Íø±¬³Ô¹Ï lending Q1 results
28 April 2020
In the wake of the COVID-19-fuelled disruption and volatility, the first of the Q1 revenue reports show that some did not escape unscathed
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Data from IHS Markit shows global securities lending revenue for Q1 decreased by 5.5 percent year-over-year (YoY), despite an increase in borrow demand for some asset classes, most notably exchange-traded funds.
It goes without say that all revenue figures come in the context of the intense market volatility and disruption brought on by the COVID-19 pandemic.
All regions saw a decline in equity revenue for Q1 and, notably, global lending revenue for March alone was down by 18 percent YoY.
European equity revenues fell by 22 percent YoY in Q1 to total $282 million, the lowest take-home since Q3 2014.
North American equity revenues came in at $884 million for Q1, a decline of 9 percent compared to Q4 2019.
Asia equity revenues totalled $427 million in Q1, a 22 percent decline YoY and a 2 percent decline from Q4 figures, making it the worst lending revenue quarter for Asian equities since Q2 2017.
However, according to IHS Markit’s Sam Pierson, the drivers behind this downturn was a complex combination of evolving borrower demand and spread incomes.
Pierson explains that, compared with Q1 2019, loan balances and fees are down, depressing revenues, while lendable assets have increased, pushing down on utilisation.
In this context, it’s interesting that all bar one of the financial entities that reported securities lending data saw modest growth in revenue for the first quarter of 2020.
BlackRock
BlackRock’s securities lending revenue for the first quarter of 2020 increased by 6.8 percent year-over-year.
The asset manager’s lending business achieved $158 million in earnings for Q1, compared to 148 million during the same period last year. This represents BlackRock’s best first-quarter revenue in several years.
Between 2013 – when BlackRock first started to report securities lending revenue individually from related services – and 2019, its average Q1 revenue was $132 million, with a low of $105 million in Q1 2014 and a high of $155 million in Q1 2018.
Earnings from securities lending in the last quarter were, however, down from the $169 million reported in Q4 2019.
BlackRock’s lending business performance is also reporting alongside revenue from investment advisory, administration fees. The group’s combined revenue was $3 billion, up from $2.8 billion in Q1 2019.
Overall revenue from fees for these services was also down compared to Q4 when the asset manager earned $3,089 million.
In its report for the quarter, BlackRock says the year-on-year growth for this services grouping was primarily driven by organic growth, the net positive impact of market beta and foreign exchange on average assets under management (AUM).
It adds that the earnings increase came despite the impact of recent market volatility, and the effect of one more day in the quarter, partially offset by strategic pricing changes to certain products.
Meanwhile, the quarter-to-quarter drop off was driven by the impact of lower average AUM related to recent market declines and the effect of one less day in the quarter, partially offset by the impact of organic growth, BlackRock adds.
Overall, BlackRock saw revenue increase 11 percent year-over-year driven by higher base fees and 34 percent growth in technology services revenue, reflecting the impact of the acquiring eFront, a financial services provider, and continued momentum in the growth of Aladdin, the flagship risk management platform managed by BlackRock Solutions.
BNY Mellon
BNY Mellon posted modest growth in its securities lending revenue for Q1, compared to the same period in 2019.
Revenue for the bank’s agency lending business, which sits under its investment services business, came in at $46 million for the first three months of the year, up 5 percent from $44 million reported in Q1 2019.
Íø±¬³Ô¹Ï lending revenue for Q1 was also up 15 percent from Q4 2019.
BNY Mellon’s agency lending business reported a market value of securities on-loan of $389 billion, up from $377 billion in Q1 2019 and $378 billion Q4 2019.
These on-loan figures do not include securities for which BNY Mellon acts as agent on behalf of CIBC Mellon clients, which represents $59 billion in Q1, down from $62 billion during the same period 2019.
Elsewhere, BNY Mellon’s clearance and collateral management business saw earnings increase 9 percent in Q1, compared to the equivalent period in the year prior.
Revenue for the past quarter hit $300 million, up from $276 million in Q1 2019 and $280 million in Q4 2019.
In its report, BNY Mellon says both increases primarily reflect growth in collateral management and clearance volumes and higher net interest revenue.
Northern Trust
Northern Trust achieved a 3 percent bump in its securities lending revenue in Q1, compared to the same period last year.
The US bank reported earnings of $23.4 million from the first three months of 2020, up from $22.7 million in Q1 2019 and $22.6 million in Q4 2019.
Q1 marks Northern Trust’s best quarter for securities lending revenue since Q1 2018 when it chalked up $26 million.
It is a return to form for the bank, which saw its securities lending revenue underperform mildly in 2019 in line with the overall market’s lacklustre performance compared to 2018’s bumper year.
