With an increase of 18%, M&A advisory was the only business to report a year-over-year gain in the first quarter of 2019 for the five U.S. global trade and universal banks (GTUBs), according to the latest U.S. Capital Markets Quarterly report from Fitch Ratings. The banks include Bank of America Corporation (BAC), Citigroup, Inc., Goldman Sachs Group (GS), JPMorgan Chase & Co., (JPM), and Morgan Stanley.
While seasonally the strongest quarter of the year, the first quarter started off muted in 2019, marking the second lowest first quarter (Q1) of capital markets revenues since 1Q11.
The uptick in advisory came from strength in the technology and healthcare sectors. Strong results in North America overcame weakness in Europe from Brexit-related uncertainties and muted activity in Asia due to trade disputes. Following the large bank merger announcement between BB&T and SunTrust, there were signs of optimism among bankers that the financial sector might offer growth opportunities over the near term.
"The government shutdown weighed on investment banking including IPO pipelines as well as equity underwriting, but some banks indicated that the IPO market should improve in 2Q19," said Julie Solar, Senior Director, Fitch Ratings. "While JP Morgan and Citi showed some improvement in debt underwriting, the asset class fell slightly overall."
Total debt underwriting revenues fell 2% from the year-ago period, reflecting a rebound in leverage finance following a difficult quarter in 4Q18. However, this was more than offset by slow primary issuance.
Fixed income, currency and commodities (FICC) trading revenues declined 10% on average from the year-ago quarter as clients stayed on the sidelines following the December market disruption. The quarter included less favorable market conditions for both macro and credit-related products. In particular, lower currency volatility contributed to weaker results in rates and currencies.
In 1Q19, capital markets revenue as a percentage of total revenue was lower than a year ago. The average contribution to overall revenues of the five U.S. GTUBs was 37% in 1Q19, compared to 40% a year prior. The first quarter of each year is typically the high point of capital markets revenues for the year.
"The first quarter is typically the strongest of the year for capital markets. Given the rough start to the year, 2019 will likely show continued weakness. Banks that have diversified models and less reliance on capital markets activity will likely outperform their peers," said Solar.