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European i-banks shine amid fixed-income surge in Q3 but 2020 outlook more muted

A surge in fixed-income, currencies and commodities trading helped three European investment banks book the highest year-over-year rise in third-quarter revenues among their global peers, data compiled by S&P Global Market Intelligence shows.

Ten out of 13 major U.S. and European credit institutions booked higher FICC than equities trading revenues from July to September.

Europeans in lead

Credit Suisse Group AG led the pack with a 34.09% year-over-year increase in total trading revenues, fueled by a 66.18% jump in FICC. French group BNP Paribas SA followed with a 14.75% year-over-year rise in total trading revenues, thanks to a 34.56% increase in FICC, which reversed a 15.04% drop in equities revenues. U.K.-based Barclays PLC saw the third-biggest total revenue increase, of 13.03% year over year, also driven by an 18.60% rise in FICC.

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Strong FICC revenues also helped U.S.-based groups JPMorgan Chase & Co. and Morgan Stanley to grow overall third-quarter revenues, by 11.14% and 6.97% year over year, respectively, as both recorded falling equities revenues.

Goldman Sachs Group Inc. booked growth in both FICC and equities to see total revenues rise by 6%. Stronger equities trading boosted Bank of America Corp.'s total third-quarter trading revenues, which rose by 7.26% year over year.

Citigroup Inc. on its part did not see an increase in third-quarter trading revenues as a feeble 0.16% year-over-year rise in FICC was not able to offset the 2.73% fall in equities revenues.

U.K.-based HSBC Holdings PLC was the only bank to see a double-digit year-over-year drop in FICC revenues in the third quarter, of 21.84%. This pushed it to the bottom of the list with total revenues down by 16.77% year over year. The bank, which will revamp its investment banking arm in 2020, cited one-offs and the particularly strong prior-year result as reasons for the third-quarter declines.

Deutsche Bank AG which is shutting down its equities business, reported only fixed-income and currencies trading revenues for the third quarter. With a 12.70% year-over-year drop the German group was the second-worst performer in the S&P Global sample of 13 banks.

France-based Société Générale SA was the third-worst performing among the global investment banks with a total trading revenue drop of 9.22% year over year. This was driven by a 15.81% fall in equities.

Muted fixed-income outlook

The fixed income growth in 2019 was chiefly driven by the return of monetary policy easing by global central banks, which resulted in "an unusual outcome of synchronized positive returns across asset classes," with both safe-haven government bonds and higher-risk fixed-income assets performing well, global asset manager Pine Bridge Investments said.

The same conditions are not likely to be repeated in 2020, Steven Oh, global head of credit and fixed-income at Pine Bridge, said in a note. There are signs of dispersion of risk appetite within asset classes as investors are avoiding higher-risk segments "mainly due to concerns about deteriorating credit quality amidst a late-cycle environment," he said. This trend is expected to continue next year.

"The dovish central bank pivot that drove markets in 2019 is largely behind us," global investment firm BlackRock said in its 2020 outlook report. "Inflation risks look underappreciated, and the lull in U.S.-China trade tensions could unwind.

"This leaves us with a modestly pro-risk stance for 2020."