have been more adept in delivering on the new model. Given
capital shortfalls at some banks, an inability to facilitate client business has also
hindered some institutions during the period, while staff departures combined with a
broader fight for talent have further shaped the landscape.
Impressively, Barclays Capital ranked fourth globally and only a fraction behind
JP Morgan in third position on our estimates suggesting the Lehman Brothers acquisition
has been a success. Citigroup also surprised coming within a shade of Goldman Sachs,
which again occupied the top slot with revenues in excess of USD20bn.