28 April 2017

Financial Times: European banks recover some of their swagger after dismal fourth quarter

Switzerland’s UBS grew investment bank profits by more than 50 per cent in the first quarter, even though it is hard to imagine a recovery less well-suited to the Swiss bank which is short on the US exposure and the markets businesses that have driven the strong results of peers.

Credit Suisse reported a 133 per cent rise in credit revenues in the first quarter, on a US dollar basis, and said it had led 19 IPOs “more, we believe, than any of our peers”. Even, Deutsche Bank, which had a tough quarter, won praise from Atlantic Equities analyst Christopher Wheeler for remaining “firmly entrenched behind the big three US players” in fixed income.

Bright spots were harder to find at Barclays, as the UK banking group’s shares fell sharply because of weakness in its investment bank and the big US banks beat their European peers on aggregate, despite a big earnings miss at Goldman Sachs. Still, the story was a lot more nuanced than the “US banks win, European banks lose” narrative which has prevailed for much of the past five years.

“Rather than US v European, it’s starting to diverge,” said the head of one investment bank. “I think we’re at an interesting point where the Europeans dug in,” said Mr Wheeler. “They recovered from a dreadful fourth quarter, particularly in FICC [fixed income, currencies and commodities] and equities.

“One has to believe, given the data that is coming out of Europe, that there could well be a pick-up in activity, so the question is do the Europeans now take share because they are more successful in their home markets?”

In US dollar terms, the 33 per cent first-quarter growth in investment banking revenues at Deutsche, Credit Suisse, Barclays and UBS exactly matched the 33 per cent increase across Wall Street groups JPMorgan, Morgan Stanley, Bank of America, Citigroup and Goldman, according to Mr Wheeler’s figures.

Investment banking revenues — which cover everything from advising clients on M&A to helping them raise cash in debt and equity markets — can be heavily swayed by a few big deals, so analysts cautioned against reading too much into the strength of European banks based on a single quarter.

The Europeans fared less well in trading overall. Relative to a year ago, their first quarter 2017 revenues for fixed income were up just 7 per cent in US dollar terms, while the US lenders were up 23 per cent. In equities, the European banks’ revenues fell 12 per cent year on year, while the Americans were flat.

Full article on Financial Times (subscription required)

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