Northern Trust averaged quarterly revenue of $21.8 million in 2019, compared to an average quarterly return of $25.5 million in 2018 and $24.1 million in 2017.
Íø±¬³Ô¹Ï lending sits under Northern Trust’s Corporate and Institutional Services (C&IS) Trust, which offers asset servicing solutions to buy-side institutions.
In 2019, C&IS Trust, investment, and other services fees brought in $2.2 billion, of which securities lending earning represented 4 percent ($87.2 million).
The bank says annual securities lending revenue decreased $14.8 million, or 15 percent, from 2018 to 2019, as a result of lower spreads and loan volumes.
Meanwhile, Northern Trust reported $10.9 trillion assets under custody and administration for Q1 2020, representing a 10 percent decrease from Q4 2019’s figure of $12.1 trillion.
Total fees from custody and fund administration were recorded at $394.9 million for Q1, down 1 percent from Q4 2019 but an increase of 5 percent in Q1 2019.
According to the Northern Trust, corporate and institutional services custody and fund administration fees decreased primarily due to unfavourable currency translation, partially offset by favourable lagged markets and new business.
State Street
State Street recorded its lowest quarterly securities finance revenue in six years for Q1.
The bank earned $92 million from its securities finance activities in the first three months for the year, marking the first time it has failed to break into triple digits since 2014.
Revenue for Q1 was down 22 percent compared to same period last year, which the bank says was due to lower spreads and enhanced custody balances.
Its first-quarter results were also down 17 percent on the $111 million it earned in Q4 2019 as a result of lower spreads and balances, the bank says.
In its first report for 2020, State Street explains that its securities finance revenue drop-off was due to, among other factors, the value of equity and fixed-income markets, market interest and foreign exchange rates, the volume of client transaction activity, competitive pressures in the investment servicing and asset management industries, and the timing of revenue recognition with respect to software and processing fee revenues.
State Street also attributed these factors to the negative growth in its Q1 revenue from servicing fees, management fees, trading fees.
The last time the Boston headquartered bank failed to earn at least $100 million from its securities financing business was Q3 2014 when fell just short with $99 million. In Q1 of the same year it only took home $85 million.
At the time the bank said the Q4 decline was due to a seasonal decline in securities finance and a summer slowdown in trading services. Meanwhile, its Q1 2014 revenue was actually up 20 percent from Q4 2013, which the bank attributed to new business in its enhanced custody business.
More broadly, the bank chalked up modest growth in its overall fee revenue for Q1. Despite being offset by the securities finance decline, total fee revenue hit $2,399 million in Q1, up from $2,368 million in Q4 2019 and $2,260 million in Q1 2019.
It goes without say that all revenue figures come in the context of the intense market volatility and disruption brought on by the COVID-19 pandemic.
All regions saw a decline in equity revenue for Q1 and, notably, global lending revenue for March alone was down by 18 percent YoY.
European equity revenues fell by 22 percent YoY in Q1 to total $282 million, the lowest take-home since Q3 2014.
North American equity revenues came in at $884 million for Q1, a decline of 9 percent compared to Q4 2019.
Asia equity revenues totalled $427 million in Q1, a 22 percent decline YoY and a 2 percent decline from Q4 figures, making it the worst lending revenue quarter for Asian equities since Q2 2017.
However, according to IHS Markit’s Sam Pierson, the drivers behind this downturn was a complex combination of evolving borrower demand and spread incomes.
Pierson explains that, compared with Q1 2019, loan balances and fees are down, depressing revenues, while lendable assets have increased, pushing down on utilisation.
In this context, it’s interesting that all bar one of the financial entities that reported securities lending data saw modest growth in revenue for the first quarter of 2020.
BlackRock
BlackRock’s securities lending revenue for the first quarter of 2020 increased by 6.8 percent year-over-year.
The asset manager’s lending business achieved $158 million in earnings for Q1, compared to 148 million during the same period last year. This represents BlackRock’s best first-quarter revenue in several years.
Between 2013 – when BlackRock first started to report securities lending revenue individually from related services – and 2019, its average Q1 revenue was $132 million, with a low of $105 million in Q1 2014 and a high of $155 million in Q1 2018.
Earnings from securities lending in the last quarter were, however, down from the $169 million reported in Q4 2019.
BlackRock’s lending business performance is also reporting alongside revenue from investment advisory, administration fees. The group’s combined revenue was $3 billion, up from $2.8 billion in Q1 2019.
Overall revenue from fees for these services was also down compared to Q4 when the asset manager earned $3,089 million.
In its report for the quarter, BlackRock says the year-on-year growth for this services grouping was primarily driven by organic growth, the net positive impact of market beta and foreign exchange on average assets under management (AUM).
It adds that the earnings increase came despite the impact of recent market volatility, and the effect of one more day in the quarter, partially offset by strategic pricing changes to certain products.
