That doesn’t mean that any of the numbers are pretty. Deutsche Bank, for example, made €236m — a welcome return to profit after last year’s €6.8bn loss, but only, saw, a tenth of Deutsche’s Libor fine, or just over 0.01% of Deutsche Bank’s assets.
It steered that some of the scarier litigation and conduct fines should be a thing of the past, which was encouraging, but underlying revenue was down 22%. That’s not terrible, by the standards of the Street this quarter, but nor is it the hallmark of an attractive business.
Both trading divisions were down 29%, while CIB was down 15%. The latter figure includes a big chunk of trade finance and transaction banking, and looking through to the investment bank products makes things worse – ECM was down by a massive 68%, the worst figure so far, with DCM down 33%.
GlobalCapital, however, was looking at headcount, which, despite the string of DEUTSCHE CUTS headlines, looks like it has held up. In markets, front office headcount has only come down 4% in a year, while it has actually increased 2% in CIB. Throw in the back office and both divisions are up, perhaps not surprising, given increased spend on regulation and compliance.
What the numbers don’t show, however, is how senior the staff are doing. Deutsche, for example, cut around 20% of the managing directors in its European IG DCM and solutions business, but the juniors were mostly left untouched. Morale, admittedly, may suffer at all ranks when firms are going through restructuring, but banks, more than ever, are trying to do more with less.
At Barclays, the numbers were genuinely near-positive, so much so that David Rothnie, writing in Southpaw, saw it as evidence that the restructure there had reached an “inflection point”. True, the bank’s new chief executive Jes Staley has just announced a further acceleration of its approach, and the closure of its Asian cash equities franchise, but Barclays has been working hard on this since the Anthony Jenkins-inspired turnaround in 2014.
The bad news is a 25% drop in profits and a 3.8% return of equity, but looking only at “core” business gives an 8% rise and 10% RoE. So there’s that. In markets, revenues were down only 4%, driven by a roaring 46% revenue jump in credit.
Equity trading was down 13%, and banking fees were down 12%, but neither of these look bad compared to the rest of the market, or compared to plunging volumes in all the major investment banking products. Weak sterling helps Barclays, but in general, the market was impressed.
Meanwhile, Royal Bank of Scotland, reporting on Friday managed to disappoint. Not because it made a loss; it’s now in its ninth year of consecutive loss-making. It just made a slightly larger loss than normal, since it also paid the UK government off, clearing its path to pay a dividend.
Roll on Tuesday, in turn, and there’s a clutch of banks reporting — HSBC, UBS, BNP Paribas and Commerzbank rushing out after the long UK weekend.
Again, expectations are the thing. None of the businesses are exactly smashing it out of the park, but a revenue decline of only 4%, or 12% down in the investment bank? That’s what success looks like this quarter, courtesy of HSBC, while BNP Paribas, too, looks good, with a lower cost of risk meaning a 40% beat in expectations. Yes, fixed income was down 13% and equities down 41%... but those were always going to be ugly.
Whatever else is happening, banks are certainly not beating the drum for senior level hires. Most of the people moves we have for you are internal promotions, or departures.
With the honourable exception, that is, of Citi, which announced two new senior hires in the UK corporate finance business – Piers Davison, former EMEA head of bank and UK head of FIG at JP Morgan, and Stuart Field from Credit Suisse, who joins for UK corporate broking, especially telecoms, media and technology.
Citi sees the UK investment banking market as strategically important, and since Michael Lavelle’s promotion to head of UK CIB, it’s been on an expansion drive. It’s also restructured the business (in a good way), to try to bring the legacy Schroders corporate finance coverage business closer to Citi’s commercial lending clients.
In regulation, the Financial Conduct Authority promised to speed up the primary process – not through risk or governance or reduced compliance burden, but by approving prospectuses faster. For treasury teams at regular issuers, it shouldn’t make a huge difference, but should help issuers of ABS, covered bonds, and emerging markets debt — at least, where these issuers seek London listings. Don’t expect to see Luxembourg and Ireland lose their ABS business just yet, but every little helps.
The shake-up in derivatives markets also continues, with ISDA and Markit offering terms in the hope of stopping the EC’s antitrust investigation into CDS market practices. 12 big banks, ISDA and Markit all settled for $1.9bn in the US leg of the investigation, but the Commission has already dropped the European investigation into the banks.
It’s an interesting philosophical problem — given that financial market infrastructures get “better”, or at least more useful, the more people that use them, is competition a good thing or not? Everyone benefits, for examples, by having bond issues which are clearable in Euroclear.
Everyone benefits from being connected to Bloomberg, but perhaps it has too much pricing power, and it’s possible to have a network just as large and just as useful which costs less. If liquidity concentrated on one or two electronic bond platforms, rather than the c. 90 which are in the market, perhaps markets would be more liquid, transparent, and usefully tradable.
There’s no right answer, but since the crisis, credit derivatives have migrated from being an essentially private concept which could be used however market participants wanted, to a publicly regulated securities-style market where trading, capitalization, and access to the product are all governed by public, not private gatekeepers.