Investment bank income seen down 19% in Q3 from rocky markets

Investment banks' revenue is likely to drop by almost a fifth in the third quarter from the previous three months as volatile market conditions hurt equities and credit trading and deal activity, analysts at JPMorgan said.

PHOTO: BLOOMBERG

SEP 3, 20154:26 PM

[LONDON] Investment banks' revenue is likely to drop by almost a fifth in the third quarter from the previous three months as volatile market conditions hurt equities and credit trading and deal activity, analysts at JPMorgan said.

JPMorgan analyst Kian Abouhossein forecast revenue for major investment banks, including Morgan Stanley, Deutsche Bank and Barclays, would fall 19 per cent on average in July-September from the second quarter.

He predicted an 18 per cent drop in fixed income, currencies and commodities (FICC) revenues, a 20 per cent fall in equities trading and a 17 per cent decline in advisory and investment banking fees.

Some market volatility can boost investment banks' revenue by increasing trading activity in foreign exchange, equities, and other products, but concerns about China's economy have led to a spike in volatility and stormy global financial markets in recent weeks that could hurt income.

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"Recent strong turnover, especially in equities could decline materially once markets settle - not just in Asia but globally," Mr Abouhossein said in a note for clients.

He said potential defaults could impact spread levels and client activity in credit trading, while volatility could impact deal completion for the rest of this year in advisory and underwriting activity.

Mr Abouhossein cut his earnings per share forecasts for the banks by 2-3 per cent on average for 2015-17.

REUTERS

    
 

UK bank lending to small firms rises in second quarter: BoE data

The Bank of England said net lending to small businesses by banks and building societies taking part in its Funding for Lending scheme rose to 490 million pounds (US$750 million) in the second quarter of 2015. 

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SEP 3, 20155:29 PM

[LONDON] The Bank of England said net lending to small businesses by banks and building societies taking part in its Funding for Lending scheme rose to 490 million pounds (US$750 million) in the second quarter of 2015.

That compares with 400 million in the same period a year ago, as improving economic conditions encourage smaller firms to borrow and banks to make loans.

The Bank of England launched the scheme in August 2012 as part of government efforts to stimulate the economy, with banks having since drawn down a total of 61.4 billion pounds of funding.

The biggest net lenders to small-and-medium enterprises (SMEs) during the period were Lloyds Banking Group and"challenger" bank Aldermore, the data showed.

Net lending to small firms by Lloyds, Britain's biggest retail bank, was 527 million pounds, while net lending by Aldermore totalled 122 million.

The Bank of England said the improvement in net lending to small firms reflected a loosening in credit conditions. The Federation of Small Businesses recently reported that credit availability for small businesses had increased.

The biggest declines in lending to small firms came at Nationwide Building Society and Royal Bank of Scotland . Nationwide's lending to small firms contracted by 279 million pounds, and RBS's lending fell by 266 million.

REUTERS

      

HSBC says to rebrand British retail arm 'HSBC UK'

HSBC Holdings is to rebrand its British business as 'HSBC UK' after a months-long review of what to call the business from 2018. 

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SEP 3, 20156:42 PM

[LONDON] HSBC Holdings is to rebrand its British business as 'HSBC UK' after a months-long review of what to call the business from 2018.

HSBC said after consulting with staff and customers it had decided to keep the HSBC brand and would just add 'UK' to distinguish its "ring-fenced" UK retail banking from riskier parts of the business.

HSBC's ring-fenced bank will be headquartered in Birmingham from 2018, a year before the separation of the business has to take place.

REUTERS

UBS chairman weber says CEOs overhauling banks must be 'brutal'

UBS Group AG Chairman Axel Weber said banks overhauling their business models shouldn't shy from taking difficult decisions in their quest to bolster capital levels and profitability. 

PHOTO: REUTERS

SEP 3, 20158:26 PM

[FRANKFURT] UBS Group AG Chairman Axel Weber said banks overhauling their business models shouldn't shy from taking difficult decisions in their quest to bolster capital levels and profitability.

"To get there you have to do one thing: conduct a brutal and open self analysis, because without it and without acknowledging your own weaknesses and strengths, you can't pursue such an overhaul," Mr Weber said on a panel at a conference in Frankfurt on Thursday.

The example of UBS, which opted to pull out of most its capital-intensive fixed income trading unit in 2012, is proof that investors applaud managers who dare to take radical steps, said Weber. Shares of the Swiss company have fared better this year than Europe's biggest investment banks Deutsche Bank AG, Barclays Plc and Credit Suisse Group AG, which are still contemplating which businesses to exit and to what extent they should shrink staff levels as they contend with a slump in demand and stricter regulation.

"What we did strategically at the bank - orient ourselves for the long term and focus on core competencies - paid off for shareholders in two ways: sustainable dividends and a much improved share price," Mr Weber said at the conference, which was organized by Euroforum. "UBS is one of the few banks to trade significantly above its book value. "

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Mr Weber pointed to Societe Generale SA, whose Chief Executive Officer Frederic Oudea attended the conference, as an example of a bank that has adjusted its business model in a changing landscape.

"He too has a global bank which he is focusing on the needs of clients," Mr Weber said.

Societe Generale posted its highest profit in eight years in the second quarter as it announced additional cost cuts to offset rising regulatory expenses and increased investment in digital technology.

Deutsche Bank, Barclays and Credit Suisse have all changed their CEOs this year, with the new executives promising strategy adjustments.

