France-based BNP Paribas SA, Société Générale SA, and Natixis were the three global investment banks to book the steepest year-over-year trading revenue declines in the fourth quarter of 2018, S&P Global Market Intelligence data shows.
The trio were also among the five worst performers on a full-year basis, alongside Deutsche Bank AG and Credit Suisse Group AG, which both resized their investment banks in 2018.
Goldman leads amid market meltdown
U.S.-based Goldman Sachs Group Inc. was the best performing global investment bank in 2018, booking a 13.28% year-over-year rise in overall trading revenues with double-digit growth in both its fixed income, currencies and commodities, or FICC, and equities.
A massive equities selloff, especially in December, made the fourth quarter of 2018 the worst for global stocks in the last seven years, investment firm Schroders said in its annual market overview. At 13.7%, the fall for the MSCI World Index was the eleventh worst for global stocks since 1970, surpassing even the 2009 first-quarter loss during the global financial crisis and the second-quarter loss seen in 2010 during the eurozone debt crisis and the U.S. flash crash, Schroders said.
Goldman Sachs was also best performer in the fourth quarter among the 13 leading global investment banks sampled by S&P Global Market Intelligence and one of only two to book a year-over-year rise in trading revenues for the period. The other was Bank of America Corp.
The market volatility in 2018 has trimmed the investment banking ambitions of European groups, many of which, unlike their U.S.-based peers, are still struggling with post-crisis legacy issues, high costs, and low profitability. Most notably, in early 2018 Deutsche Bank abandoned the investment bank-focused strategy it had followed for nearly two decades as it sought to return to profit after four years of making losses. The sales and trading business was a key drag on the group's revenues.
In recent years, the big French banks have been building themselves up to climb the top ranks of investment banking in Europe, the Middle East, and Africa. In particular, they have been growing strongly in equities.
However, both banks have recently announced plans to restructure their trading operations in a move to limit their exposure to highly volatile market segments.
Large French banks are important players in the European capital markets, but are less developed than global Tier 1 banks, S&P Global Ratings said in an analysis Feb. 4. A sizable exposure to the ongoing market volatility poses a risk given that the banks' profitability is already under pressure from other negative factors such as the low rate environment in Europe, the credit analysts said.
The volatility bounce from a historical low to multi-year highs in 2018 created market turbulence that heightened the risks of one-off trading losses for global banks, Ratings said. Such one-off effects saw Natixis book $290 million in losses linked to Asian equity derivatives, the agency noted.
Natixis was by far the worst performer among the 13 banks tracked by S&P Global Market Intelligence with 97.92% year-over-year slump in total trading revenues in the fourth quarter and a 30.69% year-over-year drop booked for the full 2018.
Analysts at Berenberg recently warned about low capital levels at both BNP Paribas and SocGen and Ratings said their profitability is likely to remain subdued in 2019.
Against this background, it comes as no surprise that SocGen plans to refocus its trading operations in order to be able to meet "an acceptable return on normative equity", as CEO Frédéric Oudéa said during the bank's 2018 earnings presentation Feb. 7.
And BNP Paribas announced at its own earnings presentation on Feb. 6 changes to the investment bank strategy aimed at offloading noncore and less profitable operations, cutting costs and reducing the capital contribution to the unit.
S&P Global Market Intelligence's sample also includes U.S.-based banks Citigroup Inc., Morgan Stanley and JPMorgan Chase & Co., and European groups HSBC Holdings PLC, Barclays PLC and UBS Group AG.
Click here to view the above and previous charts in a a spreadsheet.
Enjoyed this analysis? Click here set-up real-time alerts for data-driven articles on any region of interest.