Off to a good start: a very positive Q1 for lending revenue
The industry had doubts about how it would top the exceptional year 2022 but we are doing well so far. Total securities lending industry revenues for Q1-2023 are up 24.5% on the same period in 2022, reaching $3.414bn according to S&P Global. This makes Q1-2023 one of the best performing quarters in recent history, with an average lending fee of 53bps - up 39% on the same period in 2022. DataLend confirmed this, revealing a year-onyear worldwide increase across all asset classes of 27%, even with a 5% fall in loan balances.
How do we explain these excellent figures? Firstly activity on US equity specials continues to heat up, and in the EMEA equities space, Swiss equities have pulled ahead. The only notable decline has been on ETF activity. On the fixed income side, corporate bonds fees are on the rise but with the liquidity that will become less abundant, especially with the end of TLTROs and various ECB programs, we all anticipate a rising demand for HQLA assets as well. The second semester will be very interesting indeed.
What are the industry hot topics in 2023
Regulation is the first topic for the lending industry. The main focus now being on the incoming Basel CRR3 and CRD6 putting pressure on balance sheets, which shall push for more client selectivity from agent lenders based on capital requirements and RWA consumption. Regarding CSDR’s settlement disciple regime, we observed that it is now well established but questions around a mandatory buy-in process scheduled for 2025 remain, although it seems SFTs will be exempt. Another theme is coming from the level 1 review of UCITS and AIFMD which might constrain buy side players acting as agent lender for their own funds to justify on the split of the revenues they take.
A second key topic is indemnification, as it is still a dilemma for [...]
