US bank earnings: Treasury services revenues stand tall against investment banking fees

By:
Duncan Kerr
Published on:

The US bank earnings season kicked off this week with Bank of America Merrill Lynch and JPMorgan’s treasury services businesses delivering solid revenues to their corporate and investment banking divisions.

Fourth-quarter revenues from BAML’s global banking business rose 9% on a year earlier to hit a record of $4.3 billion, in part supported by increased revenues of $1.5 billion from its treasury services business.

Such bumper revenues, however, failed to halt a fall in fourth-quarter net income to $1.3 billion within global banking, and due to higher provision for credit losses as BAML built reserves linked with its loan growth.

The bank said average loan and lease balances increased $36.5 billion to $268.8 billion from a year earlier, with growth primarily in its commercial and industrial loan portfolio and the commercial real estate portfolio.

At $1.5 billion, revenues from BAML’s treasury services business compare well with the bank’s fourth-quarter investment banking fee haul, which hit $1.7 billion – up 9% on the same period a year earlier.

BAML’s global treasury services business focuses on corporate and commercial banking clients, and includes deposits, treasury management, credit card, FX, short-term investment and custody solutions.

By comparison, JPMorgan’s treasury services business includes cash management, trade, liquidity, and commercial card and escrow services.

The bank reported fourth-quarter revenues in treasury services of $1 billion – down 7% on the previous year and driven by lower trade finance revenues. Treasury services sits within JPMorgan’s corporate and investment banking division, which reported a 57% fall in net income to $858 million in the fourth quarter compared with a year earlier.

The bank said the fall in net income, and despite the CIB division generating net revenues of $6 billion, was driven largely by lower revenue and lower benefit from the provision from credit losses.

Total banking revenue in its CIB division was $3 billion – down 4% on the previous year. Revenues of $1 billion in treasury services compare well with fee earnings from its investment banking business, which fell 3% to $1.7 billion in the fourth quarter compared with the same period a year ago.

Despite a 65% increase in equity underwriting fees to $434 million, this was not enough to offset the impact of lower debt underwriting and advisory fees, which dropped 19% and 7%.

Revenues in JPMorgan’s securities services business, which some banks such as Citi incorporate into their global transaction services business, were up 3% on the same period a year earlier to $1 billion. This, the bank said, was primarily driven by higher custody and fund services revenue, largely from higher assets under custody and higher deposits.

Citi was the latest to report fourth-quarter earnings, with its transaction services business generating flat revenues of $2.5 billion compared to the same period the year before. Net income dipped 1% to $778 million, as lower operating expenses were offset by a higher effective tax rate, the bank said on January 16.

Citi’s transaction service business incorporates treasury and trade solutions, and securities and fund services. It sits with the bank’s securities and banking business within Citi’s institutional client group.

Revenues in securities and banking business were up slightly on the year before at $4.5 billion, with net income of $960 million. Investment banking revenues were up 3% at $1 billion, supported by a 73% and 29% increase in equity underwriting and advisory revenues to $282 million and $266 million. Debt underwriting revenues fell 23% to $488 million.

Breaking down the transaction services revenues, Citi said revenues in its treasury and trade solutions business were roughly flat at $1.9 billion compared to the year before, as growth in loans and deposits “was offset by the ongoing impact of spread compression globally”.

Revenues in the securities and fund services business were up 5% at $675 million on the year before, as “higher settlement volumes and fees were partially offset by lower net interest spreads”, Citi said. Average deposits and other customer liability balances grew 9% versus the year before to $465 billion, and assets under custody increased 10% to $14.5 trillion.