Alternate title: the market isn’t entirely nuts, when’s the crash?
While tech titans and buyers of initial public offerings dream of a wondrous future, bank investors appear to be saying something very different.
Here’s the FT’s Tom Braithwaite and co, recently foreshadowing the US bank earnings season:
Citigroup and JPMorgan Chase have warned publicly that fixed income revenues – the engine of most investment banks’ profits since 2000 – will be down by double digits when they report first-quarter earnings next month.
Word reaches us that the Credit Suisse axe will swing on Wednesday, with 50 heads to roll in the rates division as it bears the greatest brunt of cuts to fixed income, credit and commodities trading.
The Swiss bank has followed the lead of UBS in deciding that core fixed income trading is just too expensive, now that the whole flight to safety trade is over and lucrative over the counter business is dwindling. Read more
Goldman Sachs has revealed a series of dramatic cost cuts and a 58 per cent drop in fourth-quarter earnings, after grappling with tumultuous trading conditions in the latter part of the year. Like many of its investment banking competitors, Goldman was hit by ongoing eurozone turmoil and a subsequent slowdown in market activity in the last three months of 2011, reports the FT. The results follow disappointing earnings at rival JPMorgan and Citigroup after customers withdrew from trading. Goldman responded to market conditions and client retrenchment – cutting its operating expenses by 14 per cent during the year to $22.64bn. That includes a striking 2,400 subtraction in headcount and a 21 per cent reduction in employee pay – including bonuses paid to its bankers. FT Alphaville reports on how the decline in Goldman’s FICC business compares to its peers and discusses the bank’s $1bn mark-to-market loss on “relationship lending activities”.
New capital and regulatory requirements, combined with a weakening economic outlook, are likely to weigh on future returns, constraining growth prospects for the industry. While we believe we will deliver higher profitability, our target for pre-tax profit set in 2009 is unlikely to be achieved in the original timeframe of 3 to 5 years. Over the next 2 to 3 years, UBS will eliminate costs of CHF 1.5–2.0 billion, while remaining committed to investing in growth areas.
And so begins the second quarter results statement from UBS. Read more
Don’t get them wrong. Rating agency Standard & Poor’s appreciates investment banking.
“Global banks need to service their client base with an investment banking arm,” they write in a report out on Thursday. It’s just that, well, they think its dominance in bank earnings is rapidly declining. Read more
The reporting season for Europe’s investment banks starts this week and expectations are not high…
From Monday’s FT: Read more
Nomura’s banking analyst Glenn Schorr recently caught up with the Goldman boss (plus chief financial officer David Viniar).
And Schorr was able to quiz him on some of the pressing issues of the moment: the eurozone, regulation, emerging markets, etc. Read more