You’re a fixed income trader? Get yourself to Morgan Stanley, Goldman Sachs or J.P. Morgan. Failing that, go to SocGen, or BNP Paribas.
Now that results to most major banks are out for the third quarter, it’s become clear that the French banks did rather well in fixed income trading. Among European banks, they were top of the pack. At SocGen, for example, fixed income trading revenues were up 42% year-on-year in the third quarter. At Credit Suisse, by comparison, Bernstein Research puts them up just 2%.
J.P. Morgan’s analysts saw this coming. They’ve been predicting superior fixed income trading results at the French banks for months. It helps that BNP and SocGen are heavily geared towards macro trading (rates and FX) and that macro traders everywhere had a great third quarter. Macro trading respectively accounts for around 60% to 75% of BNP and SocGen’s fixed income divisions, according to Morgan Stanley (compared to hardly anything now at the beleaguered Credit Suisse).
Even better, the French banks are generating acceptable returns. At SocGen, the return on net equity across global banking and investor solutions (asset management, financing and global markets) is 10.4% so far this year. At Credit Suisse global markets, it’s just 2.4%.
Yes, there are clouds on the horizon. As Deutsche noted earlier this week, French banks still need to delever their U.S. operations, suggesting that U.S. traders there could soon have their wings clipped. SocGen is also busy shunting jobs offshore – it’s increased offshoring 18% so far this year.
However, French banks have things going for them. As SocGen CEO Frederic Oudea remarked in an interview with Bloomberg today though, his bank is well placed to tackle the Brexit-related uncertainties in Europe. SocGen can afford to wait until well after the UK triggers Article 50 to see how Brexit plays out, said Oudea: the bank already has full licenses, premises, people and systems on both sides of the channel; there’s no rush.