Barclays on U.S. Brokers: Weekly Capital Markets Conditions Update

Barclays on U.S. Brokers: Weekly Capital Markets Conditions Update by Roger A. Freeman

MACRO: Last week saw notably weaker markets across asset classes, particularly equities, with higher volatility and slower volumes. Investment banking activity declined sequentially. Market instability and seasonal effects are likely to slow investment banking volumes further in coming weeks.

BROKERS: With persistently high market volatility and mixed market volumes, compared to our baseline assumption of sequentially improved capital markets
conditions in 4Q, we believe the trading environment is shaping up to be more
challenging for the brokers than our existing estimates. While it is still quite early to make a fuller assessment, we believe the risk to our trading revenue estimates is to the downside, particularly in equities. Running the QTD investment banking revenues, we find that the continued subdued pace has had a negative influence on revenue generation, even vs. the historically weak 3Q11. At this point, given the likely coming seasonal slowdown, we expect industry investment banking revenue to come in somewhat below the $14bn set in 3Q11, vs. our Goldman Sachs (NYSE: GS) and Morgan Stanley (NYSE: MS) 4Q forecasts of +30-35%.

E-BROKERS: October was an in-line month for E*TRADE (Nasdaq: ETFC), in our view. Trading activity rose in line with expectations and net inflows are on pace with our quarterly estimates. However, net account adds were unexpectedly weak as gross adds slowed.

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