26 Aug, 2024

Deutsche Bank, UBS outshine US peers in Q2 investment banking revenue growth

Deutsche Bank AG and UBS Group AG outpaced their US peers in investment banking revenue growth over the second quarter of 2024 as the industry continued to rebound from a prior-year slump in business.

Revenues earned from deal advisory, debt capital markets and equity capital markets underwriting surged by 102% year over year at Deutsche Bank and by 101% at UBS, compared to a 63% increase at Citigroup Inc. and rises of over 50% at both Morgan Stanley and JPMorgan Chase & Co., data compiled by S&P Global Market Intelligence shows.

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Strategic success

Both Deutsche Bank and UBS attributed the revenue jump to improving business conditions but also said recent strategic hiring and investments had begun to bear fruit. After a radical revamp in its trading business a few years ago, Deutsche Bank has focused on bulking up its less-capital intensive origination and advisory activities, aiming to more than double revenues in the segment by 2025, from €1.25 billion booked in 2023.

The German group has expanded its share of the industry wallet thanks to new strategic hires and the acquisition of UK brokerage Numis last year, and is bound for more growth in 2024 and beyond, CEO Christian Sewing said.

"Origination and advisory increased its global market share to 2.6% in the first half [of 2024], a gain of more than 70 basis points over the full year 2023, and we raised our global ranking from 11th to seventh," Sewing said during a July 24 earnings call, citing Dealogic data. The CEO said he "absolutely expects" to see more market share gains as the global sector pool increases over the next 12 to 18 months.

UBS for its part is benefiting from strategic gains after the acquisition of Credit Suisse in early 2023.

"In the investment bank, I'm pleased by the client response to the strategic additions we have made to reinforce our capabilities and competitive position. The first-half performance is a positive signal that the investments are paying off," CEO Sergio Ermotti said during UBS' Aug. 14 earnings presentation.

Since 2023-end, UBS has gained over 100 basis points of market share in each of its strategic investment banking initiatives, including M&A and sponsor business in the Americas, CFO Todd Tuckner said during the same presentation. The group expects to continue gaining market share although investment banking revenue growth could face some pressure from macro and geopolitical factors in the near term, Tuckner said.

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Mid-term recovery

Deutsche Bank's Sewing as well as executives at top US peers, including Citigroup, Bank of America Corp. and Goldman Sachs Group Inc., also spoke of an expected slowdown in third-quarter revenues, particularly in M&A advisory, due to seasonality, geopolitics and the upcoming US election. Yet, the banks acknowledged M&A and capital markets activity is on the path to recovery over the medium term after 2023 lows when rising rates kept many dealmakers on the sidelines.

Looking at separate business lines for the banks which report the split, Deutsche Bank booked the strongest increase in second-quarter deal advisory revenues, of 185% year over year, and UK-based group Barclays PLC led the pack in second-quarter equity capital markets (ECM) revenue growth, booking a 75% rise year over year, the Market Intelligence-compiled data shows.

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ECM revenues in the quarter were driven by Barclays' lead role in underwriting the £7-billion landmark rights issue of British utility group National Grid PLC, "a longstanding corporate broking client," Barclays CEO C. S. Venkatakrishnan said during an Aug. 1 earnings call. This was the largest rights issue in the UK since 2010, according to global law firm White & Case, which advised Barclays and joint bookrunner J.P. Morgan Securities PLC on the deal.

Quarterly performance

While all banks reported increases in total advisory and underwriting revenues on a year-over-year basis, quarterly performance was more mixed with six of the 12 investment banks in the sample booking weaker second-quarter revenues compared to the previous quarter, the data shows.

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France-based Groupe BPCE reported the biggest quarter-over-quarter increase, of more than 18%. This was driven by strong ECM revenues and further growth in M&A which was helped by two new investments in boutique firms Tandem Capital Advisors in Belgium and Emendo Capital BV in the Netherlands made by BPCE's unit Natixis Partners, the French group said in its earnings release.

JPMorgan and Deutsche Bank posted the second- and third-highest rate of total revenue growth quarter over quarter, which was driven by stronger advisory revenues at both banks, the data shows.

US group Goldman Sachs booked the steepest quarter-over-quarter fall in total revenues, of nearly 17%, driven by a drop in advisory. CEO David Solomon attributed the advisory slowdown to the still weak financial sponsor activity in the M&A market, yet he was rather optimistic about performance in 2025.

"We are in the early innings of a capital markets and M&A recovery. And while certain transaction volumes are still well below their 10-year averages, we remain very well-positioned to benefit from a continued resurgence in activity," Solomon said during a July 15 earnings call. Overall M&A activity has "another 10% to 20% to get to 10-year averages," Solomon said.