While still high at 20% year over year, third-quarter revenue growth at the banks in the sample was less than half of the 50% year-over-year increase booked in the second quarter, Coalition data shows. FICC trading, which fueled the second-quarter surge in overall revenues, also drove the slowdown in the third quarter as activity started to reduce "from the unprecedented levels of volatility" observed earlier this year, Coalition said.
Compared to a year-over-year jump of more than 50% both in the second quarter and the first half of 2020, third-quarter FICC revenue growth was down to 26%. Nevertheless, it was the strongest third quarter seen in nearly 10 years, Coalition said.
FICC trading will remain a key driver for overall revenues by the end of 2020. "Full-year revenues are expected to be up 25%, largely driven by fixed income performance," Michael Turner, head of CIB analytics at Coalition told S&P Global Market Intelligence.
Previously, Coalition guided for overall revenues of between 30% and 40% in 2020 for the banks in its sample, including Bank of America Corp., Citigroup Inc., Goldman Sachs Group Inc., JPMorgan Chase & Co., Morgan Stanley, Barclays PLC, BNP Paribas SA, Credit Suisse Group AG, Deutsche Bank AG, HSBC Holdings PLC, Société Générale SA and UBS Group AG.
The beginning of the fourth quarter was "broadly consistent" with third-quarter dynamics, but there was a "sizeable uptick in client activity" in November on the back of the U.S. election and news about a potential COVID-19 vaccine, Turner said.
Equities rebound in Q3
After a weaker first half with only 2% growth year over year, equities revenues increased 12% in the third quarter mainly driven by cash equities, where performance improved thanks to "a surge in trading volumes and strong U.S. banks results" with investors especially in the Americas and Asia continuing to trade the rally, according to Coalition. The company expects full-year equities revenues to grow by 6% compared to 2019.
In the third quarter, investment bank division, or IBD, revenues, coming from equity and debt capital markets origination and deal advisory, grew by 16% year over year, consistent with the growth rate in the previous quarters. Despite the slowdown in M&A activity due to the pandemic, a "stellar" performance in ECM was more than enough to offset the drop, Coalition said. IBD revenues are expected to increase 17% in 2020.
European banks claw back market share
Revenue growth at the banks tracked by Coalition was led by U.S. credit institutions in both the first and the second quarters of the year. The U.S. banks were the stronger performers, while European players "suffered losses largely due to the cancellations of dividends impacting the equity derivatives business," Coalition said. This trend saw a slight reversal in the third quarter as European banks in the sample rebounded with strong equities-led performance while the U.S. banks' revenues normalized after an "excellent" first half of the year, it said.
European banks gained back about 3% of market share in the third quarter "after sizeable losses" in the first half. However, U.S. banks were still the largest gainers with year-to-date growth of 3%, Coalition said.
Coalition is owned by CRISIL. CRISIL and S&P Global Market Intelligence are owned by S&P Global Inc.