Europe's Top Investment Banks Look to Tackle Decline with New Leadership
November 15 2019 - 9:18AM
Dow Jones News
By Pietro Lombardi
The appointment of new top brass at Credit Suisse Group AG's
(CS) investment banking-and-capital markets division this week is
the latest in a series of high-level changes at Europe's leading
investment banks.
The reshuffles have come as regional lenders lose ground to U.S.
competitors and are hit by falling revenue, while facing the
challenges of new technology, regulation and geopolitical
tensions.
"Investment banks face structural headwinds that they cannot
avoid," Berenberg analysts said in a recent report on the industry.
"Many cling to the hope that higher volatility will be a silver
bullet, but recent experience suggests otherwise."
The leadership change at Credit Suisse--where veteran banker
David Miller replaced James Amine as head of investment banking and
capital markets--follows similar moves at some of the region's
financial powerhouses.
Deutsche Bank AG's (DBK.XE) investment bank chief Garth Ritchie
left in July, with Chief Executive Christian Sewing assuming
oversight of the unit. In March, Barclays PLC (BARC.LN) announced
the departure of its investment bank head, while Andrea Orcel left
UBS Group AG's (UBS) investment banking arm in late 2018.
Revenue at the 12 biggest investment banks in Europe and the
U.S. fell 11% on year in the first half of 2019 to $76.8 billion,
hitting a 13-year low, and headcount continued to fall across the
industry, according to Coalition, an industry data provider.
In this environment, European players continue to lose market
share to U.S. peers.
Since 2009, U.S. banks' share of global investment banking
revenue rose roughly 10 percentage points and now stands at about
53%, according to data provider Dealogic. In the same period, the
share of European banks declined more than 10 percentage points to
25%.
Investment banking operations in Europe compare poorly in terms
of costs and revenue with U.S. counterparts and generate an
operating profit before provisions that is 70% lower, according to
Berenberg.
The brokerage mentions several reasons, including a more
concentrated U.S. market that gives banks more pricing power and
U.S. banks' quicker reaction to the financial crisis.
"We believe that one of the key reasons that European banks
still underperform U.S. banks is that they never adequately dealt
with their balance sheet issues," it said.
In recent years, several European banks have restructured their
investment banking operations. Deutsche Bank is exiting its
global-equities sales and trading business and eliminating 18,000
jobs. In April, France's Societe Generale SA (GLE.FR) said it would
cut nearly 1,600 jobs after a slump in investment-banking revenue,
with the unit including fixed income and equity trading and
securities services bearing the brunt of the cuts. Credit Suisse
started a sweeping restructuring in 2015 to streamline its
investment-banking operations. Rival UBS launched a similar
overhaul years earlier.
Recent results highlight the challenges facing the restructured
banks.
Credit Suisse's investment banking-and-capital markets division
swung to a pretax loss in the third quarter, as fewer mergers and
acquisitions and IPOs contributed to a 21% decline in revenue. The
Swiss bank's global investment banking operations ranked seventh in
the first nine months of the year, down one rung from a year
earlier, according to Dealogic.
In the same quarter, Deutsche Bank posted a loss partly due to
restructuring costs and lower revenue at its fixed-income
operations. In comparison, Morgan Stanley, Barclays PLC and
JPMorgan Chase & Co. achieved double-digit growth in
fixed-income trading revenue in the period.
Troubles in Europe likely mean gains for U.S. competitors,
according to Berenberg.
"As European IBs continue to restructure their operations in
search of better returns, we believe U.S. IBs will continue to take
market share."
Write to Pietro Lombardi at pietro.lombardi@dowjones.com
(END) Dow Jones Newswires
November 15, 2019 09:03 ET (14:03 GMT)
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