Barclays Faces Toughest Test in Investment Banking - The New York

Barclays investment Banking deals

Banking Investment / March 1, 2018

  • Initial benefit from trading volatile markets may fade
  • M&A, big securities sales likely to be put on hold by clients

Brexit is the last thing investment banks needed.

Friday’s currency swoons and stock rout - triggered by U.K. voters’ surprise decision to withdraw from the European Union - herald even harder times for securities firms already struggling to improve earnings. While some desks made money in the initial turmoil, continued market volatility in the months ahead poses a threat to trading profits. And companies that hire banks to advise on takeovers and raise money face years of uncertainty as Britain negotiates new international ties.

Analysts on both sides of the Atlantic cut earnings estimates for the biggest investment banks on the expectation that securities sales and major deals will be thwarted by economic and political uncertainty and currency swings. Fees from that business are likely to “tank, ” dropping more than 30 percent this year at European banks, Sanford C. Bernstein analyst Chirantan Barua wrote. Analysts at Citigroup Inc. and JPMorgan Chase & Co. estimated lower underwriting volumes in the U.K. and Europe.

“In light of such uncertainty, a lot of primary deals will be put on hold in equity and debt, ” said Joseph Dickerson, an analyst at Jefferies International Ltd. in London. On the bright side, “the next week is going to be OK in terms of trading volumes.”

Surprised CEOs

Bank stocks extended losses Monday in anticipation of weaker profit as the British pound continued its biggest slide on record from Friday, when global equities lost more than $2 trillion of value. Hans Humes, who runs hedge fund firm Greylock Capital, a specialist in distressed bonds, told Bloomberg Television on Sunday he watched fellow investors take a “step back, ” leading to wider spreads on relatively muted volume. Such caution threatens to stifle the corporate bond market.