The public may have been well trained to dislike investment bankers, but for anyone with a pension, they’ve lately been proving their worth.
This week, bank after bank has been reporting on first-quarter profits hammered by monster writedowns from the impact of coronavirus. Yet, for those lucky enough to have an investment banking arm, the smashed-up profits from retail lending have been nicely offset by trading bonds, currencies and other assets the politicians like to treat like kryptonite.
Shares in all our portfolios have hurt a little less as a result.
Barclays, Standard Chartered, HSBC and today even RBS have all had a stellar quarter of markets trading as companies used them to hedge against the boiling seas of interest rate and currency gyrations.
All the banks in that list are a shadow of their former investment banking selves. The dramatic scaling back was done long ago, but RBS and HSBC only recently announced further cuts.
These culls made sense in the normal times before Covid — if you can call that era of easy monetary policy “normal”. Returns were far higher simply lending to companies. But, for the first quarter at least, that is no longer true. At RBS, the commercial bank lost £37 million and NatWest Markets made £206 million. That won’t be the last time.
Banks aren’t wrong to scale back their markets operations. They’ve been a drain on capital for a decade. But before cutting too much, they should remember diversification can be useful in a crisis.
