Image may be NSFW.
Clik here to view.
The Q2 results season for the US investment banks gives some insight as to spending priorities for the wider banking sector. The results support the more positive mood on Wall St. as the Q2 net income of Goldman Sachs, while that of Morgan Stanley rose by c.80%, Bank of America by 63% and Citi by 45%. Across the sector, Trading and Investment Banking showed strong gains and there were useful advances elsewhere.
These results show that the leading investment banks can generate sustainable revenue from trading, despite having recently reduced the amount of capital they employ in this area. They also show that even in times of lower market volatility, they have increased their ability to drive revenue and positive return. (Source: Tricumen Limited). The improved returns are due in no small part to the increased application of technology, to better monitor trading patterns and to enable improved internalising of trades via their electronic trading units. Trading will therefore continue to attract additional capex and software development. It will also increase demand for computing power and accelerate investment in private cloud and increasingly in public cloud for activities such as Test and Dev, as well as some risk analysis.
Wealth Management remains a priority for many of the leading banks and there was mixed progress here, with Goldman Sachs revenues remaining stable, but Morgan Stanley increased revenues by 10% with profit up over 50%. Better coordination of the Wealth Management and Trading activities has been shown to generate additional margin and this could be the focus of investment, alongside higher spend on systems to support WM.
Areas such as consumer banking are not capable of showing the strong rebounds seen in trading and investment banking (for example, both BoA and Citibank showed virtually flat revenue increase in their Global Consumer Banking Units) but the banks will have to devote resources to this area to maintain market share in a market increasingly challenged by new competitors.
Interesting times for the banks and for their S&ITS suppliers and we will return to this area as we develop the service further.
