Deutsche Bank and UBS have both reported their second quarter results this morning. Within their respective investment banks net revenues are down 1% (to €3.5bn) and up 2% (to CHF5bn) on the previous year. Here’s what else you need to know.
1. Despite job cut announcements, headcount has hardly declined at all
In the front office of its investment bank, UBS says that around 97 jobs have been eliminated over the past quarter, but headcount has largely remained stable throughout the past year and is now 19,886, compared to 20,082 at this point in 2013 – a negligible decline.
Deutsche Bank, meanwhile, has 8,120 people in the front office of its corporate and securities unit – which encompasses the investment bank – down from 8,219 last year, but actually up slightly from 8,110 in the first quarter. Across the division, headcount has increased from 24,137 in the second quarter of 2013 to 25,853 now.
Lest we forget, Deutsche said only four months ago that it would be eliminating another 500 jobs in its investment bank, primarily targeted at London, and towards the end of last year, UBS said it was only halfway through the 10,000 job cuts it announced in 2012.
2. UBS is increasing its bonuses, Deutsche Bank is cutting pay
UBS appears to be working harder to retain its staff and has pinned a 17% uptick in personnel expenses on Q2 2013 on an increase in variable compensation, which it claims is “partially offset by ongoing cost-reduction programmes”, suggesting that pay is really on the up again. This time last year, its compensation-to-revenues ratio stood at 43.6%. Now, it’s close to 50%.
Deutsche Bank, meanwhile, appears to be continuing its crackdown on compensation. It’s down 15% on the first quarter, 6% on Q2 2013 and throughout the first six months of the year has now tumbled by 13%. This could be in part due to the fact that severance payments are down by 23% on the previous year, but reflects a continuing parsimonious approach to pay for its investment bankers.
3. London is not the place to be
If Deutsche is targeting the City for job cuts in its investment bank, UBS again appears to be following suit and trimming its Broadgate-based bankers. UBS breaks down its employees by region, and it’s the UK that is suffering.
It now employs 5,470 people in the UK, a reduction of 130 since the first quarter and down from 5,826 in the second quarter of 2013. In the US, where it employs 19,896, employee numbers are broadly stable year on year. UBS has been hiring in Asia, however, with headcount increasing by just over 200 since the second quarter of 2013 to stand at 7,374 in June. For the rest of Europe (excluding Switzerland) employee numbers are also on the up – they have increased by 6% on last year to 4,482.
4. Contrasting fortunes in FICC
On the first quarter, Deutsche’s FICC trading business fell by 25%, which isn’t exactly a glowing endorsement of its ongoing commitment to the business area. However, it remained stable on the same period last year, at €1.8bn, beating analyst expectations. This is also decidedly better than US rivals JPMorgan, Morgan Stanley, Citigroup and Bank of America which posted an average 10% decline in revenues during the same period, according to Goldman Sachs analysts.
UBS’s slimmed down FICC business, however, is now called ‘foreign exchange, rates and credit’ after the purge of 2012 when it decided to exit entire business lines. It posted 9% gains on last year, but revenues are comparatively measly at CHF394m and is up 3% on the previous quarter.
The lack of volatility in the FX market continues to drag on both banks’ FICC divisions. Rates have performed badly at Deutsche too, but have remained in line with last quarter at UBS. Deutsche’s diversified FICC business has offset these declines, however, with flow credit, RMBS and credit solutions all growing in the second quarter.
5. Equity capital markets bankers are the new masters of the universe
No surprises, but equity capital markets at both banks surged, in line with gains at other large investment banks which have reported Q2 results in the last week. UBS’s ECM bankers have brought in 50% more revenues than the same point last year (to CHF349m), while Deutsche Bank has posted 30% gains on Q2 2013 (to €265m) and is up 65% on the first quarter.
6. UBS’s DCM bankers had a better quarter than Deutsche’s
Debt capital markets revenues at Deutsche were stable on the same period in 2013 at €416m, even if they gained 16% on the previous quarter. Looking at the first half and Deutsche’s DCM bankers don’t appear to be killing it – revenues are down 11% on the first six months of 2013.
At UBS, meanwhile, origination bankers in the DCM team appear to be keeping up with their ECM counterparts. Revenues are up by 51% on the previous year, and 22% on the last quarter to CHF371m.
7. Deutsche’s M&A bankers have done better than UBS’s
Advisory functions are another area where revenues have generally been positive in the second quarter across the large investment banks. At Deutsche, its deal-makers have ridden the wave – revenues are up 13% on last year, and 28% for the first six months of the year to €237m.
At UBS, there has also been an uptick, but a decidedly smaller one. Advisory revenues are up a mere 1% on last year, and 8% on the previous quarter to stand at CHF165m.
8. At both banks, equities trading has been the big disappointment
The lack of activity in the secondary markets that has traders so antsy has ensured that revenues have slid at both Deutsche and UBS.
Equity trading revenues at Deutsche have been comparatively stable – down 11% (to €698m) on the same period in 2013 and 5% for the first six months, primarily due to declines in equity derivatives revenues.
UBS has traditionally been an equities powerhouse, but its traders have had a weak second quarter. A little uptick in revenues with its ‘financing services’ division (CHF335m to CHF350m), have failed to offset declines in both equity derivatives and cash equities. Derivatives revenues slipped from CHF387m to CHF237m, while cash equities have fallen from CHF387m to CHF327m. Overall revenues are down 18% year on year.
This is an unfortunately similar story to other investment banks, so equity traders face shaky job options unless the situation picks up soon.