European Banks Seen Losing More Share Amid Bond Trading Upturn

(Bloomberg) -- European investment banks are set to lose more ground to U.S. rivals in fixed-income and equities trading when they report first-quarter results this week.

Barclays Plc, Deutsche Bank AG and UBS Group AG are all expected to post smaller increases in fixed-income trading revenue than the collective 24 percent jump reported by their five largest American counterparts, analysts estimate. While the U.S. firms eked out a gain in equities trading from a year earlier, Europe’s banks are estimated to report an overall decline.

If the predictions play out, it would continue the trend from 2016 when major European banks’ market share in the trading businesses shrank to the smallest since the financial crisis. Still, the loss of ground wouldn’t be as dire as in the fourth quarter, when the U.S. firms seized on a pickup in market activity as European firms grappled with legacy legal bills.

“Strong market share gains in investment banking and trading” mean that U.S. banks’ valuation “premium is warranted,” analysts at Macquarie Group Ltd. wrote in a note earlier this month. Deregulation in the U.S. poses “more of a threat than an opportunity to the European peer group.”

U.S. firms’ trading performance has been buoyed by a strong domestic economy and market volatility following Donald Trump’s election, as well as the President’s desire to roll back financial regulations. While Europe’s banks have also benefited from the rebound to a certain extent, they’ve undergone strategic overhauls and cut jobs in an effort to revive profitability.

Credit Suisse Group AG is projected to be an outlier in the period as it rebounds from last year’s first quarter, when it took more than $400 million of writedowns on distressed debt and other fixed-income assets. Those losses raised questions for Chief Executive Officer Tidjane Thiam, who said some of the positions took top managers by surprise.

American banks will probably account for about 73 percent of fixed-income revenue among the nine U.S. and European firms in the year’s first three months, up from 71 percent in the same period of 2016, data complied by Bloomberg show. However, that’s down from 77 percent of the market in last year’s fourth quarter. The nine firms typically account for about half the revenue of the trading and investment banking industry, according to data from Bloomberg Intelligence and McKinsey & Co.

In equities, Wall Street is expected to grow its market share to 70 percent in the first quarter from 68 percent a year earlier, the data show.

Still, there is some optimism that European banks may see a resurgence over the next year as they face fewer geopolitical headwinds. An index of the region’s banks rallied the most in more than a year Monday after centrist Emmanuel Macron advanced to the second round of the French presidential elections and polls showed him ultimately prevailing over anti-euro Marine Le Pen.

There’s also evidence that some of the region’s securities firms may be growing again after years of bloodletting. Barclays’s investment bank -- under Tim Throsby, who joined from JPMorgan Chase & Co. last year -- is planning to hire at least 20 people in European equities in an attempt to improve its standing, people familiar with the matter said last week.

To contact the reporters on this story: Stephen Morris in London at smorris39@bloomberg.net, Nicholas Comfort in Frankfurt at ncomfort1@bloomberg.net.

To contact the editors responsible for this story: Michael J. Moore at mmoore55@bloomberg.net, Jon Menon