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US i-banks assert dominance in 2020 trading despite big gains by European peers

U.S. investment banks extended their reign over global capital markets trading in 2020, although two European banks booked the strongest year-over-year revenue growth, S&P Global Market Intelligence data shows.

U.K.-based Barclays PLC outpaced all top five U.S. investment banks — Bank of America Corp., Citigroup Inc., The Goldman Sachs Group Inc., JPMorgan Chase & Co. and Morgan Stanley — by year-over-year growth in equities trading and overall trading revenues in 2020. The British group's overall trading revenues grew 44.91% year over year to £7.61 billion, with equities revenues surging 30.95% to £2.47 billion, the data shows.

Switzerland-based UBS Group AG booked the strongest year-over-year increase in fixed income, currencies and commodities, with trading revenues rising 68.78% to $2.64 billion in 2020.

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Almost all of the other European investment banks in the sample, which comprises BNP Paribas SA, Credit Suisse Group AG, Deutsche Bank AG, HSBC Holdings PLC, Société Générale and Natixis SA, recorded strong gains in FICC trading and many of them outperformed the U.S. banks by year-over-year revenue growth in that segment. However, most had a weaker showing in equities, particularly the French banks, as the pandemic-induced market volatility in the first half of 2020 hit structured equity derivatives.

In equities, the outperformance of U.S. banks was primarily driven by flow equity derivatives, according to Youssef Intabli, a research director at the corporate and investment banking team of Coalition Greenwich, an S&P Global research company. Barclays' strong equities franchise in the U.S. was the reason why the U.K. bank was able to measure up to the U.S. banks in 2020, Intabli said in a written comment.

US dominance

Despite the growth at European banks, the leading U.S. institutions asserted their global dominance in 2020, making nearly twice as much in absolute trading revenues as their peers across the Atlantic, S&P Global Market Intelligence data shows. The U.S. groups extended their advantage over European rivals, gaining more market share across business segments in 2020, continuing a secular trend from the last few years, Fitch Ratings said in a report March 23. Given U.S. banks' scale and sway over the larger and deeper U.S. debt and equity markets, the trend is expected to continue, the rating agency said.

The aggregate total trading revenues of U.S. groups in the S&P Global Market Intelligence sample grew to $111.96 billion in 2020 from $84.55 billion in 2019. The aggregate total trading revenues of European banks in the sample amounted to $56.01 billion in 2020 compared to $47.34 billion in 2019.

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To download an Excel version of the Q4 and FY'20 data and historical charts, please click here.

"U.S. banks are best positioned to benefit from broader franchises that allow for greater revenue diversification than at European peers. The latter are likely to continue to operate only in selected business segments following the refocusing of their businesses on areas of relative strengths, with narrower coverage and franchises," Fitch Ratings said.

French recovery in strong Q1

Natixis and Société Générale were the only banks in the sample to post year-over-year revenue declines in 2020, which has been regarded as an exceptional year for investment banks across the globe. The French banks suffered large losses in their auto-callable structured derivatives operations as many companies canceled planned dividends after the onset of COVID-19 but started to recover toward the end of the year.

Natixis was the only bank in the S&P Global Market Intelligence sample to book a quarter-over-quarter increase in overall trading revenues in the fourth quarter of 2020, thanks to a massive surge in equities revenues.

Société Générale and BNP Paribas recorded higher quarter-over-quarter equities revenues for the same period and a continued recovery is expected in the first quarter of 2021, according to Coalition.

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Société Générale's first-quarter revenues from equities trading are expected to breach €600 million, driven by a recovery in dividend futures products, and could come close to the €667 million booked in the same period in 2019, Bloomberg News reported March 30, citing insiders.

First-quarter revenues at the rest of the investment banks are also expected to be strong, with both Credit Suisse and Deutsche Bank, as well as U.S. groups like Morgan Stanley, Citigroup and JPMorgan signaling a good start to 2021. Whether revenues will exceed 2020 first-quarter levels is yet to be seen and the figures would hardly be comparable given the market displacement in late March 2020, UBS analysts said in a March 9 note, citing management commentary from several banks.

The data points to a particularly strong quarter in equity capital markets origination, M&A, equities sales and trading, and commodities, the UBS analysts said. Credit volumes are holding up well on a year-over-year basis, but foreign exchange and rates trading data indicate a somewhat slower performance against tough prior-year comparables, they said.