Data: The CIB gap grows wider across the pond
Continental Europe’s top corporate and investment banks showed just how far they continue to trail their US peers as they reported annual results in February.
Their combined revenues fell, while US banks’ were up. BNP Paribas and Société Générale showed the greatest resilience.
Revenues at the CIB units of BNP Paribas, Deutsche Bank, UBS, Credit Suisse and Société Générale fell overall by 8.5% in 2016, compared with the 1.4% increase reported by the big five US corporate and investment banks one month earlier.
BNP Paribas showed the smallest fall in CIB revenues, at just 0.3%, followed by SG with a drop of 2.5%. At UBS, business dropped by more than 13%. It was a similar picture at group level, with BNPP and SG showing the only rise in revenues, of around 2%.
The two French banks also showed stable rises in CIB profitability, of about 4%, and at group level, where profits rose 32% at SG and 13% at BNPP. Deutsche and Credit Suisse returned to profit in their CIB operations, but remained underwater at group level. Group revenues at the Europeans fell by 5% overall, compared with 2% for their US peers.
Across product areas, the European picture was grim. Sales and trading revenues were down in both fixed income and equities. ECM revenues fell sharply, while advisory was flat. The only product to register a rise was debt capital markets.
That direction of travel was similar to the US banks, where FICC and DCM were the only two risers. But the falls were bigger in Europe.
Fixed income sales and trading was the most startling differentiator between the two regions. It fell by 10% at the Europeans (excluding BNP Paribas, which does not break out that business in its results), compared with a 15% rise in the US. Société Générale bucked the trend, however, with a rise of 14%, while at Credit Suisse it dropped 24%.
SG said it saw a buoyancy in flow and structured, and dynamic activity in rates and commodities. Elsewhere it took longer to explain why things were not going well.
Credit Suisse said that securitized product revenues were lower as the bank reduced its risk and capital profile, but this was partly offset by a rebound in US high yield that helped results in global credit.
At Deutsche, where revenues dropped 11%, FX saw good activity around the US election. But more broadly clients were wary, with balances hit in particular against the backdrop of the bank’s October settlement with the US Department of Justice over its dealings in mortgage-backed securities.
The European banks had a more uniformly miserable year in equities sales and trading, with revenues down 20% as a whole, far worse than the 5% fall in the US. At UBS, a 20% fourth-quarter rise helped after three quarters in which performance had been well down on the previous year, taking the franchise to an annual drop of only 12%. The big contributor to that fourth quarter rise was equity derivatives, where increased trading performance led to a doubling of revenues.
The others did worse, with Deutsche and Credit Suisse both down 25%. Credit Suisse said that low volatility had hurt market-making revenues and equity derivatives, while prime services was affected by the bank resizing its business. Deutsche said that derivatives performance helped it partly offset lower client activity and lower balances elsewhere.
An increase in completed M&A drove a 14% gain in Credit Suisse’s advisory business, while leveraged finance and derivatives financing helped boost DCM by 18%. UBS also saw DCM rise year on year, by 7%. But one encouraging sign for the Europeans was that the fourth quarter DCM revenue increases at all three firms were at least 50%.
That was a trend seen throughout all the business lines, from group level downwards – the fourth quarter presented a very different picture to the year as a whole. From group and CIB revenues and profits, to investment banking and trading, the only area where the European firms saw worse performance in the fourth quarter compared with the same period in 2015 was equity sales and trading.