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.
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.
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.
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