Rocky markets in September compound weak third quarter for investment banks

By Steve Slater

LONDON (Reuters) - A weak performance in September could leave investment banks' revenues in the third quarter down about 10 percent from a year ago, putting 2015 revenues on track to fall from a year ago and intensifying pressure on European firms to scale back.

Several banks, including Citigroup and JPMorgan, warned in mid-September that Q3 markets revenues were likely to be down by about 5 percent from a year ago, and weak markets since then are likely to have left income even lower, analysts and bankers said.

"September was a difficult month, with the lead indicators all pointing towards a tough Q3 earnings season for the investment banks," said Matt Spick, analyst at Deutsche Bank. "We see plenty of reasons to be pessimistic heading into Q3 earnings season for investment banks."

Revenues from fixed income, currencies and commodities (FICC), which include bond trading and account for almost half of investment bank revenues, are likely to be down 10-25 percent in Q3 from a year before, Morgan Stanley analyst Huw van Steenis said in a note on Monday.

Revenues from investment banking divisions (IBD), which include M&A advisory and capital markets underwriting fees, would be down 10-20 percent, while equities revenues should be up about 5 percent, van Steenis estimated.

The third quarter was a torrid time for global markets, as investors were concerned about a slowdown in China's economy and other Asian markets and uncertainty over U.S. interest rate policy.

Although some volatility can be good for trading revenues, the scale of turmoil has hurt most areas.

Analysts said rates trading was slow and IBD fees fell 30 percent from the previous quarter as equity capital market income fell, Thomson Reuters data showed.

Equities trading income could benefit from lively markets, however, and stock exchange Euronext said on Monday September was its most active month since 2008.

JPMorgan reports third quarter results on Oct. 13 and its U.S. peers follow shortly afterwards. Most European banks are due to report at the end of October or the first week of November.

Analysts said the grim summer puts revenues this year on track to fall from 2014, despite a strong start to the year, and adds pressure on European banks in particular to cut costs and improve profitability.

"We expect total industry revenue pools to be flattish in 2015, underscoring the need for share gains and restructuring," van Steenis said.

The big banks will bring in about $193 billion in investment bank revenues this year, compared to $195 billion in 2014 and down more than a quarter from $265 billion in 2009, Morgan Stanley estimated. It predicted revenues will be little changed for the next two years.

European firms are expected to continue losing market share to their big Wall Street rivals, and new bosses at Credit Suisse, Deutsche Bank and Barclays are all expected to cut their investment banks' size.

The Morgan Stanley analysts predicted European investment banks will see revenues fall 4 percent this year from 2014, while revenues at U.S. banks hold flat.

(Reporting by Steve Slater; editing by Adrian Croft)

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