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Asset Servicing

Securities lending brings in $2.5 billion in revenue for financial firms in Q3

Securities lending activity in the third quarter delivered a total of $2.5 billion in revenue for financial services firms, the highest amount since the same quarter in 2008, according to a report Thursday by IHS Markit.

The revenue for the latest quarter was up 6% vs. the third quarter of 2017 but was the highest since the $2.9 billion in revenue in the three months ended Sept. 30, 2008, according to the report.

Also, securities lending revenue in the first three quarters of this year totaled $8.3 billion, the highest amount for the time period since the first three quarters of 2008 — though the latest total is 27% less than the 2008 total.

The growth in revenues so far in 2018 is because of higher demand for corporate bonds and some special situations for equity lending, high-quality collateral needs and increased emerging markets equity demand, particularly in Asia, the report said.

The third quarter of 2008 "retains the title of most lending revenue on record for the third quarter," the report said. "That highlights a key aspect of securities lending: revenues improve in down markets, helping to offset mark to market losses for beneficial owners. While less extreme, the improvement in securities lending revenues this year has helped to offset declining valuations in some sectors."

The report also said robust securities lending demand across all asset classes should lead to a continued upward trend in revenue through the end of 2018.