It’s been a rough week for some banks, as latest quarterly figures show the impact the Covid-19 environment has had on the top and bottom lines of some of the sector’s major players.
French player BNP Paribas reported revenues of €11.7 billion in the second quarter of 2020, up four percent from the same quarter last year. Revenues were up in all three businesses: corporate banking (+15%), global markets (+63.5%), and securities services (+3.6%). The bank noted that equity and prime services were recovering, but revenues were still down 52.8% compared to the second quarter of 2019. Activity in derivatives moved slowly back to normal in a ‘still challenging’ market, increased in the Americas and Apac, and there was only a ‘residual additional’ impact of dividend restrictions in Europe.
Another major European bank, Société Générale, has finalised the strategic review carried out in its global markets business on structured products. Although the French bank’s second quarter and H1 2020 performance was marked by the Covid crisis, with ongoing unfavourable market conditions for structured products in April and May, the rebound in activities from mid-May was very encouraging, according to CEO Frédéric Oudéa. In April and May, structured product activities
According to SRP data, Société Générale issued more than 110,000 structured products in the first quarter of 2020, up 200% from the prior year quarter (36,649 products), making it the most active issuer globally.
Over in the US, broker-dealer Raymond James took a 34% hit in its third quarterly net income (US$172m) compared to the same period a year prior. The firm also reported a five percent drop in Q3 net revenues of US$1.83 billion, largely driven by the impact of lower short-term interest rates on both net interest income the Raymond James deposit programme fees from third-party banks.
In Asia, the situation has been similar. UOB and OCBC have both taken a hard hit to their bottom lines despite a soar of net gains from investment securities as they set aside a significant amount of allowances triggered by Covid-19.
UOB’s net profit fell 30% to SG$1.56 billion in the first half of 2020 compared with a year ago, due to lower margins, higher credit loss and more allowance for non-impaired assets driven by Covid-19. By quarter, SG$703m of the net profit was generated in Q2, down 17.78% from Q1.
For OCBC, net profit slumped 41.81% to SG$1.43 billion in H1 from a year ago despite a stable income of SG$4.56 billion as the oldest bank in Singapore rose allowances by nearly three-fold. By quarter, SG$730m of the profit was achieve in Q2, up SG$32m from the first three months.
Hang Seng Bank reported a pre-tax profit of HK$10.62 billion (US$1.37 billion) in the first half of the year, a 33.19% decline from a year earlier, as net income fell 20.42% to HK$17.43 billion. The tumble resulted from the Covid-19 pandemic, evolving US-China trade tensions, low interest rates and social unrest in Hong Kong, which led to the bank’s expected credit losses and other impairment charges of HK$1.76 billion, over three times H1 19’s number, and a net deficit on property revaluation compared with a net surplus last year.
Technology news never fails to lighten the mood.
Julius Baer has capitalised on its new structured products engine Spark launched in Q4 2019 to provide artificial intelligence (AI) and big data for intermediaries to build personalised solutions for clients, attracting higher volumes in the recent and exceptionally volatile markets of March and April 2020. The Swiss wealth manager’s H1 20 IFRS net profit attributable to shareholders was up 43% to CHF491m and earnings per share (EPS) up 45% to CHF2.28. The new Spark engine is part of the bank’s offering to external asset managers and banks via its Derivatives Toolbox platform.
With the first half of 2020 ravaged by the Covid-19 pandemic, financial professionals are scrambling to shift towards a more accessible client dynamic that can benefit both parties while maintaining proper social distancing measures. US structured products distributor Incapital has released a survey revealing that only 23% of financial advisers (FAs) plan to meet with their clients in-person. Some 48% opt to use Zoom as a means of communication, 41% say they would primarily communicate via phone and 28% have chosen WebEx as their main medium. Some 98% of the surveyed FAs reported being content with the prospects of meeting virtually though 47% expressed their plans to host live in-person events.
One of the lesser-known – but nonetheless very dynamic – structured product markets out there, Poland, is renewing calls to push the retail market forward. The recent turbulent weeks in the financial markets have led to changes in savings and investment portfolios for Polish investors.
Drastic cuts in interest rates by the National Bank of Poland led to a drop in profitability of bank deposits, which had been very popular until recently. On the other hand, in March and April, mass redemptions of participation units in open-end investment funds took place because of panic related to the drop on global stock exchanges and uncertainty about the future of the global economy.
“[Against this backdrop] the most opportunistic investors began to keep a close eye on potential investment opportunities that emerged after the market turmoil,” says Joanna Pluta, member of the management board at the Polish Council for Structured Products. “A focus on structured products was best observed in the case of non-subscription certificates admitted to trading on the Warsaw Stock Exchange.”
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