We’ve reached the end of the results season, so are the Europeans making any headway at all against their US cousins? Well, it's certainly not all bad news. Credit Suisse chief executive Tidjane Thiam, for instance, was able to pluck out a revenue figure that showed his firm in a better light than anyone else.
It is commonly said that European banks are losing ground against the Americans, he told analysts on November 1, before adding that this was not the case for Credit Suisse. No, sir.
Not entirely surprisingly, Thiam was taking a pretty specific number to make his point: the percentage change between the third quarter of 2015 and the third quarter of 2018 – and only for advisory and underwriting. But while the numbers of some peers going that far back are subject to ‘interpretation’ – given multiple restatements, currency changes and lack of consistency in how the figures are broken down – his broad thrust was nonetheless right.
Sure enough, over that precise period and using that precise business mix, Credit Suisse saw a jump of 31% in revenues – more than any other global peer, including the US firms. Deutsche Bank is down 27% on that basis, according to Euromoney's numbers, while UBS is down 3%. Bank of America Merrill Lynch is down 6%, the only US firm to show a fall. The next best climber after Credit Suisse is Goldman Sachs, up 27%.
Post crisis 2.0
Thiam picked 2015 as his starting point because it was the year when Credit Suisse set in train its current strategy. But it also marks the point at which a number of other firms have tended to trace a new beginning, making the years since then a kind of post-crisis 2.0 period.
Happily for Thiam, when Euromoney ran the underwriting and advisory numbers on a full-year basis since 2015 (using the last 12 months as a proxy for 2018), it showed an even more startling trend. The bank is up nearly 50% (see graph, right): Morgan Stanley is the next best performer, but is up just 22%.
It’s worth noting that only two banks have seen a decline: Deutsche and BAML. But is CS bucking a trend among its European peers or are things perhaps not quite as bad as is sometimes made out?
Sadly, they are. In our ‘exgraphaganza’ below, Euromoney has grouped the five big US and seven big European investment banks into their regions. By almost every measure, the Europeans are showing worse momentum than the Americans, despite starting from lower bases in most cases and, therefore, with most potential – at least in theory – to show growth.
Some headline stats: since 2015, US group revenues are up about 9%; Europe is down about 6%. But the Europeans have got relatively more profitable. European profits are up 50%, while the US banks are less than 30% up.
It’s not that good at CIB division level, though. Revenues have gone in opposite directions: US up 9%, Europe down 10%. But Europe’s profit growth has underperformed the US, so while European banks are beating their US cousins for efficiency improvements at group level, that’s not translating through to the high-cost investment banking franchises.
But what about the nitty-gritty? We’ve already seen how the individual banks have performed in advisory and underwriting, but what’s interesting here is the regional performance. On the surface, it looks like the two regional groups have risen by about 10%. But strip out Credit Suisse and Europe would be flat over the period – albeit that performance is of course depressed by Deutsche.
Breaking that down a bit, debt capital markets underwriting sees both regions rise – although off their 2017 highs – with Europe’s growth lagging the US a little.
Contrast that with fixed income sales and trading. There’s a bit of what CFOs like to call ‘noise’ here: BNP Paribas unhelpfully reports a chunk of its DCM business in its FICC line, for instance. But the direction of travel is pretty clear. No one has had a great time of it in FICC over the last couple of years, but if you were relying on a European rates franchise, you were stuffed.
Advisory is a rare bright spot for Europe, given that revenues there are up nearly 10% while they have fallen slightly in the US. But the extreme market share gap between the two regions lowers the importance of this.
In equity capital markets, the US has surged in the last year, while in secondary equities Europe has seen its worst performance of all – down more than 15%.
Here are a few a sobering thoughts:
• Of the 10 metrics graphed here, the US banks are up versus 2015 in nine of them. Europe is up in just five.
• The only metric where US firms are down is advisory, and there the fall is very small and their market share remains astounding.
• The US faction has outperformed the Europeans in everything apart from advisory and CIB profits before tax – and that latter metric is skewed by the fact that at Credit Suisse and Deutsche the CIB divisions were still making annual losses in 2015.
• The secondary sales and trading businesses are where Europe has performed worst, as operations are cut, market share lost and conditions poor. In both FICC and equities, the US banks have increased their market share relative to the European banks.
More with less
Back to Credit Suisse, and how does it look across the whole piece? It’s seen the biggest fall in equities and the second biggest in FICC, after Deutsche. But that’s partly by design, of course. In advisory and equity capital markets, it has seen by far the biggest increases of any of the peer group, including the US banks, and it is pipped to the post in DCM only by Goldman Sachs.
So, while it has got smaller – particularly in its trading businesses, a move that has fed through to overall CIB and group revenue falls of about 10% – it is doing more advisory and underwriting than before, and making more profit from doing it.
It’s less well-rounded than Morgan Stanley, but when it comes to that firm’s favourite tactic of doing more with much, much less, Credit Suisse is giving it a run for its money.
Universe is: Bank of America Merrill Lynch, Barclays, BNP Paribas, Citi, Credit Suisse, Deutsche Bank, Goldman Sachs, HSBC, JPMorgan, Morgan Stanley, Societe Generale, UBS
Barclays, BNP Paribas, HSBC and Societe Generale do not report ECM, DCM and advisory revenue breakdown and so are excluded from the Europe figures for those graphs and from "All IB". For Barclays and HSBC we use "Banking Fees" and "Global Banking", respectively, in the "All IB" figures.
FICC at BNP Paribas includes DCM ex-corporates. Equities at Societe Generale includes ECM.