Chillin' out till it needs to be funded
Despite M&A activity and Fees down 25% to 40% as also syndicated Lending down 40% in Asia and Europe together, Investment Banking Fees itself is going to rake in $16 bln, a little less than 25% of that at $3.8 bln for the Top 4 banks. also Fee realisation has been higher in Europe for loan facilities $123 bln in Loan syndication printing $600 mln in Fees according to the Deal Map updated at Ft.com and Asian debt volumes at $49 bln has seen many more issuers than usual M&A deals similarily worth $162 Bln in the Americas alone made up for $3 bln in Fees unchanged virtually from last year with both Morgan Stanley and Goldman Sachs earning $270 mln each
Apart from Investment Banking, SME lending focus of Bank of America and JP Morgan come under focus but its unlikely the competition may have yet begun in earnest with Feb and March also peppered with GDP downgrades apart from the general incredulity from analysts at Banks and Sanford Bernstein with BAC reaching the $10 mark. BAC looks good for $12 and more with Book value right now north of $14
Trading firms Goldman Sachs and Morgan stanley are likely to be the major winners in Q1 results season with Trading Income up 40%. JP Morgan will be up on trading income and not really apprecuiated for its Q1 no. 1position in Jes Staley’s office while Morgan Stanley could pull a bad rabbit out of the old hat trading business as GS and JPM walk away with the laurels.
JP Morgan could add to the trading income from lending businesses but that probably just sets it up for a big earnings day negative surprise as Investment Banking has not given more than $162 mln in M&A Fees and Leadership in Global Investment Banking has meant a lot of small deals with Deal nos also down between 25-40% from Debt to M&A and deals below $500 mln making half the M&A market ( in Deal size instead of Fees)
Trading in Corporate High yield and Leveraged instruments is likely a more sustainable trend.
In retail Foreclosures are going to dominate the mortgage book and not much new lending has been off the marks but for the ongoing refi boom which is only a little tense now with rates up a net of 20-23 bp in a month off all time lows The settlement for BAC specially means it willbe spending $17 out of the $26 available in settlement though the impact of credits on its final Profit margin remains to be seen.
Expenses are likely to be down except for non IB overheads at JP Morgan with concerted efforts by Goldman Sachs and Morgan Stanley to cut costs. However limited hiring is back on Wall Street with trading profits likely to bring back the banks with $3 tln in assets each to more than $2 bln in quarterly profits
Bank of America is additionally hiring SME bankers on the score apart from losing business in wealth/brokerage to the new JP Morgan fur on the road. also Bank of America harnesses $2.2 Tln with $230 bln in equity while JP Morgan needs only $180 bln in Equity to acheive the same and has a $15 bln and more left in its buy back programs.
However, undeterred and (not) unbeaten, Goldman Sachs is most likely still to print the most profits on an even smaller equity base as it uses $72 bln to propel its balance sheets assets higher in new strategies in the post Dodd Frank and post Greg Smith world from a 2011 end of $920 bln in assets with counterparty growth in EMEA and Latin America if the 2012 plan is still on the tracks