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Crisis forces hard choices on European banks

By Jasper Cox
13 Aug 2020

The coronavirus crisis has reshaped many aspects of finance, but not the line-up of top investment banks. It does appear to have pressed some firms into sharp decisions, though.

ABN Amro is set to pull out of non-European corporate banking and exit trade and commodity finance.

Natixis will refocus its equity derivatives efforts on “key” clients and parent BPCE’s retail network. Société Générale is set to reduce the riskiness of its structured products, hoping that the direct sacrifice to revenues will be worth it. Both firms were heavily exposed to dividend cancellations.

HSBC, meanwhile, plans to accelerate its restructuring plan — which is heavily focused on the investment bank and was slowed down at the beginning of the crisis — and look at “additional actions”.

Maybe without the pandemic, the banks’ plans would have been less drastic, but none of the decisions came out of nowhere.

In fact, in the wider sector the crisis is propelling existing trends. The top US houses continue to look imperious, while many of the banks sitting on the rungs below try to figure out a sustainable business model.

Between the US giants and SG, Natixis and ABN Amro lie BNP Paribas, Deutsche Bank and Barclays. These look to be faring well, even if the success of Deutsche has reportedly given activist investor Edward Bramson another argument in his quest to make the UK firm shrink its investment bank.

As Covid-19 shakes up government and corporate finance around the world, you would struggle to tell anything out of the ordinary had happened from looking simply at investment bank rankings. But once the trading and underwriting boom wears off, profitability weaknesses at more banks may become more visible.

By Jasper Cox
13 Aug 2020