1、Equity Research 24 January 2019 CORE Barclays Capital Inc.and/or one of its affiliates does and seeks to do business with companies covered in its research reports.As a result,investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report.Inv
2、estors should consider this report as only a single factor in making their investment decision.PLEASE SEE ANALYST CERTIFICATION(S)AND IMPORTANT DISCLOSURES BEGINNING ON PAGE 21.U.S.Large-Cap Banks U.S.-Based Investment Banks:4Q18&2018 Summary and 2019 Outlook Altogether,combined trading and investme
3、nt banking revenues for our coverage matched our forecast in 4Q18;FICC underperformed our expectations,while advisory outperformed.FICC dropped 19%y-o-y to a post-crisis low due to volatile market conditions and widening credit spreads,particularly in December 2018.Relative to 4Q17,credit and rates
4、fell,while currencies and mortgages results were stable to lower,and commodities was mixed.Equity trading increased 10%y-o-y(+6%ex margin loan loss in 4Q17).Equities saw strength in derivatives and cash,and more mixed results in prime as clients deleveraged over the course of the quarter.Investment
5、banking fees declined 2%y-o-y but rose 3%sequentially.Relative to 3Q18,advisory fees jumped(+39%)to a post-crisis high as many large deals closed,while equity (-23%)and debt(-10%;lowest level of since 1Q16)underwriting fell amid lower new issue volumes.Despite 4Q18 being the worst quarter in 3 years
6、,2018 marked the best year since 2010.Our coverage saw its capital markets revenue increase 4%in 2018 to$107bn.This followed 6 straight years in a tight$101bn to$104bn range.Trading revenues increased 6%in 2018,with FICC down 2%and equities up 16%(to a post-crisis high).FICC declined for the 7th yea
7、r in the past 9.Over this span,FICC revenues for our coverage are down almost 50%.Investment banking fees increased a slight 0.4%to a post crisis-high,with strength in equity underwriting(+16%;highest level since 2014)and advisory(+8%;post crisis high)offset by a decline in debt underwriting(-11%).L
8、ooking out,trading revenues should be seasonally stronger in 1Q19.Despite several global uncertainties,the trading environment appears to have improved in January,which is typically a seasonally strong month,as volatility moderated and both equity and yields showed signs of stabilization.While equit
9、y investors de-levered pretty dramatically in 4Q18,we believe gross balances have increased in Jan,albeit not back to levels witnessed in Oct.Looking at the past nine 1Qs,trading revenues have always increased from 4Q to 1Q at a double-digit clip,with both FICC and equities meaningfully higher.The a
10、verage increases in FICC and equities trading revenues over this span has been 75%and 35%,respectively(total trading up 60%).Still,if trading revenues rose 60%linked quarter in 1Q19,it would still imply a 12%y-o-y decline.With respect to investment banking fees,we have seen positive signs around M&A
11、(pipelines,backlogs,dialogues are good and confidence is high),DCM(high-yield spreads have come in,leverage loan prices improved),and ECM(strong pipelines,several large tech IPOs possible).In addition,several issuances originally slated for the back half of 4Q18 should be pushed into 1Q19.Still,the
12、current U.S.government shutdown could weigh near-term.While we believe IPO pipelines and M&A dialogue remain elevated,IPOs need to be registered with the SEC,while certain M&A transactions need approvals from government agencies.INDUSTRY UPDATE U.S.Large-Cap Banks POSITIVE Unchanged U.S.Large-Cap Ba
13、nks Jason M.Goldberg,CFA+1 212 526 8580 BCI,US Inna Blyakher+1 212 526 3904 BCI,US Matthew Kesselhaut+1 212 526 0181 BCI,US Eugene Koysman+1 212 526 0971 Eugene.K BCI,US Brian Morton,CFA+1 212 526 2163 BCI,US Barclays|U.S.Large-Cap Banks 24 January 2019 2 Notes to the Reader Herein,we summarize the
