What are bank executives discussing on earnings calls?
Top themes from 3Q 2011
Our analysis of the leading themes emerging from the quarterly earnings calls of the largest global banks identifies what’s top of mind for banking leaders. The top 10 themes from 3Q 2011 are listed below and compared to the themes from 2Q 2011.
Overall, the political and economic uncertainty that began to materialize in early 2011 continued to challenge the banking sector in 3Q. Management from each of the banks we reviewed framed their comments in the context of this difficult environment, which they described as tough, unpredictable and turbulent.
3Q 2011 earnings quarter top 10 themes
|Themes* ||3Q11 rank ||Change ||2Q11 rank |
|Concerns related to the macro-environment ||1 ||▲ ||5 |
|Capital issues ||1 ||▬ ||1 |
|Expense management ||1 ||▬ ||1 |
|Drivers of earnings performance ||1 ||▬ ||1 |
|Improvements in credit quality measures ||5 ||▲ ||7 |
|Funding strategy and liquidity management ||6 ||▲ ||10 |
|Opportunities related to acquisitions, joint ventures and divestitures ||7 ||▼ ||6 |
|Trends in lending ||7 ||▲ ||9 |
|Impact of regulatory reform ||9 ||▼ ||1 |
|Globalization; presence outside home country ||10 ||▼ ||8|
*Ties are noted by continuation of rank number (i.e., the first four themes noted as #1) to next most discussed theme (i.e., #5).
Top themes from 3Q 2011 banking earnings calls
- Macroeconomic and political concerns mount,
creating a challenging operating environment
- The lack of a solution to the Eurozone debt crisis impacted financial markets, resulted in significant volatility and led to concerns that the funding market could shut down. Skittish clients remained on the sidelines, while banks took steps to reduce both their exposures to sovereign debt and the size of their balance sheets.
- M&A strategies and discussion about banks’ global reach reflected the difficult operating conditions, while comments on lending reflected the expectation that policy measures designed to address the crisis will mute credit availability in coming quarters.
- The environment also prompted banks to review their business models and, in some cases, set a new strategy.
- “After these times of turmoil are over we think a new world will come, but we think this will continue for two years or so and we have to recalibrate our business to meet the market conditions.”
- – Junko Nakagawa, CFO, Nomura
- Transition to new capital regimes
- In the US, where most banks still operate under previous Basel guidelines, comments by bank leaders reflected an ability to comply with Basel III early, despite a lack of enthusiasm for the requirements including holding 7% of Tier I capital of risk-weighted assets.
- In Europe, several bank executives discussed Basel III compliance in their earnings calls, but more frequently mentioned the transition to Basel 2.5.
- “The Basel III set of rules and calibrations are not without doubt. They’re not clear yet. But taking all of that into account, we’re still of the point of view we’re going to hit our Basel III numbers by the end of next year.”
- – Vikram Pandit, Citigroup CEO
- Early progress on expense reduction efforts
- Bank managers maintained a strong focus on reducing costs and driving efficiency. Many banks reported initial progress on cost reduction targets while several revised targets upward. There was also widespread acknowledgment that expenses will remain under the microscope in the coming quarters.
- Banks continued to spend on initiatives related to technology and targeted growth areas such as the emerging markets and particular lines of business. Management considers such investments to be necessary expenditures, as they will support regulatory compliance, business growth in strategic areas or overall efficiency.
- “We have to build a lot of additional systems to accommodate those hundreds of new rules, regulations, reporting …This is the new world. We're going to live with it, but it's hard to sit back when it costs money.”
- – Jamie Dimon, CEO, JPMorgan Chase
- The operating environment continues to be difficult
- The clearest trend related to earnings and revenue performance that emerged during the quarter was that retail-focused banks and divisions performed better than capital-markets-focused banks and divisions. A wide range of extraordinary items masked the underlying performance of banks, making it difficult to draw further conclusions that were consistent across the sector.
- Retail banks delivered stable performance despite the challenging backdrop. Banks with capital-markets-focused businesses saw revenues fall dramatically.
- Advisory revenues were down, reflecting a lack of client confidence to execute on strategic plans, while market volatility kept debt and equity issuance low, therefore, impacting underwriting revenue.
- “Whether it was volatile and unpredictable markets that made new equity issuances very difficult to execute, or our asset management clients having much less conviction on investment decisions, the broader environment served as a significant headwind to clients moving forward with their business objectives.”
- – David Viniar, CFO, Goldman Sachs
Download our 3Q 2011 bank earnings calls report for details about these themes and to read about other top themes.