Key themes from the 2Q 2016 earnings calls
Revenues recover from the dismal first quarter but compare unfavorably to 2Q 2015, underscoring the ongoing challenge to deliver sustainable growth.
The headline event in 2Q 2016 was obviously the UK referendum on leaving the European Union. Before the vote, risk aversion increased, investment banking and wealth management clients stopped transacting and loan demand in the UK stalled. And, while many banks reported that the post-Brexit vote volatility provided a welcome tailwind for fixed income trading, the fact that markets stabilized relatively quickly seems to indicate that this was a temporary benefit.
It is not possible to predict what the long-term impacts of the UK vote will be, but there is widespread consensus that it will lead to a deceleration of growth in the UK and Europe, and may possibly have a negative effect on global GDP prospects. This will likely result in episodic volatility and further interest rate pressure, both of which undermine the outlook for revenue growth.
At RBS, CEO Ross McEwan cautioned, “The referendum result has created uncertainty and could, potentially, make some of our long-term financial targets more challenging to achieve by 2019.” Similarly, UBS CEO Sergio Ermotti said, “We believe it no longer makes sense to provide short-term return guidance. However, we still believe we can achieve our targets in a more normalized environment.”
In other developments, following an extremely challenging first quarter, the operating environment for banks stabilized temporarily at the start of 2Q 2016. Many banks were able to highlight encouraging trends on cost management, with 20 of the 32 banks included in this analysis reporting lower expenses when compared to 2Q 2015.