Outlook brightens for global transaction banking, securities services revenues
The outlook has improved for global transaction banking and securities services revenues as banks employ effective hedging strategies to navigate interest rate risks.
Revenues at the world's 12 largest securities services banks jumped to a combined $41.6 billion in 2023 — its highest level since 2016 — on the back of rising interest rates, according to Coalition Greenwich, a division of CRISIL, an S&P Global company. The momentum continued in the first half of 2024, with revenue increasing 3% to $21.3 billion from the prior-year period.
While central banks have started to cut rates, revenues at the top securities services banks are set for further growth in the second half of 2024 as lenders have been quick to build up defenses against the risk of falling rates, said Eric Li, head of global banking research at Coalition Greenwich.
Conversely, global transaction banking revenues are expected to marginally decline in 2024 after reaching their highest level on record in the previous year. Combined revenues at the world's 10 largest transaction banks fell 2% year over year to $22.2 billion in the first half of 2024, Coalition Greenwich research found.
However, the current outlook for transaction banking revenues is much better than the originally anticipated drop for this year due to banks' structural hedges, according to Li. Trade finance is also poised to improve in the second half of 2024 with revenues expected to increase slightly.
"We think the benefit is going to last for a few quarters at least, which means it's going to significantly soften the blow coming from the rate cuts," Li told S&P Global Market Intelligence in an interview.
Li also expects the positive effect of hedging to boost the revenues of securities services banks in 2025, despite the likelihood of more rate cuts that year.
"Across the Street, every bank has been managing their rate exposure so well that the decline coming from rate cuts will be very well contained compared to our initial forecast," Li said.
An expected increase in deposit balances in 2025 also would partly offset the negative impact of rate cuts, according to Li.
In the US, large bank deposit trends strengthened in the third quarter as executives set expectations for reductions in funding costs after the Federal Reserve's first interest rate cut for the cycle. Deposits at the 20 largest US banks increased by a median 1.6% sequentially, according to S&P Global Market Intelligence data.
Net interest margins (NIMs) for the big US banks increased a median 2 basis points in the third quarter, marking a turnaround from a decline in the second quarter. Community banks also saw improved median NIMs in the Midwest, South Central and Southeast regions. In the South Central region, 64% of the total community banks reported year-over-year NIM improvements.
?
Deep Dives
In-depth features looking at the impact of major news developments in key industries.
Financials
Bank stocks fall after Fed cuts rates by 25 basis points
US bank stocks fell after the Federal Reserve announced it would cut rates by 25 basis points to put the federal funds rate in the range of 4.5% to 4.75%.
—Read more on S&P Global Market Intelligence .
Japanese megabanks' fiscal H1 profits to rise YOY on higher rates, loan growth
Net income at Mitsubishi UFJ Financial is forecast to grow 5.6% year over year in the fiscal first half to ￥979.21 billion, according to consensus estimate data from Visible Alpha, a part of S&P Global Market Intelligence.
—Read more on S&P Global Market Intelligence .
?
Insurance
US annuities on track to have another record-breaking year in 2024
Annuity premiums and considerations totaled $300.67 billion in the first half of 2024, an increase of roughly $59.6 billion from $241.07 billion in the first half of 2023.
—Read more on S&P Global Market Intelligence .
?
Fintech
First Carolina Bank mitigates 3rd-party risks by acquiring external partner
By acquiring fintech partner BM Technologies, First Carolina Bank hopes to keep the benefits of banking as a service but in a more cost-efficient way.
—Read more on S&P Global Market Intelligence .
Real Estate
Among 25 largest REITs, 11 beat funds from operations per share estimates in Q3
Healthcare real estate investment trust Welltower reported the largest earnings beat of the group, followed by shopping center REIT Kimco Realty.
—Read more on S&P Global Market Intelligence .
?
Private Equity
Slow adoption, profitability path hamper private equity interest in EVs
Global private equity and venture capital deal value in electric vehicles and EV components in the first three quarters of 2024 stood at $3.32 billion in the first three quarters, below the $4.03 billion raised by non-EV companies.
—Read more on S&P Global Market Intelligence .
?
Credit and Markets
US bankruptcies on track for 14-year high after 60 filings in October
If the pace of filings in October continues through the next two months, bankruptcies in 2024 will exceed the 638 bankruptcies filed in full-year 2020 to set a new 14-year high.
—Read more on S&P Global Market Intelligence .
?
Energy and Utilities
RRA Research: Energy utility capex plans on track to all-time highs from 2025 to 2027
Utility investments are expected to be elevated over the next several years due to state renewable portfolio standards and federal incentives as well as pent-up demand to replace or modernize aging infrastructure.
—Read more on S&P Global Market Intelligence .
COP29: Climate work continues with or without US, global diplomats say
The United Nations COP29 climate summit in Baku, Azerbaijan, will focus on boosting climate finance for developing nations. The US delegation is expected to play a diminished role after the Nov. 5 election of Donald Trump.
—Read more on S&P Global Market Intelligence .
Hilcorp Energy leads debt issuers as oil, gas capital raises decline in October
US and Canadian oil and natural gas companies covered by S&P Global Market Intelligence raised $5.88 billion, down from more than $10 billion in the previous month.
—Read more on S&P Global Market Intelligence .
?
Technology, Media and Telecommunications
451 Research: Generative AI Digest: Record VC funding round for OpenAI
OpenAI's huge funding round included an "exclusivity request" that reportedly asked investors not to back rival AI startups. On the regulatory front, an AI safety bill passed by the California legislature in August was vetoed by the governor.
—Read more on S&P Global Market Intelligence .
Tech M&A outlook mixed under new Trump administration
While a change in M&A guidelines could boost deal activity more broadly, the outlook for the tech sector is less certain.
—Read more on S&P Global Market Intelligence .
?
Metals and Mining
Nickel pricing comes down to Indonesian policy
The Indonesian government recently outlined plans to regulate its nickel ore supply and demand to help bolster prices. The island nation produced an estimated 53.1% of the world's mined nickel in 2023.
—Read more on S&P Global Market Intelligence .
?
Supply Chain
Toy supply chains avoid 2024's hurdles
The toy industry has one of the most seasonal supply chains, raising the stakes for ensuring delivery of the right products in a narrow time frame.
—Read more on S&P Global Market Intelligence .
?
The Week in M&A
?
Atlantic Union hopes capital raise will help speed approval of Sandy Spring deal
Read on S&P Global Market Intelligence
Hope Bancorp-Territorial deal is Hawaii's biggest of the last decade
Read on S&P Global Market Intelligence
Deal Profile: Michigan-based DFCU Financial to acquire Florida-based Winter Park National Bank
Read on S&P Global Market Intelligence
Large M&A deals sluggish to start Q4 2024
Read on S&P Global Market Intelligence
?
The Big Number
Read on S&P Global Market Intelligence
?
Trending
—Read more on S&P Global Market Intelligence and follow Oil by S&P Global Commodity Insights on LinkedIn.