Just as buses all come at once, so do European bank results. Following Deutsche's second quarter results yesterday, Barclays, UBS, Credit Suisse, and BNP Paribas have reported today. So too has Nomura.
The message from European banks is similar to that from U.S. banks: revenues are mostly down or flat, profits are mostly up. The big changes are made, although corrosive cost cutting continues.
Barclays is a case in point. CEO Jes Staley proudly proclaimed that the, "restructuring is over." Moments later, however, Staley cautioned that the corporate and investment bank is still generating a return on non-tangible equity below the cost of capital and this needs amending.
Overall, the results splurge suggests that some areas of some banks are far better places to situate yourself than others right now. If you're looking for a new home, you may want to consider the following.
As the chart below shows, BNP's equities business blew the others out of the water in the first six months of 2017 compared to its performance a year earlier. The French bank attributed this to, "good market volumes in equity derivatives" and to strength in prime services.
This was in stark contrast to Deutsche Bank, which said prime services performed badly, and to Credit Suisse, which blamed poor performance in equity derivatives for its poor results.
Given Deutsche's dwindling market share in equities, you might think it best avoided. However, CEO John Cryan is well aware that the bank has issues and is determined to sort them out.
During yesterday's call with investors, Cryan said that Deutsche is "investing in people" for its equities business. The bank needs to "catch up" on the technology that supports trading, said Cryan. It also needs to invest in, "specialist sales and distribution" to support the increase in electronic trading as the number of traditional voice traders in equities diminishes.
European banks are having a good year in credit trading. At Credit Suisse, credit trading revenues were up 61% year-on-year in the first half. At Barclays they were up 18%.
Credit Suisse attributed its success to, "strong securitized products," and to, "broad-based growth across all credit lines."
At Barclays, Jes Staley plans to allocate more capital to credit trading, which (together with lower funding costs for the corporate and investment bank as legacy instruments mature) is expected to increase the return on equity. Staley also said that it will likely be impossible to write an algorithm that replaces human beings in the credit trading market: it's just too complex.
Like Deutsche, Credit Suisse's equities business has lost market share this year and may look like a sinking ship. Also like Deutsche, however, the Swiss bank is determined to do something about it.
The man of the moment at Credit Suisse is Mike Stewart, the new global head of equities who arrived in June. "We brought in Mike Stewart and there is a clear upside to the equities story," said Credit Suisse CEO Tidjane Thiam today. Equities has the potential to achieve a "big upside" said TThiam, and could take over from the credit trading business when the credit cycle turns. Given that equities trading at CS is currently half the size of credit trading, this suggests Thiam is expecting something spectacular.
Not for nothing have banks been boosting their leveraged finance businesses this year. At Barclays, Jes Staley says leveraged finance revenues are currently at their highest level for three years.
This has coincided with an 18% year-on-year increase in the risk weighted assets allocated to its investment bank in the first half. While other banks worry about keeping RWAs down ahead of Basel IV, UBS has indicated that it's ready to increase the assets in its trading business. Oh, and pay per head across UBS's investment bank is up 8% this year compared to last.
You don't want to be a contractor at Credit Suisse now. True to its word, the Swiss bank is cutting with a vengeance: 4,310 contractors have disappeared from the Swiss bank over the past year (bringing the current number to 20,090).
Barclays' macro trading business had a poor first quarter. It also had a poor second quarter. Admittedly, this was the case with most macro businesses (Citigroup's excepted), but still. - Revenues at Barclays' macro business were down 20% in the first half.
"In rates and currencies, we are still not happy with where we are. Tim Throsby and I will get that corrected,” said Staley today. Given Barclays' issues with its cost of capital exceeding its returns, this sounds ominous
Legacy IT systems at investment banks are a problem and banks are doing away with them. At Credit Suisse, Thiam said 30% of IT investment still goes into legacy systems which will be discontinued. At Deutsche, the bank is in the process of pruning 45 operating systems down to 4 (it's currently at 33). Legacy IT systems provide good work for the moment, it won't last.
While BNP Paribas had a great quarter in equity derivatives (see above), Credit Suisse didn't. The bank wants to remedy this by fusing its "solutions" business with its wealth manager and Swiss universal bank, but still- the business could be in for a rough ride.
Credit Suisse's M&A business floundered in the first half.
Lastly, you don't want an operations job at Credit Suisse (and probably any bank). Thiam said the bank is investing heavily in "robots" and noted that robots can do five times more work than human beings in operations jobs.