Second-quarter trading revenue at France-based Société Générale SA and Natixis SA grew year over year while that of other leading global investment banks fell, as fixed income, currencies and commodities trading continued to slow down.
Most of the 13 global investment banks tracked by S&P Global Market Intelligence posted revenue drops, both on a yearly and on a quarterly basis, with FICC being the key drag. Equities sales and trading revenue at most banks grew year over year, but they were weaker than during the first quarter.
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Natixis was the only bank to post higher FICC revenue than a year ago, as it earned enough from credit, rates and treasury products trading to offset weaker foreign exchange revenue, parent company Groupe BPCE said.
U.S.-based The Goldman Sachs Group Inc. and Switzerland-based Credit Suisse Group AG were the only banks in the sample to post year-over-year declines in equities revenue. While Goldman Sachs attributed the drop to "significantly lower" revenue in cash products and weaker derivatives revenue, Credit Suisse's result was dragged down mainly by prime brokerage losses and de-risking related to the collapse of U.S. family office Archegos Capital in early 2021.
French recovery drives better European results
Given their slightly smaller year-over-year decline in FICC revenue and their greater gains in equities, European banks' performance was seen as somewhat better than that of their U.S. peers by analysts at DBRS Morningstar, Moody's and Tricumen. The absence of structured equity derivative losses contributed to those better European results, according to Tricumen, a financial market analysis provider.
The losses were incurred primarily by French banks, all of which had large exposures to autocallable structured derivatives and took a heavy blow as companies canceled planned dividends in the early stages of the COVID-19 pandemic. The banks' rebound was clearly visible in their equities revenue figures, with Natixis swinging to a positive result of €108 million in the second quarter from negative €175 million a year ago, and Société Générale booking a 215.46% rise year over year.
French group BNP Paribas SA posted a 160.77% year-over-year increase in equities revenue and was one of two banks in the sample that also booked an increase on a quarterly basis, alongside Switzerland's UBS Group AG.
Continued market volatility drove European banks' equities revenue, but this was far from the record levels seen in the first half of 2020, DBRS Morningstar and Moody's analysts said in notes released earlier in August. In the first half of 2021, the Cboe Volatility Index — which measures expectations about market volatility in the next 30 days — moved at lower levels compared with the average yearly level seen in 2020, but it still remains above the average for the period 2015 to 2019, DBRS Morningstar said.
While outperforming U.S. banks on a year-over-year basis, European investment banks lagged their peers across the Atlantic in terms of sequential equities revenue development compared with the "exceptionally strong" first quarter of 2021, Moody's noted.
A year ago, FICC revenues spiked as governments and central banks rushed to pour liquidity into markets and the economy after the onset of the COVID-19 pandemic, while volatility hit levels not seen since the 2008 financial crisis. A normalization of FICC trading volumes as well as market volatility had been expected since late 2020.
Signs of normalization and weaker FICC were observed in the first quarter, with the trend expected to continue and even intensify in the second quarter, especially given strong prior-year figures. The drop in FICC and overall revenues was significant but not a surprise, considering "abnormally high" volatility levels in the second quarter of 2020, DBRS Morningstar said.
In terms of FICC products, foreign exchange and rates were the key area of weakness, while credit held up well with single-digit declines, and not across the board, Tricumen said. Weak metals and oil trading revenue were the main drivers of the year-over-year decline in commodities.
Rates, credit and commodities were the main drivers of the FICC decline at Goldman Sachs, while Bank of America Corp.'s, Citigroup Inc.'s and Morgan Stanley's FICC revenues suffered from weaker results in credit and macro products trading, according to a second-quarter sector overview by Credit Suisse analysts.
JPMorgan Chase & Co. attributed the drop in FICC mainly to weaker macro, but analysts noted that client activity remains strong and FICC results are still above 2019 levels.
Trading revenue levels at most European banks also remain ahead of 2019 results, according to DBRS Morningstar and Moody's.