HSBC’s Securities Trading Portfolio Poised To Grow The Most Among European Investment Banks Over Coming Years

by Trefis Team
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Securities trading is a key revenue source for an investment bank, and has seen several ups and downs in the last decade. In order to understand the underlying trends better, Trefis highlights the changes in the Securities Trading Portfolio of the 5 largest European Investment Banks in an interactive dashboard. The banks included in our analysis are Barclays, HSBC, Deutsche Bank, Credit Suisse and UBS. Besides summarizing the trends in this portfolio over the years, the dashboard includes our forecast for the securities trading portfolio for each of these banks, and also captures the impact of changes on their Securities Trading Revenues. While all European banks have seen their trading portfolio shrink considerably since 2008, we believe that HSBC is in an enviable position where it can leverage its geographical diversification to report a stronger growth in securities trading assets and revenues compared to its peers over coming years. You can also see more Trefis data for financial services companies here.

What is Securities Trading?

Securities Trading is a key revenue source for an investment bank, which involved various activities related to buying and selling of financial securities or other instruments on behalf of their clients. It can be divided into Equity Trading and FICC (Fixed Income, Currencies & Commodities) Trading.

How Have Equity Trading Revenues, Portfolio and Yield Of Major European Banks Changed Over The Years and What’s The Forecast?

  • Equity trading revenues of the European banks have plunged from $24 billion in 2007 to $13 billion in 2018 as the banks have shrunk their equity trading desks since the downturn. Per Trefis estimates, Equity Trading revenues are expected to gradually increase to $14 billion by 2024 – a figure roughly 40% below the pre-crisis level of $24 billion.
  • Equity trading assets stood at $770 billion in 2007 while this figure declined by roughly 60% to $307 billion in 2018. The banks have restructured their business model around less complex and less capital-intensive activities, including retail banking and wealth management. However, improved capital market valuation and consolidation in the industry should help Equity trading assets increase to $370 billion by 2024.
  • After declining sharply from 3.1% in 2007 to 1.9% in 2008, equity trading yield for these banks spiked to 6% in 2009 before normalizing to 4.5% in 2012. The figure has largely nudged lower over subsequent years – sliding to 4.1% by 2018. We expect this figure to decline further to reach around 3.8% by 2024.

How Have FICC Trading Revenues, Portfolio and Yield Of Major European Banks Changed Over The Years and What’s The Forecast?

  • FICC trading became the primary revenue driver for European investment banking for several years immediately after the financial crisis of 2008. Although, FICC revenues plunged to -$30 billion in 2008, with the FICC assets sharply declining to $1.4 trillion, this sector flourished after the crisis.
  • FICC trading revenues increased to $37 billion in 2012, an increase of nearly 170% from its pre-crisis levels, mainly due to a surge in FICC trading yield which grew from -2.1% in 2008 to 3.5% in 2012.
  • Banks were more willing to deal in debt securities as margins on the debt side of investment banking held up much better than on the equities side due to the complex structure of debt markets.
  • However, FICC trading revenues have continuously slid since 2012, declining by roughly 50% to $19 billion in 2018 as trading yields normalized and the European banks reduced their trading business to focus more on the traditional banking activities in the wake of stricter regulatory requirements.
  • Per Trefis estimates, FICC Trading revenues are expected to gradually increase to $21 billion by 2024 while trading assets are expected to increase at a rate of 2% to approximately $650 billion.

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