Meanwhile, the quarter-to-quarter drop off was driven by the impact of lower average AUM related to recent market declines and the effect of one less day in the quarter, partially offset by the impact of organic growth, BlackRock adds.
Overall, BlackRock saw revenue increase 11 percent year-over-year driven by higher base fees and 34 percent growth in technology services revenue, reflecting the impact of the acquiring eFront, a financial services provider, and continued momentum in the growth of Aladdin, the flagship risk management platform managed by BlackRock Solutions.
BNY Mellon
BNY Mellon posted modest growth in its securities lending revenue for Q1, compared to the same period in 2019.
Revenue for the bank’s agency lending business, which sits under its investment services business, came in at $46 million for the first three months of the year, up 5 percent from $44 million reported in Q1 2019.
Íø±¬³Ô¹Ï lending revenue for Q1 was also up 15 percent from Q4 2019.
BNY Mellon’s agency lending business reported a market value of securities on-loan of $389 billion, up from $377 billion in Q1 2019 and $378 billion Q4 2019.
These on-loan figures do not include securities for which BNY Mellon acts as agent on behalf of CIBC Mellon clients, which represents $59 billion in Q1, down from $62 billion during the same period 2019.
Elsewhere, BNY Mellon’s clearance and collateral management business saw earnings increase 9 percent in Q1, compared to the equivalent period in the year prior.
Revenue for the past quarter hit $300 million, up from $276 million in Q1 2019 and $280 million in Q4 2019.
In its report, BNY Mellon says both increases primarily reflect growth in collateral management and clearance volumes and higher net interest revenue.
Northern Trust
Northern Trust achieved a 3 percent bump in its securities lending revenue in Q1, compared to the same period last year.
The US bank reported earnings of $23.4 million from the first three months of 2020, up from $22.7 million in Q1 2019 and $22.6 million in Q4 2019.
Q1 marks Northern Trust’s best quarter for securities lending revenue since Q1 2018 when it chalked up $26 million.
It is a return to form for the bank, which saw its securities lending revenue underperform mildly in 2019 in line with the overall market’s lacklustre performance compared to 2018’s bumper year.
Northern Trust averaged quarterly revenue of $21.8 million in 2019, compared to an average quarterly return of $25.5 million in 2018 and $24.1 million in 2017.
Íø±¬³Ô¹Ï lending sits under Northern Trust’s Corporate and Institutional Services (C&IS) Trust, which offers asset servicing solutions to buy-side institutions.
In 2019, C&IS Trust, investment, and other services fees brought in $2.2 billion, of which securities lending earning represented 4 percent ($87.2 million).
The bank says annual securities lending revenue decreased $14.8 million, or 15 percent, from 2018 to 2019, as a result of lower spreads and loan volumes.
Meanwhile, Northern Trust reported $10.9 trillion assets under custody and administration for Q1 2020, representing a 10 percent decrease from Q4 2019’s figure of $12.1 trillion.
Total fees from custody and fund administration were recorded at $394.9 million for Q1, down 1 percent from Q4 2019 but an increase of 5 percent in Q1 2019.
According to the Northern Trust, corporate and institutional services custody and fund administration fees decreased primarily due to unfavourable currency translation, partially offset by favourable lagged markets and new business.
State Street
State Street recorded its lowest quarterly securities finance revenue in six years for Q1.
The bank earned $92 million from its securities finance activities in the first three months for the year, marking the first time it has failed to break into triple digits since 2014.
Revenue for Q1 was down 22 percent compared to same period last year, which the bank says was due to lower spreads and enhanced custody balances.
Its first-quarter results were also down 17 percent on the $111 million it earned in Q4 2019 as a result of lower spreads and balances, the bank says.
In its first report for 2020, State Street explains that its securities finance revenue drop-off was due to, among other factors, the value of equity and fixed-income markets, market interest and foreign exchange rates, the volume of client transaction activity, competitive pressures in the investment servicing and asset management industries, and the timing of revenue recognition with respect to software and processing fee revenues.
State Street also attributed these factors to the negative growth in its Q1 revenue from servicing fees, management fees, trading fees.
The last time the Boston headquartered bank failed to earn at least $100 million from its securities financing business was Q3 2014 when fell just short with $99 million. In Q1 of the same year it only took home $85 million.
At the time the bank said the Q4 decline was due to a seasonal decline in securities finance and a summer slowdown in trading services. Meanwhile, its Q1 2014 revenue was actually up 20 percent from Q4 2013, which the bank attributed to new business in its enhanced custody business.
More broadly, the bank chalked up modest growth in its overall fee revenue for Q1. Despite being offset by the securities finance decline, total fee revenue hit $2,399 million in Q1, up from $2,368 million in Q4 2019 and $2,260 million in Q1 2019.
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