France's Natixis SA, BNP Paribas SA and Société Générale SA outperformed almost all of their European and U.S. investment banking competitors in equities income growth in the third quarter, S&P Global Market Intelligence data shows.
All three booked significant revenue increases in the quarter, with Natixis more than doubling its income. BNP Paribas' equities income grew nearly 80%, while that of SocGen rose 43.34%. In a sample of 12 U.S. and European investment banks, only Goldman Sachs Group Inc. kept pace with the French institutions with a 51.29% increase.
The five U.S. banks in the sample — Goldman Sachs, Bank of America Corp., Citigroup Inc., Morgan Stanley and JPMorgan Chase & Co. — all recorded double-digit growth. Credit Suisse Group AG was the only institution to book a loss. The Zurich-based bank has been downsizing its prime services business in recent quarters in the wake of several scandals.
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French banks' equities businesses are significantly narrower than those of their European and U.S. peers and tend to focus more on equity derivatives and structured products, which have performed well year-to-date, said Rafael Quina, director for French banks at Fitch's financial institutions group. These activities suffered in 2020 amid dividend cancellations and a spike in hedging costs, which largely explains the rebound in the third quarter, Quina added.
BNP Paribas was further boosted from the effects of fully consolidating its cash equities-focused Exane SA business and its growing prime services franchise, parts of which it acquired from Germany's Deutsche Bank AG. SocGen and Natixis are also reaping the rewards of the repositioning their equities businesses, Quina said.
More broadly, investment banks benefited from increased equities trading volumes and strong revenue from equity derivatives, according to Christian Scarafia, a managing director and head of north European bank ratings at Fitch Ratings. Most European institutions also benefitted from higher advisory and equity capital markets fees amid stronger M&A activity.
Offsetting FICC drag
For European banks, the growth in equities income more than offset the drop in fixed-income, currencies and commodities income, according to analysts at Moody's. All banks in the sample bar Natixis and Goldman Sachs booked year-over-year declines in FICC revenues.
A normalization of markets from the heightened levels of 2020 was the main reason for the dip, but revenues were still considerably above 2019 levels, said Maria Rivas, senior vice president for global financial institutions at DBRS Morningstar.
While its equities revenues growth was among the highest in the sample, SocGen also booked the highest decline in FICC revenues at 33.22%, followed by Swiss bank UBS Group AG at 31.29%. SocGen's exposure to rate products that were particularly affected by the market normalization goes some way to explaining the decline, Moody's said.
All in all, European and U.S. banks showed similar trends, according to DBRS Morningstar, though U.S. banks' outperformed their European peers, particularly in equities and advisory. U.S. banks' advisory revenues rose 188% and Goldman Sachs retained its top spot in M&A rankings, advising on about $1.4 trillion of announced transactions and taking a 32% market share by volume, according to Fitch.
2021 outlook
Equities market revenues for U.S. banks are likely to decline from the highs of the first half, much as how debt markets have quietened from a peak in 2020, Fitch noted.
Trading revenues are likely to continue to normalize through the fourth quarter and into 2022, Fitch's Scarafia said, though full-year 2021 FICC revenues still being above 2019 levels would not come as a surprise, according to Rivas.
Changes in interest rate expectations could cause a pickup in market volatility and drive higher trading volumes and revenues, Scarafia added.