European investment banks are supposed to be worse places to work than U.S. investment banks now. While European banks battle challenging markets and low capital ratios, U.S. banks have already put their houses in order and are riding a wave of volatility.
That's the theory.
As of today, two European investment banks - Deutsche and Barclays have now reported their results for the first nine months of 2016. Those results suggest the picture is not that clear cut
1. Deutsche Bank's fixed income traders have done BETTER than Goldman Sachs' this year
If you listen to what CEO John Cryan referred to today as the "lurid headlines", you might think Deutsche's sales and trading business is falling apart. This is not so. Yes, Deutsche Bank's fixed income traders had a fairly bad time in the last three months (see point six), but year-on-year, they've outperformed Goldman Sachs'.
Of Deutsche and Barclays, Barclays has - needless to say - done far, far, better than Deutsche. Barclays' strategy of trading in the U.S. (and reporting in sterling) seems to be paying off. It's year-on-year increase in fixed income trading revenues bears greater resemblance to U.S. banks than other Europeans.
2. But both Deutsche Bank and Barclays have had a disastrous year in equities trading
Having said that, you probably didn't want to work for a Barclays or a Deutsche Bank in equities trading this year. - Especially not a Barclays.
3. Although Deutsche's terrible time in equity capital markets wasn't really much worse than Goldman Sachs'
ECM bankers have had the worst 2016. Revenues in Deutsche's ECM division halved in the first nine months of this year compared to 2015. Something similar happened at Goldman Sachs though.
4. Deutsche has actually been HIRING front office salespeople and traders...
Strangely (and despite its new hiring freeze which came into effect in October), Deutsche Bank has been recruiting front office salespeople and traders in its investment bank: it added 78 people in the past quarter. "We are still investing in improving the bank," said Cryan on today's call. CFO Marcus Schenck said 40% of the bank's current investments are in regulatory projects, however, and that this might rise to 50% in future.
While Deutsche has been hiring in the front office, it's been cutting in the back office. In the past quarter, headcount across global markets fell by 356 people net. Given the 78 person increase in the front office, the implication seems to be that Deutsche cut up to 430 people from its markets support functions in the past quarter.
5. Whilst hammering pay...
If you go and work for Deutsche Bank now, however, you can expect to be paid a lot less than before. As the chart below shows, Deutsche has cut compensation per head in its global markets division by 26% so far this year. Shenck said repetitively that compensation cuts are at the forefront of cutting pay.
The good news at Deutsche is that Schenck said salaries have actually increased though - especially at the junior end. The bad news is that this year's cash bonuses are expected to bear the brunt of cost cutting measures and may well be little or nothing.
There was no mention of suggestions that Deutsche might pay its bankers bonuses comprised of assets in the bad bank. Schenck said this is to be wound down by the end of the year.
6. In the past three months alone, Deutsche's fixed income trading business looked pretty dire
Although Deutsche's fixed income trading business didn't do too badly for the first nine months as a whole, the last three months - in which the 'lurid headlines' were circulating, look pretty dire compared to rival firms.
Schenck and Cryan said this is partly because Deutsche has been pulling out of businesses like securitiziation which have caused it grief in the past. In future, Schenck said Deutsche's fixed income trading revenues should be "more stable and less seasonal".
7. While Barclays credit traders had a special time
If Deutsche's fixed income traders had a challenging three months compared to rivals, Barclays' credit traders had a great quarter.
Admittedly, Deutsche said its credit traders achieved "significantly higher" revenues too, although it didn't quantify how much higher. It seems unlikely they did as well as Barclays'.
8. Barclays' investment banking business is generating reasonably healthy returns, Deutsche's isn't
Gone are the years of double digit returns (unless you work in Barclays' consumer, cards and payments business, which generated a 38% RoE last quarter). However, Barclays' investment bank looks a lot healthier than Deutsche's. This might be because the chart below only covers Deutsche's global markets business, whereas Barclays' International business includes higher returning divisions like transactional banking and corporate lending...
9. Barclays has substantially increased the risk weighted assets in its investment bank this year. Deutsche Bank hasn't
If you want to work for a bank that's not squeezing its investment bank as it tries to cut leverage ratios, Barclays looks like the place to be. Unusually, risk weighted assets at Barclays' investment bank have actually increased this year.
10. Both Deutsche and Barclays have been reducing costs. Deutsche, in particular, has plenty more to do
Lastly, Barclays and Deutsche are both cutting costs and have both managed to reduce their cost ratios this year. "I don't sit pouring over spreadsheets all day, which seems to be what people think about my personality" said Deutsche CEO John Cryan, but having achieved an unexpected reduction in Deutsche's costs in the past quarter, he indicated that he plans to continue cutting costs in future.
Jes Staley, CEO of Barclays indicated in the past that he'd like to keep costs in each Barclays' divisions below 60% of revenues. They're currently running at nearly 69%...