"The important thing about a strategy is that it can't constantly be changing," said Mr Weber. "In times like this, when you can't do anything about revenues because of the low interest rate environment and clients are very risk averse and the market is correcting, you have to do something about your costs."

At the same time, he cautioned against pulling out of Asia to save on costs given the region's growth prospects. While banks will differ on what strategies they should pursue, CEOs need only recall the 2008 credit crunch to see why they should focus their businesses, said Weber.

"One of the big problems of the banks before the crisis and that loss of identity and their core business was that every bank wanted to do everything everywhere for everyone," he said. "They all looked almost identical, did the same business and fell into the same trap."

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US services sector expands at fastest pace since May: Markit

SEP 3, 201510:11 PM

[NEW YORK] US services sector growth edged ahead during August from July to its highest level since May, signaling the United States was on track for solid third-quarter expansion, an industry report showed on Thursday.

Financial data firm Markit said in its final reading of its Purchasing Managers Index for the sector that average prices charged by US service businesses however had declined in August, ending 25 straight months of increases.

"Inflationary pressures have abated, which will help the argument that interest rate hikes can be delayed," said Chris Williamson, Markit's chief economist.

Markit's final PMI was 56.1 in August, a slight improvement from the preliminary reading of 55.2 and up from 55.7 in July, according to a news release.

A reading over 50 marks expansion in economic activity.

A subindex of new business growth fell to 55.7 in August from 57.4 in July.

The firm's composite index, a weighted average of the manufacturing and services indexes, was flat month over month in August at 55.7, which was an increase from its preliminary reading of 55.

REUTERS

    
 

Japan govt FY2016/17 budget request hit record US$852b: sources

Japan's government offices have requested 102.4099 trillion yen (US$852.14 billion) for an annual budget for the next fiscal year from April 2016, the biggest amount ever, government sources told Reuters on Thursday. 

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SEP 3, 20158:32 PM

[TOKYO] Japan's government offices have requested 102.4099 trillion yen (US$852.14 billion) for an annual budget for the next fiscal year from April 2016, the biggest amount ever, government sources told Reuters on Thursday.

The spending requests got a boost from areas such as social security in a fast ageing society and pro-growth policy steps, the sources said. They declined to be named as the amount has not been made official.

The requests, to be announced on Friday, highlight a challenge for Prime Minister Shinzo Abe's aim of achieving both economic growth and fiscal consolidation.

The welfare ministry requested 30.6675 trillion yen for social security spending, while requests related to growth areas amounted to 3.8529 trillion yen.

Of the total budget requests, debt-servicing costs accounted for a record 26.0543 trillion yen, due to ballooning public debt, and non-debt-servicing spending reached 76.3556 trillion yen.

The Ministry of Finance will scrutinise the budget requests and trim them before it drafts an annual budget in December, as Japan needs to rein in public debt that is already twice the size of its economy, by far the largest in the developed world.

The 2016/17 budget marks a key step in the government's plan to balance the primary budget, excluding new bond sales and debt servicing, by the fiscal year that ends in March 2021.

It follows fiscal guidelines Tokyo mapped out last month that called for limiting rises in general-account spending for the next three years, without setting a binding target.

The budget for the current fiscal year hit a record 96.3 trillion yen.

REUTER
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Switzerland freezes assets of troubled Malaysia fund

Swiss authorities said on Thursday they had frozen tens of millions of dollars in assets as part of an investigation into Malaysia's troubled state investment fund, 1Malaysia Development Berhad (1MDB). 

PHOTO: REUTERS

SEP 3, 20154:34 PM

[GENEVA] Swiss authorities said on Thursday they had frozen tens of millions of dollars in assets as part of an investigation into Malaysia's troubled state investment fund, 1Malaysia Development Berhad (1MDB).

The Swiss attorney general's office further confirmed that criminal proceedings had been opened against two executives of the fund, which has been at the centre of mounting anger over Malaysian Prime Minister Najib Razak's tenure.

Allegations have circulated for months in Malaysia that huge sums had vanished in deals with heavily-indebted 1MDB, which Najib launched in 2009.

"The Office of The Attorney General of Switzerland (OAG) has frozen assets amounting several tens of millions of US-dollars on Swiss bank accounts," spokeswoman Anna Wegelin told AFP in an email.

She further explained that the criminal probes targeting the two unnamed executives related to money laundering and "suspected misconduct in public office".

Cooperation with other countries, including Malaysia, will likely be crucial to the investigation, she said, noting that Swiss authorities had already made contact with Kuala Lumpur about the probe.

The Malaysian fund said in a statement that it had no knowledge of the Swiss action.

"As far as 1MDB is aware, none of the company's bank accounts have been frozen." The fund "is in the process of developing a better understanding of the ongoing investigations in Switzerland so the company can cooperate to its fullest extent," it added.

The prime minister and 1MDB fiercely deny any wrongdoing, but reports have mounted concerning suspect transactions, including ones possibly linked to Mr Najib's family members.

Tens of thousands of people poured into the streets in Kuala Lumpur and other cities over the weekend, part of intensifying calls for Mr Najib to come clean about the financial scandals surrounding his government.

Switzerland, meanwhile, has increasingly tried to combat its global image as a country where corrupt foreign officials can hide money, freezing assets and returning huge sums previously looted from Nigeria, the Philippines and several other countries.

AFP