Europe’s largest investment banks are likely to hire stock traders in 2014 as a rally that has restored $4.72 trillion to share values boosts revenue, Barclays Plc (BARC)’s head of European equities said.
“Most of the restructuring in equities has happened,” Jonathan Beebe said in a Dec. 11 interview at Barclays’s investment-banking headquarters in London. He declined to comment on the bank’s hiring. “Revenue growth this year is around 10 percent for the top 10 banks. That environment may create the need for some banks to look to hire.”
Barclays entered the European stocks business in 2009 as part of then-Chief Executive Officer Robert Diamond’s ambition to create a global franchise following the purchase of Lehman Brothers Holdings Inc.’s North American operations. The expansion coincided with a decline in trading volume and share prices as the global financial crisis sent investors fleeing riskier assets.
The 10 largest global investment banks cut their equities staffs to 17,701 in the third quarter of this year from 20,054 in 2011, data from Coalition Ltd., a research firm, show.
Morgan Stanley (MS)’s head of investment bank and trading division, Colm Kelleher, said at a Dec. 10 investor conference that the firm is seeing “acute” competition for share traders after it jumped to the top spot in revenue last quarter.
According to Kelleher, only firms that generate revenue placing them among the top third of their peers are profitable. There will be a fight to attract talented employees among the middle third, which typically breaks even, and the bottom tier, which is unprofitable, he said.
The daily value of stocks traded in London, Frankfurt and Paris this year totaled an average of $15.1 billion, up from $14.7 billion in 2012, according to data compiled by Bloomberg. That compares with $36.4 billion between 2005 and 2007. In the last two years, investment banks had to cope with a stagnant euro-area economy, declining leverage and lower commissions.
The Stoxx 600 Europe Index fell as much as 26 percent in 2011, before trimming the loss for the year to 11 percent. The drawdown in 2012 was 14 percent, then shares staged a recovery in the second half. The VStoxx index, a measure of stock volatility in the euro area, averaged 30.1 in 2011 and 24.6 in 2012. That compares with 18.6 this year.
Shares in the Stoxx 600 have a market value of about $8.83 trillion, up from $4.11 trillion at their low in 2009, data compiled by Bloomberg show.
Banks in the Stoxx 600 have more than doubled from their 16-year low in March 2009. Barclays, Britain’s second-biggest lender, surged 344 percent, while Deutsche Bank AG, Europe’s biggest investment bank, rallied 87 percent. France’s BNP Paribas SA jumped 151 percent and Switzerland’s UBS AG advanced 90 percent in the period.
Barclays rose 1.8 percent to 256.5 pence at 2:19 p.m. in London today.
Earlier investments have paid off this year for Barclays. Equities was the best-performing business at its investment bank unit in the third quarter, with revenue rising 23 percent from a year earlier to 645 million pounds ($887 million), the bank said Oct. 30. Revenue from fixed income, currencies and commodities dropped 44 percent to 940 million pounds, the lowest since 2011.
A growing equities headcount would buck the trend in other investment bank operations. European lenders, which eliminated more than 140,000 jobs in two years, will cut at least 5 percent of trading and advisory staff next year, a survey of three London-based investment-bank recruiters showed this month. The reductions could reach 15 percent, according to two of them, who asked not to be named.
“The environment for European equity markets in 2011 and 2012 was challenging,” Beebe said. “This led to headcount cuts, investments in new technology, and some reduction in balance sheet and leverage. Now that revenue has rebounded, most banks should be seeing increased returns in their business.”
Barclays employed 139,200 people in 2012, 24,000 of whom worked in the investment bank, according to its annual report. The lender will eliminate 3,700 jobs this year, bringing the cuts since 2008 to almost 21,000. CEO Antony Jenkins, who took over from Diamond last year, told investors Barclays may trim its workforce by almost a third in the next decade as automation and online banking develop.
Deutsche Bank AG analyst Matt Spick wrote in a report this month that the top investment banks in Europe will need to eliminate 3,000 sales and trading positions in 2014 to cut costs. He predicted the bulk of reductions will take place in fixed income, while more productivity may be needed in equities.
Beebe said Barclays is increasing its market share of stock trading relative to competitors. He said the lender doesn’t plan to retreat from European equities to focus more on the U.K.
Barclays now does research on more than 700 stocks in Europe, up from more than 130 in 2009, according to the bank’s press office. The bank is the third-largest broker by volume in the London Stock Exchange, up from No. 7 in March 2010, according to Richard Evans, chief operating officer for equities in Europe, the Middle East and Africa. Revenue from equity capital markets at Barclays may climb 26 percent this year, according to JPMorgan Chase & Co. estimates.
European shares are likely to rise for a third year in 2014 amid an economic recovery and as many investors still hold fewer of the securities than are represented in asset-allocation models, according to Beebe. Barclays forecasts European stocks will rise 27 percent next year.
“Most of the new money coming into European equities has been from global equity funds as opposed to fixed income,” he said. “So the great rotation from bonds to equities may yet happen. But even within the equity universe, Europe is seen as an attractive investment opportunity.”