LONDON- Investment banks are likely to see a shake-up in revenues next year, with a rebound in banking and advisory fees expected to soften a hit from a fall in trading income, Barclays’ CEO C.S. Venkatakrishnan told an investor event on Tuesday.
A trading surge has helped investment banks report robust results this year and helped to offset a dire year for fees on company flotations and M&A deals amid global market turbulence.
That could be set to change by the second half of next year, Barclays’ CEO said.
“Trading revenue pools will probably shrink a bit and investment banking revenue pools will probably rise. Whether they offset each other I don’t know,” Venkatakrishnan – known internally at Barclays as Venkat – said at a Bank of America event.
“But I anticipate volatility in the markets continuing at least in the first and second quarter of next year. And so the declining trading revenue pools seasonally adjusted is more likely to happen in the second half of next year.”
Venkat said a flurry of interest rate rises in Britain – Barclays’ home market – with another rise expected from the Bank of England this week, would eventually cool the economy.
But he said he still expected rate rises to be “a net positive” for Barclays as it boosts income from lending. He said he expected all the bank’s three main business units to exceed 10 percent return on tangible equity – a key measure of profitability for banks – next year.
The British government’s plan to cap energy prices to aid people facing squeezed household budgets would help the economy, but Barclays is more cautious on the country’s outlook than it is on the United States, Venkat said.
“I think the US economy is showing less signs of weakness,” he added.
Venkat also provided an update on an error that resulted in the bank overselling a range of complex financial instruments in breach of US rules.
The bank will give more details on the final costs of its so-called rescission offer to buy back the securities in “relatively short order”, Venkat said.
Barclays said last week that investors had submitted claims for $7 billion out of $17.7 billion worth of securities it sold in error, under the terms of the rescission offer by which the bank had to buy back the notes and compensate buyers.
A dearth of IPOs, a plunge in stock prices and slowing global economic growth are clouding the outlook for revenue at global investment banks after pandemic spending by governments and central banks fueled a blockbuster 2021.
Russia’s invasion of Ukraine and significant monetary tightening have led to volatile trading in financial markets this year. While that can help trading volumes, it however slowed initial public offerings (IPOs) and deals led by special purpose acquisition companies (SPACs).
Global investment banking’s net revenue fell to $35.6 billion year-to-date, down by nearly 38 percent from $57.4 billion in the same period a year earlier, data from Dealogic showed. For 2021 as a whole net revenue for global investment banking was a record $132 billion, the data showed.
Banks have talked in recent weeks about the shine coming off investment banking – or at least parts of it.
Credit Suisse warned that challenging market conditions, low levels of capital markets issuance and widening in credit spreads have depressed the financial performance of its investment banking division.
JPMorgan Chase & Co said at its May investory day that it expected investment banking revenues to be down in 2022, albeit after an exceptionally strong 2021.
Meanwhile, Morgan Stanley’s Ted Pick said at a recent conference according to a transcript that within investment banking, the new issue calendar was “extremely quiet” and the underwriting calendar was “very slow” although the markets business was doing quite well as clients were hedging risk.
The picture is uneven across segments. While broader M&A volumes are lower, overall activity has remained healthy and the pipeline for deals still looks relatively solid, according to investment bankers.
For 2022 earnings for five of the biggest US investment banks, Goldman Sachs, Morgan Stanley, JPMorgan, Citigroup and Bank of America, Wall Street analysts expect a decline of 22.9 percent, according to data collected by Refinitiv.
