US investment banks continue to dominate sales volumes in the global structured products market year to date despite mixed performances reported on their respective results for the first quarter of 2017.
Citi
Citigroup remains the leading US bank in the global structured products market in terms of issuance with over 44,000 products marketed year to date worth USD$1.3bn, including non-retail, flow and leverage.
The majority of the products were marketed in Germany and Switzerland (over 37,000 products) followed by France (3,934 products) and Portugal (258 products). In its domestic market, Citi has sold 122 products worth US$371m so far this year.
The bank reported net income for the first quarter 2017 of US$4.1bn compared to net income of US$3.5bn for the first quarter 2016. Revenues increased 3% from the prior year period, driven by growth in both the institutional clients group (ICG) and global consumer banking (GCB), partially offset by lower revenues in Corporate / Other primarily due to the continued wind down of legacy assets.
Institutional clients group (ICG) revenues of US$9.1bn increased 16%, driven by both banking and markets and securities services revenues. Banking revenues of US$4.4bn increased 13% (including gain / (loss) on loan hedges) while Investment Banking revenues of US$1.2bn were up 39% versus the prior year period. Advisory revenues increased 8% to US$246m, debt underwriting revenues increased 39% to US$733m, and equity underwriting revenues nearly doubled to US$235m. Private Bank revenues increased 9% to US$744m, driven by loan and deposit growth and improved spreads.
Citi also reported Markets and Securities Services revenues of US$4.8bn, an increase of 18% while Fixed Income Markets revenues of US$3.6bn also increased by 19%, driven by both rates and currencies as well as spread products. Equity Markets revenues of US$769m increased 10%, driven by an improvement in derivatives while Securities Services revenues of US$543m decreased 3% driven by prior period divestitures; however, excluding the divestitures, revenue increased 12% driven by higher deposit balances and growth in assets under custody.
Goldman Sachs
The Goldman Sachs Group was the second most active issuer globally among US banks and the sixth overall issuer with over 42,000 products marketed and US$4.9bn sales volume YTD.
SRP data shows that Germany/Austria with over 33,000 structured products saw the highest number of Goldman Sachs products, followed by the US market where Goldman has sold 691 products YTD worth US$3.5bn. The US bank has also been an active provider in Hong Kong with over 170 structured warrants linked to the Hang Seng Index.
Goldman has reported net revenues of US$8.03bn and net earnings of US$2.26bn for the first quarter of 2017. 'The operating environment was mixed, with client activity challenged in certain market-making businesses and a more attractive backdrop for underwriting in our investment banking franchise,' said Lloyd C. Blankfein (pictured), chairman and chief executive officer. 'As the economy improves, we are well positioned to not only meet our clients' diverse needs, but also to generate operating leverage for our shareholders.'
Net revenues in Investment Banking were US$1.7bn for the first quarter of 2017, 16% higher than the first quarter of 2016 and 15% higher than the fourth quarter of 2016. Net revenues in Financial Advisory were US$756m, 2% lower than the first quarter of 2016. Net revenues in Underwriting were $947 million, 37% higher than the first quarter of 2016, due to significantly higher net revenues in equity underwriting. The firm's investment banking transaction backlog decreased compared with both the end of 2016 and the end of the first quarter of 2016.
Goldman also reported net revenues in Institutional Client Services were US$3.36bn YTD, 2% lower than the first quarter of 2016 and 7% lower than the fourth quarter of 2016 while net revenues in Fixed Income, Currency and Commodities Client (FICC) Execution were US$1.69bn in Q1 2017, reflecting significantly higher net revenues in mortgages and higher net revenues in interest rate products, offset by significantly lower net revenues in commodities and currencies and lower net revenues in credit products.
Investment Management net revenues were US$1.5bn, 12% higher than the first quarter of 2016 and 7% lower than the fourth quarter of 2016. The increase in net revenues compared with the first quarter of 2016 was primarily due to higher incentive fees and higher management and other fees, according to the bank. The increase in management and other fees reflected higher average assets under supervision, partially offset by shifts in the mix of client assets and strategies.
BAML
Bank of America has no global footprint in the structured products market and remains focused in its domestic market where it has sold over US$3.2bn across 146 products. Most of the products marketed by Bank of America featured single indexes including the S&P 500 index (44 products), the Eurostoxx 50 index (25 products), and the Russell 2000 index (16 products).
Bank of America is behind the Accelerated Return Notes - S&P 500 (22547V485), the third highest-selling product YTD which sold US123m in January.
The bank reported that its net income increased 40% to US$4.9bn while revenue, net of interest expense, increased 7% to US$22.2bn from US$20.8bn- net interest income (NII) increased 5% to US$11.1bn, reflecting benefits from higher interest rates, as well as growth in loans and deposits.
The bank's global wealth and investment management reported that its pre-tax margin improved to 27% with total client balances increasing by US$119bn to nearly US$2.6tr. Global markets' sales and trading revenue stood at US$3.9bn, including negative net debit valuation adjustment (DVA) of US$130m. Excluding net DVA, sales and trading revenue was up by 23% with fixed income up 29% and equities up 7%.
Morgan Stanley
Morgan Stanley has been an active provider of structured products in the US market with over 470 products issued and US$3.2bn in sales YTD. The US bank has played a marginal role in other markets such as Germany/Austria (4,847 products), Brazil (eight products), France (seven) and Japan (two).
The bank has reported net revenues of US$9.7bn for the first quarter ended March 31, 2017 compared with US$7.8bn a year ago. The annualized return on average common equity was 10.7% in the current quarter.
