Now that banks are embarking upon wholesale restructuring plans, you may be feeling a little restless. - Particularly as the first quarter has not gone well.
Opportunely, JPMorgan's banking analysts, led by Kian Abouhossein, have just released their global banking tracker in which they predict the banks that are likely to reveal the best and worst performances for the first quarter when their results are disclosed in the coming weeks.
The charts at the bottom of this page reflect the JPM analysts' expectations by bank and by business. You probably don't want to be working in equities trading now, with most banks expected to reveal big revenues drops in the first half. Then again, you probably don't want to be working in fixed income trading either. - JPM is predicting a strongish performance in credit trading as spreads tighten, both FX and macro tradomg revenues are expected to be weak.
With feeble revenues seeming to be unavoidable, JPMorgan's analysts are preoccupied with cost-cutting . If banks can't cut costs to match falling revenues, profits will suffer. Partly on this basis they rank their preferred banks in 2019 as: Goldman Sachs, UBS, Morgan Stanley, Barclays, Credit Suisse, BNP Paribas, SocGen and Deutsche Bank. - With Deutsche Bank last of all.
This is what the analysts say about some of their choices. The charts below offer more colour on expected performance by revenue.
Goldman Sachs: Ticking all the right boxes
JPM analysts say David Solomon's Goldman Sachs is "ticking all the right boxes on revenue growth initiatives." However, they also note that a strategy update is due later this year.
UBS: Focused "footprint"
JPMorgan's analysts like UBS's investment bank because of its 'focused investment banking footprint.' However, they also note that if revenues don't improve then UBS will need to take some more drastic action regarding costs. (As the charts show, JPMorgan's analysts are predicting a substantial revenue drop for UBS in Q1, most notably in M&A).
Credit Suisse: Tidjane Thiam is great, but the investment bank still seems too big
JPMorgan's analysts suggest CEO Tidjane Thiam deserves that 30% pay rise. They rate him "highly" for continuously growing, 'private banking and Swiss retail while over-delivering on cost targets, generating positive operating leverage.'
The only blot on Thiam's copybook is Credit Suisse's investment bank. The analysts note that this absorbs 36% of group capital whilst only generating 22% of group profit before tax. They note that the equities business is loss-making and needs to be "right-sized" for wealth management, while the credit business is far too capital-hungry for its size, even at peak earnings, and by implication needs to be slimmed-down too.
Deutsche Bank: Unrealistic revenue targets
The JPMorgan analysts' main gripe with Deutsche Bank seems to be its optimism. They estimate that for Deutsche Bank to deliver its tangible return on equity target of 4%, it needs to achieve 4.5% revenue growth. However, it's not at all clear that this will happen - particularly in the investment bank, where the charts below suggest big year-on-year percentage revenue reductions everywhere but M&A and debt capital markets in the first quarter.
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