Key themes from earnings calls 4Q 2017

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Management at most banks characterized results as “strong,” pointing to resilient underlying performance and progress on strategic objectives.

2017 performance trends

  • All but six of the banks included in this analysis reported higher revenues in 2017 than in 2016.
  • Expense performance was mixed, reflecting increased performance-based compensation, investments in growth initiatives and the impact of restructuring and compliance costs.
  • Loan growth accelerated in 2017, with eight banks generating a double-digit increase in end-of-period loans from 2016.
  • Finally, while return on equity (ROE) dropped at 11 banks when compared to 2016, all of the declines were driven by non-recurring items, including onetime charges related to the new US tax legislation.

The outlook for 2018 is optimistic…


“The macro backdrop has only gotten stronger with all major global markets having returned to growth and the US poised to benefit from a more competitive tax regime.” - John Gerspach, CFO, Citigroup


Banks’ optimism can also be attributed to:

  • Prospect of rising interest rates in a number of countries
  • Expected benefits from the US tax legislation enacted in late December 2017
  • Emerging regulatory clarity

… and revenue momentum is building …

Most banks reported an increase in revenues from 2016. Banks benefitted from interest rate increases in the US and the investments made in fee-generating businesses such as investment banking and wealth management. Higher net interest income and diversified sources of fee income offset the material weakness in fixed income trading that dominated headlines throughout 2017.

Looking forward, banks are confident that the positive revenue trends that emerged in 2017 will continue in coming quarters.

… giving banks the confidence to revisit their strategic targets …

Most banks have either met or exceeded their strategic objectives and targets, including de-risking and restructuring efforts, simplification and improving efficiency and strengthening capital positions.

Due to the expectation that a positive macroeconomic backdrop and US tax reform will provide significant tailwinds in 2018, many banks have boosted their strategic targets for efficiency and profitability for 2018.

Strategic priorities for the coming year include maintaining cost discipline and capital sufficiency, while also accelerating investments to drive sustainable revenue growth and profitability.

EY-global-key-4q-2017

 

… and boost investments in digital transformation in 2018.


“As much of the last 10 years were driven by regulatory change, I believe the next decade will be shaped by technology.” - Sergio Ermotti, CEO, UBS


Bank management is investing in robotics, artificial intelligence, cloud computing, machine learning and open source with a focus on improving customer experience, protecting against cyber threats and digitalizing end-to-end processes within the bank.

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