In a presentation at the Finadium Investors in Securities Lending Conference in London, James Palmer, product specialist at DataLend, revealed that revenue for Q1 hit $2.05 billion, down $247 million from Q1 2016.
The drop off was primarily driven by poor equity revenue that was partly mitigated by an uptick in fixed income revenue, which Palmer put down to improved collateral valuations.
Equity revenue fell from $1.93 billion in Q4 to $1.53 billion in Q1. A closer look at DataLend's figures shows that this loss was caused by a significant decrease in borrowing fees for a handful of red hot securities that dominated lending revenues last year.
The shorting favourites of 2016, namely, Nordic tech firm Fingerprint, South Korean healthcare provider Celltrion, and Tesla in the US, have all come off the boil, causing a knock-on effect on lending revenue.
According to DataLend, revenue from hot securities, meaning anything that earns 250 basis points (or more) in borrow fees, dropped from $1.19 billion of the total $1.93 billion earned in Q4 2016, to $793 million worth of the total $1.53 billion in Q1 2017.
This trend began to form in Q4 last year, with revenue at the close of the year down from its yearly peak in Q3, but the effect on securities lending revenue only really came into focus with the first quarterly reports of this year.
The slow start to the year was reflected in the quarterly results of some of the largest entities in the market, with major agent lenders, such as BNY Mellon and BlackRock, posting lower revenue figures.