Global in­vest­ment banks' earn­ings may de­cline in 2016: JP Mor­gan

The Pak Banker - - COMPANIES/BOSS -

Global in­vest­ment banks' earn­ings may de­cline this year, given a chal­leng­ing credit trad­ing en­vi­ron­ment and low level of deal flow, said JP Mor­gan Se­cu­ri­ties an­a­lysts, who cut their 2016 earn­ings es­ti­mate for in­vest­ment banks by an av­er­age 20 per­cent.

"We be­lieve the Q1 IB rev­enue en­vi­ron­ment has started on a chal­leng­ing note with lim­ited is­suance ac­tiv­ity and widen­ing credit spreads," said an­a­lysts led by Kian Abouhos­sein, who es­ti­mate rev­enues to de­cline 21 per­cent in 2016. The cur­rent tur­moil in global eq­ui­ties and com­modi­ties mar­kets has made it harder for in­vest­ment banks to make money in tra­di­tional busi­ness lines. The MSCI all-world stocks in­dex .WORLD has de­clined 9.5 per­cent since the start of the year.

Global in­vest­ment banks' cash eq­ui­ties rev­enues may fall as the re­cent de­cline in equity mar­kets in­di­cates vol­umes are not healthy, the an­a­lysts wrote in a note to clients.

"Our earn­ings cuts for 2016E also in­cor­po­rate our view that if there is mar­ket nor­mal­iza­tion, it could be fol­lowed by a pe­riod of lower mar­ket ac­tiv­ity as we have wit­nessed in past sell-offs, thus im­pact­ing IB rev­enues," they added.

JP Mor­gan an­a­lysts, who up­graded Gold­man Sachs Group Inc (GS.N) and Mor­gan Stan­ley (MS.N) to "over­weight", said they see bet­ter value in U.S. in­vest­ment banks ow­ing to their "ex­cel­lent cap­i­tal po­si­tion."

Gold­man and Mor­gan Stan­ley are both likely to buy back about 23 per­cent of shares and lower net share count by about 15 per­cent through 2018, said JP Mor­gan an­a­lysts, nam­ing Gold­man their top pick among U.S. in­vest­ment banks.

They, how­ever, down­graded Credit Suisse Group to "neu­tral" from "over­weight," as they ex­pect credit and se­cu­ri­tized prod­ucts trad­ing rev­enues to re­main weak on fur­ther widen­ing in spreads.

JP Mor­gan named Deutsche Bank AG (DBKGn.DE) its top pick among global in­vest­ment banks, say­ing it sees no liq­uid­ity or fund­ing con­cerns and that the cur­rent neg­a­tive mar­ket sen­ti­ment to­wards the Ger­man bank was over­done. For 2017, JP Mor­gan ex­pects global in­vest­ment banks' rev­enues to grow 7 per­cent.

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