FICC (fixed income, commodities and currencies) revenue at the five European banks to report second-quarter earnings fell 12% on average, according to Reuters calculations. HSBC and Societe Generale will report next week.
That was a better performance than the big Wall Street banks which reported an average 16% decline in the second quarter for FICC, with Goldman Sachs dragging down the mean with a 40% slide.
In equities trading, revenue declined an average 1.6% for the five European banks that reported this week, compared with a 1% average increase for the big five US banks.
BNP Paribas led the European investment banking pack. A 25.8% jump in equity trading and prime dealing services helped cushion a 15.9% fall in fixed income revenue, helping it to gain market share.
“That market share, we grab it in securities services, we grab it in global markets and we grab it in corporate banking,” BNP chief financial officer Lars Machenil said.
Bond trading revenue at most banks has been grinding lower for about eight years as new regulations on proprietary trading, derivatives and capital have restricted what banks can do, making bond markets less lucrative.
European investment banks were slower to restructure after the financial crisis that started in 2007 to cope with tighter regulation and clean up their balance sheets, and still lag US rivals in terms of market share.
Credit Suisse CEO Tidjane Thiam said its results were a huge turnaround as its global markets trading division, the source of large losses in the past two years, reported US$267mil in pretax income, up 70% from US$156mil a year ago.
“Finally global markets delivered revenue,” Thiam said.
Suffering is global
Volatility sparked by Britain’s vote to leave the European Union and Donald Trump’s US presidential election victory helped boost revenues in 2016 but this year has been tougher.
Bond yields remain stubbornly low thanks to central bank stimulus measures and a lack of global inflation pressures, while the extra liquidity, historically low volatility and steady global growth have sent stocks sailing to new highs.
“Everyone has suffered from very, very low volatility, our macro trading performance in the second quarter was in line with what’s happened to the rest of the industry,” Barclays chief executive Jes Staley told reporters on a conference call.
Staley said the bank, which reported a 5% drop in revenue at its markets division, is going to redeploy more capital in the investment bank towards markets and away from corporate lending in a bid to improve profitability.
Bank executives are hoping that the outlook for trading income will improve in the second half of the year.
“Volatility levels are low and I can’t imagine – it is possible – but I can’t imagine they would stay as low as they are today for the rest of the year,” Deutsche Bank CEO John Cryan said in an interview with CNBC after the bank reported a 12% drop in revenue at its trading divisions.
But Yann Gerardin, head of corporate and institutional banking BNP Paribas, said banks in the region were still not generating enough return for shareholders.
“Restructuring is far from being over, they (European banks) are still under strong pressure from their shareholders to generate a better (return on equity),” he said. – Reuters