Cautious clients keep hopes low for investment banking

By Steve Slater LONDON (Reuters) - Political troubles in Russia and the Middle East added to a summer slowdown in trading activity and is likely to leave third quarter revenues for investment banks down from the previous three months, bankers and analysts said. Investment bank revenues can be one of the most volatile aspects of bank earnings. Banks are likely to cut more jobs and pare back businesses in any areas that remain weak in an effort to save costs. Swiss bank UBS and Britain's Royal Bank of Scotland told a financial industry conference on Tuesday that investment bank revenues had remained subdued in the third quarter. Most banks are still expected to report revenues higher than a year ago, saved by a pick-up in activity in September, typically crucial given the seasonal lull in July and August. Major U.S. and European banks will report third-quarter earnings results from mid-October. Few banks have given guidance on their performance for the quarter, which ends on Tuesday. Tom Naratil, chief financial officer for UBS, said geopolitical uncertainty and concerns about monetary policy and global growth are keeping clients cautious, echoing comments the bank made at its second quarter results at the end of July. "We continued to see an environment that is concerning to clients, whether they are institutional clients or wealth management clients," Naratil said at the conference in London. RBS said its corporate and institutional banking revenues, which include its investment bank, had been weaker than expected in the third quarter, without going into detail. Both UBS and RBS have shrunk their investment banks in recent years to shield them from volatility and risk. Analysts predict most investment banks will show a fall in revenue from the second quarter to the third. Recent geopolitical concerns have revolved around Russia and the Middle East, but street protests in Hong Kong may have weighed on Asian-focused investment banks HSBC and Standard Chartered. Their shares have shed around 6 percent and 8 percent respectively over the past week or so. Analysts at JPMorgan this week forecast revenues for the top investment banks will be down about 13 percent in the third quarter from the previous three months. Compared to a year ago, revenues are forecast to be up 12 percent on average. Fixed income, currencies and commodities (FICC) businesses, which accounted for about half investment banks' revenues, have slumped in recent years on the back of tougher regulations and low market volatility. Executives from JPMorgan and Barclays both said earlier this month there were signs that September would help them recover from the subdued summer. Marianne Lake, JPMorgan's chief financial officer, said on Sept. 9 she expected revenues to be down from its strong third quarter in 2013, but by less than the 12 percent year-on-year decline it showed in the first six months of this year. After subdued trading across all markets earlier this year, a more varied landscape had emerged, Lake said. Interest rate products remained weak given a low interest rate environment, but there had been an improvement in foreign exchange trading and emerging markets, she said. JPMorgan's analysts predicted fixed income revenues in the third quarter would be down 17 percent from the second quarter, but come in 12 percent higher than a year ago. Advisory and origination income should dip 12 percent from a strong second quarter but be up 30 percent on the year. Equities revenue is expected to drop 11 percent on the quarter and 4 percent from a year ago, the analysts said. (Reporting by Steve Slater; Editing by Elaine Hardcastle)