Abigail with attitude: Deutsche and Morgan Stanley's earnings challenge
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Abigail with attitude: Deutsche and Morgan Stanley's earnings challenge

The financial landscape is changing and certain macro themes are beginning to emerge.

For several years now, the regulators have been the bugbear of the big banks. Once the world stabilized, the regulators started to crack the whip on numerous issues such as pay, capital ratios and proprietary trading. In 2013, a new ogre emerged in the form of litigation risk. This is making big inroads into banks’ profitability and it is difficult to be sure when and where such contingent liabilities will end. Bank investors should beware.

However, I can see other more positive developments. Growth is returning to most of the main economies. This will be good for the big banks. "As the economy goes, so go the banks," a hedge fund manager ruminated. As yield curves steepen, banks will be able to make money on the differential between short-term rates (where they can fund themselves) and longer-term rates (where they can lend or invest).

Also, growth implies ‘animal spirits’, which in turn means that traditional corporate finance could increase substantially. Last year there were IPOs from numerous companies including Twitter and Hilton, and blockbuster deals such as the Vodafone/Verizon transaction or the Dell management buyout.

If equity markets are buoyant, brokers are back.

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