14、investment banking related results from 4Q18 and 2018 for BAC,C,GS,JPM,and MS.We intend to follow up with a recap/outlook on the remaining businesses,and the overall companies,once this earnings season for our U.S.Large-Cap bank coverage is completed.All comparisons relative to our expectations for
15、the group were published in our earnings preview report titled“4Q18 EPS Preview:Higher NII,End of DIF Surcharge to Offset Weaker Fees”(1/10/19)or our 2019 Outlook report titled“Past,Present&Yet to Come:Less Good Doesnt Mean Bad,Buy Banks”(1/2/19).We have also published individual company reports rec
16、apping 4Q18 on these five names which encompasses their entire operations:BAC-4Q18 EPS Review:Celebrates its Sweet Sixteen with a Stock Pop(1/16/19)C-4Q18 EPS Review:Expects ROTCE&Efficiency Improvement in 2019/20(1/14/19)GS-4Q18 EPS Review:M&A,I&L,Tax and Costs More than Offset Soft Trading(1/16/19
17、)JPM-4Q18 EPS Review:Stormy Weather Axes Sweet 16;Buy into Investor Day(1/16/19)MS-4Q18 EPS Review:A Solid Year Finishes on a Disappointing Note(1/17/19)Total Capital Markets Related Revenues In 4Q18,our coverages(BAC,C,GS,JPM,MS)combined trading(FICC,equities)and investment banking(advisory,underwr
18、iting)revenues totaled$21.1bn down 5%y-o-y and 17%below the 3Q18.This matched our expectations of declines around 5-10%y-o-y and a 15-20%fall sequentially.Relative to our expectations,FICC underperformed,while advisory outperformed.Trading revenues fell 6%y-o-y as a challenging environment in Decemb
19、er drove results below the guidance that several banks offered during the quarter.For the seventh straight quarter,equities outpaced FICC.FICC dropped 19%y-o-y.In fact,our coverage generated less than$7bn in FICC revenues in 4Q18,a post-crisis low.FICC reflected a challenging trading environment cha
20、racterized by volatile market conditions and widening credit spreads,particularly in December.Relative to 4Q17,credit and rates fell across our coverage,while currencies and mortgages results were stable to lower,and commodities was mixed.Equity trading increased 10%y-o-y(+6%ex margin loan loss in 4
21、Q17).This marked the fourth straight quarter of y-o-y growth,a feat not seen since 6 straight quarters from 3Q14 to 4Q15.Equities saw strength in derivatives and cash,and more mixed results in prime as clients deleveraged over the course of the quarter.Investment banking fees declined 2%y-o-y but ro
22、se 3%sequentially.Relative to the prior quarter,advisory fees jumped(+39%)to a post crisis high,as several large transactions closed,while equity(-23%)and debt(-10%)underwriting fell,amid lower new issue volumes.The environment in 4Q18,particularly December,can be characterized by a decline in inves
23、tor sentiment with respect to the global growth outlook.The concern that central banks would continue to tighten into a slowing growth environment caused weakness in equity and credit markets and resulted in an increase in volatility of many macro assets and a reduction in liquidity(one-way trend in
24、 the market,many investors similarly situated,several wanted to lock in gains before year-end,year-end vacations).Intraday and intraweek volatility adversely impacted the underwriting calendar and challenged market making businesses as clients looked to de-risk and de-lever in the second half of the
25、 quarter.Still,hung deals did not appear to have a material impact on the quarter,while the banks generally downplayed leverage loan/CLO concerns.In 4Q18,relative to a year ago,capital markets revenues at GS(-1%),JPM(-3%),MS (-5%),BAC(-5%),and C(-10%)all declined.By reported revenue dollars,JPM($5.0
