Recovery in the European Investment Banking Sector Not Sustainable

Published Date : Aug 12, 2014

The second quarter performance for the investment banks in Europe has reported positive results, with the additional focus being on fixed-income trading. Though the European banks are gradually recovering the ground lost to the U.S. rivals in the past few years, the recovery does not seem very sustainable.

JP Morgan Chase reported a decline of 17% in revenues earned from currencies and commodities and fixed-income. This led to an average decline of 9% in Q2 year-on-year. 

On the other hand, Deutsche Bank reported flat revenues, while other followed with positive revenues. For BNP Paribas the top-line increase was at 22%. The biggest decline was seen by Barclays and Royal Bank of Scotland who took late decisions to exit these markets. About nine European banks witnessed a growth of 2.5% their revenue from fixed-income trading.

According to Citigroup, European banks have gained 2% points in the global market share from fixed-income trading after reporting losses for three consecutive years. The European banks have about 47% of the global market.

However, these positive numbers come with a flip side. The second quarter of 2013 was especially tumultuous for Europeans, particularly French. Against this background, BNP’s improvement seems stellar. The other reason for gains was more number of European bond issues which allowed investors to shuffle portfolios. The European subordinated capital bonds for insurers and banks performed 1½ times better than the world.

Though the European banks have stabilized their trading businesses, and are showing positive revenues, it does not indicate any celebration. The road to recovery is really a long one ahead.