Finance

Lionel Laurent is a Bloomberg Gadfly columnist covering finance and markets. He previously worked at Reuters and Forbes.

Brexit-induced market turmoil gave a fillip to U.S. banks' fixed-income trading businesses in the second quarter, helping to cushion a decline in revenue from equities.

Bankers Bashed
An index of European bank stocks has fallen 27% so far this year
Source: Bloomberg

Now the numbers are in, it's clear European banks were unable to match that performance in FICC -- and suffered a steeper decline in equities. This chart, based on data compiled by analysts at Bernstein research, shows the extent of the damage.

Trading Stasis
Revenue growth in European banks' FICC and equities businesses lagged U.S. peers in the second quarter
Source: Bernstein research

The takeaway? Europe's banks -- hobbled by stagnant revenue, stubbornly high costs and dwindling profitability -- are shrinking, helping their U.S. competitors to gain market share.

The contraction shows no sign of finishing, at least in Europe. Deutsche Bank CEO John Cryan told employees this week that if the weak economic environment persists, the bank will need to step up restructuring. And despite more confident talk from the Swiss banks on their trading units being "right-sized," nobody's quite convinced that the shrinking is over, with cost-to-income ratios looking stubbornly high.

U.S. banks aren’t immune from the weak economic environment or fading exuberance in deal-making and IPOs. But they were faster to overhaul their businesses following the financial crisis. They've also been more aggressive at cutting costs: Goldman Sachs has fired the starting gun on the deepest cost cuts in years; Morgan Stanley in January set a $1 billion cost-cutting goal.

The overall investment-banking pie is shrinking. 2018 global revenue are expected to fall to levels not seen since 2004, according to JPMorgan analysts. Expect Europe's banks to lose more ground.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Lionel Laurent in London at llaurent2@bloomberg.net

To contact the editor responsible for this story:
Edward Evans at eevans3@bloomberg.net