Institutional securities net revenues were US$5.2bn 'reflecting strength in the bank's sales and trading franchise and improved underwriting results'; wealth Management net revenues were US$4.1bn and pre-tax margin was 24%.2 Fee-based asset flows for the quarter were US$18.8bn; while investment management net revenues were US$609m with assets under management of US$421bn. The bank's institutional securities division reported pre-tax income from continuing operations of US$1.7bn compared with pretax income of US$908m a year ago with investment banking revenues standing at US$1.4bn, an increase from US$990m a year ago.
Morgan Stanley's advisory revenues of US$496m decreased from US$591m a year ago on lower levels of completed M&A activity; while equity underwriting revenues of US$390m increased from US$160m in the prior year quarter on higher global market volumes. Fixed income underwriting revenues of US$531mn increased from US$239m in the prior year quarter reflecting higher bond and non-investment grade loan fees; while sales and trading net revenues of US$3.5bn increased from US$2.7bn a year ago.
In addition, the bank reported equity sales and trading net revenues of US$2bn, a decrease from US$2.1bn a year ago 'reflecting lower results in our financing business driven by higher funding costs, partly offset by strong results in our execution services businesses'.
Wealth management reported pre-tax income from continuing operations of US$973m compared with US$786m in the first quarter of last year; while investment management reported pre-tax income from continuing operations of US$103m compared with US$44 million in the first quarter of last year.
JP Morgan
JP Morgan is the first US bank in the global structured products sales ranking with over US$4.4bn sold YTD on the back of over 1,700 products marketed across markets.
More than half of its products (1,069 products) have been sold in the US market where JP Morgan is the leading issuer in terms of sales with US$3.9bn. However, the US bank remains a leading player in Hong Kong where it has marketed over 470 products YTD, and has been somehow active in Europe's German speaking countries where it has cross-listed 19 structured certificates linked to individual stocks so far this year
JP Morgan has reported revenues of US$24.7bn and record net income and investment banking fees for a first quarter of US$3.2bn, up 64% and US$1.8bn, up 37%.
'We demonstrated the strength of our Corporate & Investment Bank platform, growing revenue strongly in Banking and Markets and maintaining leadership positions,' said Jamie Dimon, chairman and CEO. 'Commercial Banking continued its solid performance with record revenue and net income this quarter. Asset & Wealth Management had strong underlying performance driven by record balances in banking, as well as record AUM & client assets.'
Investment banking revenue was US$1.7bn, up 34%, with higher debt and equity underwriting fees 'reflecting strong underlying issuance activity and share gains, partially offset by lower advisory fees'. Treasury services revenue was US$981m, up 11%, 'driven by the impact of higher interest rates and growth in operating deposits'.
The bank also reported that markets & investor services revenue was US$6.5bn, up 14%, largely driven by higher Markets revenue, up 13%; while fixed income markets revenue, up 17%, 'reflected robust performance in securitized products on strong demand and spread tightening'. The bank also reported that rates improved, with increased market activity, particularly in Europe in advance of upcoming elections and in reaction to central bank actions.
Equity markets revenue was up 2%, with strength in prime services and corporate derivatives with Securities Services revenue up 4% to US$916m; while asset and wealth management reported a decrease of 34% in net income to US$385m. Assets under management stand at US$1.8tr YTD, up 10%, 'reflecting higher market levels, and net inflows into liquidity and long-term products'.
Wells Fargo
Wells Fargo lacks footprint in the global structured products market but remains an active provider in the US market. YTD, the bank has issued 129 products worth US$591m. Most of the products marketed by Wells Fargo were structured notes (100 products) and market-linked deposits (MLCDs).
Almost half of the products issued by Wells Fargo in the US market YTD are linked to the S&P 500 index (56), followed by the Russell 2000 and Eurostoxx 50 (27 apiece). Wells Fargo has also been an active provider of ETF-linked structures so far this year with a number of products linked to the iShares MSCI EAFE ETF, and the iShares MSCI Emerging Markets ETF, as well as proprietary indices such as the GS Momentum Builder Multi-Asset 5 ER Index, or the CS Retiree Consumer Expenditure 5% Blended ER index.
Wells Fargo reported in its Q1 2017 results solid financial results with net income of US$5.5bn, in line with first quarter 2016. Investment securities generated US$407.6bn at March 31, 2017, down US$387m from the fourth quarter, as approximately US$16bn of purchases were more than offset by run-off and sales, said the bank, adding that net unrealized losses on available-for-sale securities were US$1.2bn at March 31, 2017, compared with net unrealized losses on available-for-sale securities of US$1.8bn at December 31, 2016, primarily due to tighter credit spreads during the quarter and a modest benefit from lower long-term interest rates.
The bank also reported that capital levels remain strong, with a common equity tier 1 ratio (fully phased-in) of 11.2%, compared with 10.8% in the previous quarter. Wholesale banking reported net income of US$2.1bn, down US$79m, or 4%, from Q4 2016.
Wealth and investment management (WIM) reported net income of US$623m, down $30m, or 5%, from Q4 2016. WIM total client assets reached a record-high of US$1.8tr in the first quarter, up 9% from a year ago, 'driven by higher market valuations and continued positive net flows'. Wells Fargo also reported that its Retail brokerage unit saw client assets increasing by 10% to US$1.6tr while advisory assets were also up by 14% to US$490bn, from prior year, 'primarily driven by higher market valuations and positive net flows'.
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