26、bn)Barclays|U.S.Large-Cap Banks 24 January 2019 3 continued to lead,followed by GS($4.5bn),then MS,C and BAC(all at$3.9bn).In 4Q18,63%of the investment banking related revenues were tied to trading(50%FICC,50%equities)and 37%was investment banking fees(45%advisory,37%debt underwriting,18%equity unde
27、rwriting).For the full year,MS(+12%)and GS(+11%)posted the strongest growth rates,while JPM(+2%)grew more moderately,and C(-3%)and BAC (-4%)posted modest declines.FIGURE 1 Composite(BAC,C,GS,JPM,MS)Investment Banking Revenues,1Q13 4Q18$0$5$10$15$20$25$30$35 1Q131Q141Q151Q161Q171Q18$bnFICCEquities Tr
28、adingInvestment Banking Fees Source:Barclays Research and Company reports FIGURE 2 Composite Investment Banking Revenues Mix,1Q13 4Q18 FIGURE 3 Composite Advisory&Underwriting Fees Mix,1Q13 4Q18 0%10%20%30%40%50%60%70%80%90%100%1Q131Q141Q151Q161Q171Q18IB rev mixFICCEquitiesInvestment Banking Fees 0%
29、10%20%30%40%50%60%70%80%90%100%1Q131Q141Q151Q161Q171Q18Adv fee mixAdvisoryDebt UnderwritingEquity Underwriting Source:Barclays Research and Company reports Source:Barclays Research and Company reports Suprisingly,our coverages combined capital markets revenues were in a very tight range of$101bn to$
30、104bn every year from 2012 to 2017.This is less than 3%variance over these 6 years for revenue items that some investors view as quite volatile.But the mix has changed,with the FICC contribution generally declining over this time frame(Figure 4).In 2018,revenues came in above this range at$107bn,up
31、4%from 2017,to its highest level since 2010,despite 4Q18 being its worst quarter in three years.Trading revenues increased 6%in 2018,with FICC down 2%and equities up 16%(to a post-crisis high).While we expected trading revenues to grow,equities performed better than we thought,while FICC was worse.F
32、ICC declined for the 7th year in the past 9.Over this span,FICC revenues for our coverage are down almost 50%.Investment banking fees increased 0.4%Barclays|U.S.Large-Cap Banks 24 January 2019 4 to a post crisis-high,with strength in equity underwriting(+16%)and advisory(+8%)offset by a decline in d
33、ebt underwriting(-11%).We had expected equity underwriting and advisory to increase,and debt underwriting fees to fall.FIGURE 4 Composite Investment Banking Revenues,2010 2019E Includes revenues of BAC,C,GS,JPM,and MS.Source:Barclays Research and Company reports Trading For our composite,total tradi
34、ng revenues(FICC plus equities)in 4Q18 fell 6%y-o-y and dropped 26%from the prior quarter.Linked quarter,we saw higher levels of market volatility and negative performance across virtually all asset classes.For the 7th straight quarter,equities outpaced FICC.GS was the lone bank to post an increase,
35、rising 2%y-o-y.Still,it posted the sharpest decline in 4Q17(-34%posite-21%).JPM declined 6%y-o-y(-10%ex.4Q17 margin loss)in 4Q18.It had guided to roughly equivalent with 4Q17 in early December.BAC(ex.DVA)also fell 6%y-o-y.In early December 2018 it expected an increase of a few percentage points y-o-
36、y,though in late December it shifted its stance to down a few percentage points.MS declined 7%.And,C dropped 14%y-o-y(-17%ex.4Q17 episodic loss).It had pointed to a slight y-o-y decline though that was in early December.Still,for full year 2018,total trading revenues increased 6%.FIGURE 5 Composite
37、FICC Trading Revenues,1Q13 4Q18 FIGURE 6 Composite Equity Trading Revenues,1Q13 4Q18$0$2$4$6$8$10$12$14$16$18 1Q131Q141Q151Q161Q171Q18$bnFICC$0$1$2$3$4$5$6$7$8$9$10 1Q131Q141Q151Q161Q171Q18$bnEquities Trading Cyan bars highlight 4Qs.Source:Barclays Research and Company reports Cyan bars highlight 4Q
38、s.Source:Barclays Research and Company reports 30%35%40%45%50%55%60%65%$0$25$50$75$100$125$1502009201020112012201320142015201620172018A2019EFICC%IB Rev$bnFICCEquitiesDCMECMAdvisory%FICCBarclays|U.S.Large-Cap Banks 24 January 2019 5 In 4Q18,C noted FICC and equity trading net interest income(38%of tr
