Barclays on U.S. Brokers, Asset Managers & Exchanges: Weekly Capital Markets Conditions Update

Barclays on U.S. Brokers, Asset Managers & Exchanges: Weekly Capital Markets Conditions Update

Barclays analyst says, "MACRO: Last week saw sharply lower markets as equities declined 5% and credit and structured product indices sold off nearly to the lows/wides in late September and early October. Some of last week's declines were reversed today, albeit still on weak volumes. Investment banking activity continues to be subdued. In debt underwriting (DCM) in particular, volumes last week were more than 60% below pace. Even accounting for the expected seasonality, this was an unusually slow
DCM week, setting a new volume low for the year."

"BROKERS: The Federal Reserve announced the details of the long-expected stress test on the US banking sector, applying pressure on balance sheets and trading books that we deem to be very credibly stressful. The 2H08-style shocks to the markets include an 8% contraction in GDP, 13% unemployment, 50% decline in equity market indices, VIX spiking to 90 and an additional 20% home price decline. To "pass" the stress test, banks must expect to endure those pressures on their balance sheets and still have at least a 5% Tier 1 common ratio under Basel-I standards. With Goldman Sachs (NYSE: GS) and Morgan Stanley (NYSE: MS) respectively sitting at 12% and 13% Tier 1 common ratios under Basel-I today and significantly de-risked balance sheets, we believe both firms will quite easily pass the stress test."

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