European Investment-Bank Overhaul to Wipe Out Profits, Citi Says

  • Restructuring to hit revenue at European banks, analysts say
  • Citigroup sees Credit Suisse facing loss on unit writedown

Europe’s investment banks will probably see profit wiped out by restructuring costs in the fourth quarter as they make changes started by their U.S. competitors years earlier, according to Citigroup Inc.

Deutsche Bank AG, Credit Suisse Group AG and UBS Group AG will post losses for the three months through December, while Barclays Plc will be “broadly break-even,” Citigroup’s Andrew Coombs and Nicholas Herman wrote in a report on Wednesday.

Europe’s biggest securities firms are implementing reforms taken by many of their U.S. competitors shortly after the 2008 financial crisis. As the continent’s economies grow more slowly than the U.S., bank efforts to cut costs have taken on a new urgency following a revenue slump caused by volatile global markets.

“We expect the Europeans to underperform due to structural trends and revenue attrition on restructuring,” the Citigroup analysts wrote. They cited constraints placed on repurchase agreements by leverage limits as well as stronger U.S. primary issuance of securities.

Losses Ahead

Credit Suisse may report a 3.9 billion-Swiss franc ($3.8 billion) loss before tax, including a 3.2 billion-franc charge to write down the value of its investment bank, and UBS may post a 260 million-franc pretax loss on restructuring and legal costs, Citigroup said. Both report quarterly earnings next week. Representatives for the four European banks declined to comment on the report.

Deutsche Bank said last week that it had a 2.7 billion-euro ($2.9 billion) pretax loss for the quarter. It will disclose data on its securities unit Thursday in Frankfurt.

The five biggest U.S. investment banks, including Citigroup, saw their combined revenue fall 4.9 percent to $24.2 billion in the fourth quarter from a year earlier, data compiled by Bloomberg show.

UBS’s investment-bank revenue probably fell 10 percent in the quarter on a dollar-adjusted basis while Credit Suisse will see a 17 percent slump and Deutsche Bank a 25 percent drop, according to Citigroup.

Barclays said last week that revenue at its investment bank will be “broadly flat” in 2015 from the previous year. That would indicate a decline of about 11 percent in the fourth quarter.

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