Investment banks' revenues look set to soar as Trump mulls regulatory relief

Global investment banks are set to benefit from a more supportive operating environment in 2017 as US President Donald Trump and his European counterparts look to ease the tighter regulations slapped on the industry in the wake of the global financial crisis, according to a fresh market assessment.

In a recent analysis piece for its clients, S&P Global Ratings noted that 10 years after the onset of the financial crisis, the investment banking industry has transformed into a "smaller business line" with more appropriate capital and liquidity resources for the risks it runs.

Furthermore, the agency opined that the regulatory climate has shifted in recent months as the Trump administration considers a recalibration of the US regulatory regime, including the Dodd-Frank Act, and European authorities push back against a strict calibration of the so-called "Basel IV package".

Such a regulatory relaxation could support profitability and shareholder payouts but "might be detrimental to creditors, depending on the scale of the changes and banks' responses to them," S&P added.

Improved business confidence and steeper yield curves are currently fuelling client activity at investment banks, it reported: "Our base-case projection is that year-on-year revenue growth will be about 10% in the first quarter results that banks will shortly announce, and about 5% over the full year."

S&P also said that despite the positive structural changes since the financial crisis, such as lower proprietary trading and inventory positions, it sees capital market activities as generally "more cyclical and risky than traditional, well-managed retail and commercial banking".