* European banks have cut debt trading in wake of crisis
* Buoyant equities, debt issuance help boost fees in Europe
* U.S. banks still dominate league tables
* But Europeans gain market share
* Deutsche Bank says full-service model is working
By Steve Slater
LONDON, Aug 1 Europe's investment banks are
giving Wall Street a run for its money despite shrinking their
trading arms more aggressively than U.S. rivals.
Buoyant equity markets and a surge in corporate debt issues
have caused a bigger-than-expected jump in investment bank fees
in Europe helping Deutsche Bank, UBS,
Credit Suisse, Barclays, BNP Paribas
and Societe Generale outperform their U.S.
peers in the second quarter.
The six European lenders saw revenues from trading and
selling debt grow 5 percent on average compared to a 9 percent
combined drop at Goldman Sachs, JP Morgan, Morgan
Stanley, Bank of America and Citigroup.
Part of the outperformance was because in the previous year
European banks were hit harder by the U.S. Federal Reserve's
warning that it would gradually reduce its purchase of bonds.
But a surge in debt issuance by European companies this
June, when European Central Bank President Mario Draghi cut
interest rates to record lows, has also helped.
Grim warnings from the banks themselves had investors
expecting falls in fixed-incomes revenue of up to a quarter in
the April-June period but the reality proved less bleak after an
upturn in activity at the tail end of the quarter.
"Expectations were it (Q2 performance) was going to be
really, really bad, and in the end it just turned out to be
quite bad," said David Moss, head of European equities at F&C
Faced with new regulations in the wake of the financial
crisis that made debt trading more expensive, European
investment banks have for the most part renounced their
ambitions to be global players and cut their fixed-income
divisions more aggressively than U.S. counterparts.
The retrenchment has in part been fuelled by public anger
over their role in the financial crisis, prompting European
politicians to impose tougher pay restrictions on traders and
encouraging banks in the region to focus more on wealth
management or retail and commercial banking.
The scale-back in investment banking means U.S. banks are
expected to continue to dominate rankings, particularly if a
rise in interest rates prompts a rebound in fixed income, with
increased volatility and rising yield providing trading
JP Morgan topped investment bank revenues in the first half
of this year, with a 7.3 percent market share, according to
Thomson Reuters data. It was followed by Bank of America and
But all three lost market share, partly to European banks.
Deutsche Bank and Barclays were the top European firms in
fifth and seventh, respectively, but both gained share despite
Barclays being halfway through a radical scaling back of its
investment banking division.
Barclays posted a 17 percent slide in revenues from debt
sales and trading but, stripping out the impact of a strong
pound, the decline was 8 percent in dollar terms.
Deutsche Bank, which is positioning itself as the only
European full-service investment bank, said its strategy was
The bank, which is using part of the proceeds of an 8.5
billion euro capital increase to reinvest in its fixed-income
trading arm, said it had achieved its best ever share in
corporate finance and grabbed "significant" share in M&A
revenues in the United States.
OUTLOOK STILL TOUGH
The European banks were helped by a jump of nearly 30
percent in investment bank fees in Europe in the first half of
the year, outpacing a 6 percent rise in the Americas and a 12
percent global increase, according to Thomson Reuters data.
The fees were driven by buoyant equity markets encouraging
European companies to raise cash and seal takeovers. Revenues
from advisory and issuing equity and bonds for companies for
Europe's top banks jumped 21 percent on average, outpacing a 14
percent rise at U.S. banks.
European and U.S. banks' equities revenues both fell about
15 percent from a year ago, according to Reuters data. In
constant U.S. dollar terms, the European banks' out-performance
The brightest spots included near one-third jumps in
advisory revenues at Barclays, UBS and SocGen and increases in
fixed-income revenues at BNP Paribas and Credit Suisse.
Despite the second-quarter gains, the outlook remains tough,
and investigations into alleged wrongdoing in foreign exchange
markets and privately run stock markets could be costly.
Litigation concerns are depressing valuations, and Deutsche
Bank and Barclays shares trade at only 0.6 times their book
value - or the value of their assets - compared to an average of
1 times across European banks and the big U.S. banks.
Several banks also signalled the strong June did not
continue in July, with Barclays cautioning that it was likely to
be the slowest month of the year.
"The overwhelming issue for many investors is the fines,
because they're unquantifiable," said F&C's Moss.
(Additional reporting by Simon Jessop; editing by Carmel
Crimmins and Tom Pfeiffer)