Key themes from earnings calls 3Q 2017
Although 3Q 2017 results were not uniformly positive, the tone of earnings calls was notably upbeat. Management at banks across regions all pointed to an improved economic outlook and outlined their short- and medium-term plans to invest in growth opportunities and optimization initiatives as they seek to drive sustainable and improved financial performance.
Mixed operating conditions drive diverging results
- Interest rates rise in the US and Canada with few geopolitical or macroeconomic shocks, while Europe experiences low interest rates and low levels of volatility challenging capital markets.
- Most banks report higher revenues compared to 3Q 2016.
- Return on average equity drops from 3Q 2016 levels at only eight banks, with no banks generating a net loss.
- Two biggest drivers of ROAE performance are the impact of reshaping activities and conduct-related costs.
Banks identify revenue growth opportunities
- Most of the banks in this analysis were able to generate positive operating leverage in 3Q 2017.
- Banks anticipate further expense relief as the industry continues to move past outsized legal charges and as spending on regulatory change programs stabilizes and even begins to decline.
- Digitalization continues to be a strategy for revenue growth but banks’ approaches to digital investments are evolving, as they seek to provide more of an end-to-end experience and enlist the help of partners when they reach the limits of their own capabilities.
- Banks see effectively optimizing the business as an immediate priority over making investments in digital growth opportunities to grow future revenues.
Optimistic outlook tempered by awareness of risks
- Concerns among banks include potential impacts from the outcome of the Brexit negotiations, the final Basel capital rules, ongoing regulatory fragmentation, cyber risk and immediate risk associated with the implementation of IFRS 9.