39、ading revenues)dropped 18%y-o-y with equities(-86%)and FICC(-8%)both declining.Trading non-interest income fell 11%y-o-y with equities up(+61%)but FICC down(-31%).JPM has a footnote adjusting net interest income for its markets businesses(19%of trading revenues).It dropped 47%y-o-y implying non-inte
40、rest trading revenues grew 15%.JPM continued to lead in total trading revenues($3.2bn),followed by C($2.6bn),then MS($2.5bn),GS($2.5bn)and BAC($2.4bn).Following declines in both 2Q18 and 3Q18,VaR generally increased in 4Q18.Linked quarter,JPM jumped 46%,while MS(+17%)and BAC(+16%)also grow.Still,GS
41、posted a decline(-8%;benefit of diversification increased).Generally speaking,we believe credit spreads,currency rates,and commodity prices increased,while equity prices and interest rates were little changed.Note,C does not disclose VaR until its 10-K/Q release.FIGURE 7 VaR by Company,1Q11 4Q18 FIG
42、URE 8 Composite Average VaR,1Q11 4Q18$0$50$100$150$200$2501Q111Q121Q131Q141Q151Q161Q171Q18$mnBACCGSJPMMS$0$20$40$60$80$100$120$140$1601Q111Q121Q131Q141Q151Q161Q171Q18$mnTotal Avg Source:Barclays Research,OCC,and Company reports Source:Barclays Research,OCC,and Company reports In 4Q18,the S&P 500 and
43、 MSCI World each dropped 14%,while the Bloomberg Barclays U.S.Agg index rose 1%.WTI crude dropped 38%.In 4Q18,the 10-year government bond yields dropped across globe including the U.S.(-36bps),UK(-22bps)and Japan(-12bps).U.S.credit spreads widened for investment grade(+56bps)and high-yield(+171bps).
44、Both U.S.equity(+33%)and corporate bond(+2%)volumes increased.Average volatility from 3Q18 to 4Q18 jumped across several asset classes including equities(VIX+64%)and commodities(OVX+53%)followed by treasuries(MOVE+15%),rates(TYVIX+13%),and currencies(CVIX+8%).FIGURE 9 Market Volatility 0501001502002
45、5030001020304050607080901002000200220042006200820102012201420162018MOVEVIX,CVIX,OVXVIXCVIXOVXMOVETicker Measure Now HistoricalVIXEquities18 19 CVIXFX8 10 OVXOil36 36 MOVE Treasury53 94 Source:Barclays Research and Bloomberg Barclays|U.S.Large-Cap Banks 24 January 2019 6 Fixed income trading(FICC)In
46、4Q18,FICC trading revenues declined 19%y-o-y and dropped 37%linked quarter.Our coverage generated less than$7bn in FICC revenues in 4Q18,a post-crisis low.Relative to 4Q17,credit and rates fell across our coverage,while currencies and mortgages results were stable to lower,and commodities was mixed.
47、While FICC fell only 3%on an annual basis,2018 marked its 7th decline in past 9 years.FIGURE 10 Industry-wide FICC Trading Revenues,2010 9mo2018 FIGURE 11 Industry-wide FICC Trading Revenue Mix,2010 9mo2018$109.1$81.8$102.7$82.3$76.7$69.9$75.9$68.0$53.6$66.6$0$20$40$60$80$100$120$bnRatesFXCreditSecu
48、ritizationEMCommoditiesFICC 0%10%20%30%40%50%60%70%80%90%100%20102011201220132014201520162017 9mo18MixRatesFXCreditSecuritizationEMCommodities Source:Barclays Research and Coalition Source:Barclays Research and Coalition Both seasonal factors and increased uncertainty related to economic growth and
49、interest rate outlooks influenced the markets in 4Q18,resulting in rapid movements in spreads and asset prices.December saw volatile and challenging market conditions.This resulted in a risk-off sentiment where market-making became challenging across rates,currencies,and spread products.Credit was i
50、mpacted by the significant widening of spreads.Macro results were also challenged,as a breakdown in historical relationships weighed on revenues.In 4Q18,BAC(-15%),JPM(-16%;-18%ex.impact of TCJA),GS(-18%),C(-21%)and MS(-30%)all posted y-o-y declines.Linked quarter,BAC,JPM,GS and C all fell 30-40%,whi
