European investment banks grow 2023 sector revenues as US peers lag

Most large European investment banks outperformed their US peers in advisory and underwriting revenues in 2023 amid a global drought in dealmaking.

Led by UBS Group AG's 50.91% increase, five out of the seven top European investment banks booked revenue growth in their M&A and capital markets business last year, while all five major US banks reported revenue declines, data compiled by S&P Global Market Intelligence shows.

Market observers see an opportunity for European players to expand their share of global investment banking as business starts to rebound in 2024 and beyond, with many banks having already set their sights on a bigger piece of the industry wallet.

The lack of megadeals and recent slowdown in M&A activity could shift competitive dynamics as it has cost bulge-bracket US banks part of their market share. European banks, especially smaller players and M&A boutiques, could capture this share when market activity picks up, Deloitte said in its 2024 banking and capital markets outlook. Some European banks have acquired small boutique firms to benefit from the expected deal flow revival, the consulting firm said.

2023 performance

Big US banks mainly attributed the drop in investment banking revenues to the lack of IPOs and the slowdown in M&A activity, which hit a decade-low in 2023 as geopolitical tensions, rising interest rates and a global economic slowdown kept many dealmakers on the sidelines. CEO Edward Pick bemoaned Morgan Stanley's "very light M&A calendar" and the slowest IPO business in decades during the bank's 2023 earnings call Jan. 16, while Goldman Sachs' CEO David Solomon said Feb. 27 that investment banking is yet to recover from "super anaemic" levels seen in the first half of last year.

The dearth of deals also affected European banks, yet new acquisitions and stronger growth in some capital markets and financing activities helped most to boost overall investment banking revenues above the 2022 level.

UBS Group AG's global banking revenues grew thanks to particularly strong leveraged and debt capital markets (DCM) business as well as robust performance in the Americas, CFO Todd Tuckner said during a Feb. 6 earnings call. Select operations taken on from Credit Suisse Group AG, which UBS acquired in a rescue deal in early 2023, also strengthened the group's investment banking arm.

HSBC Holdings PLC's capital markets and advisory revenues grew mainly due to "increased financing activities and higher interest rates, against a backdrop of a smaller global market fee pool," the lender said in its 2023 earnings release.

Deutsche Bank AG, which is one of the few European banks reporting advisory and capital markets revenues separately, offset the drop in advisory thanks to a strong recovery in its DCM business, driven by leverage finance and a "non-repeat of hedge losses" booked in 2022, CFO James von Moltke said Feb. 1. The German group's DCM revenues more than doubled year over year, data compiled by Market Intelligence shows.

French group BNP Paribas SA boasted market share gains in its global banking business in 2023, supported by strong bond and syndicated loans business in Europe. Buoyant transaction banking activity also led to higher revenues versus a year ago.

Groupe BPCE's investment banking arm Natixis SA said growth in acquisition and strategic finance, as well as strong activity across affiliated M&A boutiques, including Fenchurch, Azure Capital and Solomon Partners, drove sector revenues.

2024 market share growth

Many European banks are seeking to expand their investment banking market share in 2024 as economic and market conditions improve and recent acquisitions start to bear fruit. Deutsche Bank, which acquired UK-based investment banking boutique Numis Corp. PLC, is aiming to double its origination and advisory revenues by 2025, with two-thirds of the revenue growth coming from market share expansion, CFO von Moltke said.

With revenues from onboarded Credit Suisse staff just beginning to build, UBS sees itself well positioned to strengthen and further expand its share in advisory and underwriting, especially in the US, CFO Tuckner said. The integration of Credit Suisse will make "a real difference" for UBS and narrow the gap versus peers in the US, Tuckner said.

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BNP Paribas is also eyeing a bigger share of industry revenues, especially in Europe. Despite growing competition, the group ranks fifth in investment banking in Europe and first in the wider Europe, Middle East and Africa region, corporate and investment banking chief Yann Gérardin said during a Feb. 1 earnings call. Gérardin said he is "very confident" BNP Paribas can expand its market share further, with "significant room" for growth in all of its key European markets of Germany, the UK, Scandinavia and Switzerland.

Measured by total investment banking revenues, BNP Paribas was the ninth-largest investment bank globally in 2023, moving up from 12th in 2022, according to London Stock Exchange data.

Despite ongoing pressures in its investment bank and a recent reshuffle of the business, Barclays moved up to sixth in 2023 in the global league table, from seventh a year ago, switching places with UBS. The UK-based group's investment banking revenues fell 11.51% in 2023, driven by a drop in advisory.