Treasury services provides uplift to US bank earnings

By:
Duncan Kerr
Published on:

US banks’ treasury services businesses provided an uplift to global banking revenues in the first quarter of the year, amid a mixed earnings season that had Bank of America Merrill Lynch (BAML) reporting its first loss in three years.

BAML reported on Wednesday that quarterly earnings were decimated by $6 billion in legal expenses related to penalties for mis-selling mortgages in the years before the 2008 financial crisis.

The expenses were split between a $3.6 billion charge related to its $9.5 billion settlement with the Federal Housing Finance Agency over misleading mortgage sales practices, and $2.4 billion of expenses to increase reserves for previously disclosed litigation.

Overall, BAML quarterly revenues fell to $22.7 billion from $23.6 billion a year ago. However, global banking revenue increased 6% to $4.3 billion in the first quarter of the year compared with a year earlier, reflecting higher net interest income driven by growth in loan balances.

The revenue rise was not enough to offset non-interest expense and increased provision for credit losses, which caused net income in global banking to drop $45 million to $1.2 billion.

BAML said non-interest expense increased 10% to $2 billion, primarily from technology investments in its global treasury services business and lending platforms, as well as new staff and higher litigation expenses.

Within global corporate and commercial banking, the bank’s global treasury services business reported revenues of $1.5 billion – up $91 million from the year-ago period.

Citi similarly reported rising quarterly banking revenues, which nudged up 1% to $4.1 billion compared with a year earlier, the bank said on April 14. This was due largely to marginal growth in the bank’s corporate lending and private banking revenues.

However, investment banking revenues fell 10% as a result of a 19% drop in debt underwriting revenues and a 14% fall in advisory revenues. Equity underwriting revenues were $299 million – up 20% on a year ago.

In the bank’s treasury and trade solutions business first-quarter revenues hit $1.95 billion, up slightly (1%) on the same period a year ago as "growth in fees and volumes were partially offset by the ongoing impact of spread compression globally", the bank said.

In addition, Citi said revenues from its securities services business declined 1% to $561 million versus a year ago, reflecting "lower net interest revenue, partially offset by an increase in assets under custody and overall customer activity".

Both businesses sit within Citi’s institutional client group, which reported a 4% fall in revenues to $9.2 billion, reflecting declines in fixed-income markets and investment banking revenues.

By comparison, JPMorgan, which reported earnings on Friday, reported that banking revenues fell 8% to $2.7 billion in the first quarter, although investment banking fees were up slightly at $1.4 billion versus a year ago. This was largely driven by a 50% rise in advisory fees to $383 million and a 29% rise in equity underwriting fees to $353 million.

In treasury services, which includes cash management, trade, liquidity, commercial and escrow services, the US bank reported a 3% decline in revenues to $1 billion driven by "lower trade finance revenue as well as the impact of business simplification initiatives".

Revenues from its securities and services business rose 4% to $1 billion versus a year ago, "primarily driven by higher net interest income on higher deposits and higher asset-based custody fees".