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If FICC trading softens in H2, will the
broader revenues recover in time?
􀀗 Following a robust beta bounce, CIB
shares may now begin to discount this
H2 revenue cross-over gap
􀀗 Allowing for near-term profit-taking, we
remain positive on the sector on a sixto
twelve-month investment horizon,
Credit Suisse (O/W (V)) and Morgan
Stanley (O/W (V)) remain our top picks
Gauging the gap
Following the big March-July beta bounce in the global
corporate and investment banking (CIB) sector, which was
driven to a fair degree by robust FICC and equity trading
revenues, one key question for investors now is how quickly
the broader CIB revenue stream can recover to offset a likely
softening of FICC-trading in the second half of 2009.
Awaiting clearer evidence that the US and global economic
recoveries – seen as pre-conditions of the broader CIB
revenue recovery – are gaining traction, bank investors may
begin to lock in some post-Q2 reporting profits as they
attempt to gauge the revenue cross-over gap.
Industry volume forecasts and
margin outlook in wake of Q2 results
The Q2 results season has been as strong as expected, and in
its revenue distribution even more narrow. Our revised
industry volume forecasts through 2010e indicate a gradual
recovery that nonetheless leaves activity levels meaningfully
below their pre-crisis peaks in a range of markets.
Sector valuation, investment picks
The global CIB sector trades at (cap-weighted and excluding
outliers) diluted earnings multiples of 12.6 in 2009e and 9.9 in
2010e, and at 1.6 times year-end 2009e tangible book value,
while offering a 2.1% dividend yield. Market-implied longterm
earnings growth looks very demanding at 7.2%, but is
inflated by still high sectoral volatility and low payout ratios.
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