Barclays ‘Best Year’, French Struggles Highlight European Banking Split

After years in the doldrums, Europe’s investment banks had their moment in the sun in 2020. Some seized it and some botched it.

For traders at Barclays Plc, the volatility in the markets brought on by the pandemic delivered their “best year ever,” while three of France’s biggest banks were hit hard, highlighting the split in how investment banks in Europe were able to ride the wildest trading year in a decade.

“2020 was genuinely a game of two halves, with huge fixed-income beats in the first half as equities languished and the French suffered with derivative losses, and then equities and banking fees staged a strong recovery in the second half,” said Jonathan Tyce, a senior European banking analyst at Bloomberg Intelligence. “Barclays had a great year.”

Barclays ‘Best Year’, French Struggles Highlight European Banking Split

The uneven performance means the debate on how much lenders should focus on investment banking operations will continue, with the focus now on how trading units will fare in 2021. While many of Europe’s investment banking units thrived on the volatility-driven business, the post-pandemic era could change that, said Tyce.

“The pace of trading normalization and increasing competition from the U.S. could render it a distant memory very quickly,” he said.

Barclays on Thursday reported fourth-quarter trading revenue that surpassed analysts’ estimates, helping it outpace larger Wall Street rivals with a 45% surge in markets income for the year. Revenue at the London-based bank’s key fixed-income trading division soared 53% to 5.1 billion pounds ($7.2 billion) last year, the most that unit has reported since 2012. The smaller stocks-trading business climbed 31%.

“We gained market share across almost all the asset classes,” Barclays Chief Executive Officer Jes Staley said in an interview with Bloomberg TV. “We’ve invested in our investment bank for the last five years and I think last year started to pay real dividends and allowed us to be profitable every quarter.”

Also on Thursday, Credit Suisse Group AG’s securities unit reported a mixed fourth-quarter. But a rise in advisory fees, as clients tapped surging capital markets for cash, helped overall investment banking revenues increase by about a fifth year-on-year.

Earlier in the month, Deutsche Bank AG said an increase in fixed-income trading helped lift the troubled Frankfurt-based lender to its first annual net profit since 2014. The investment bank at UBS Group AG recorded its best performance since 2012 as trading revenue surged 33%.

Barclays ‘Best Year’, French Struggles Highlight European Banking Split

These performances have strengthened the hands of executives like Staley who’ve spent years calling for maintaining significant -- and costly -- investment banking operations and competing against Wall Street’s biggest firms.

In 2020, Goldman Sachs Group Inc., JPMorgan Chase & Co., Morgan Stanley, Citigroup Inc. and Bank of America Corp. reeled in more than $100 billion in combined trading revenue, the first time that’s happened since the European sovereign debt crisis in 2012.

Critics of the European investment banking push point to its pitfalls, particularly in France.

French banks BNP Paribas SA, Societe Generale SA and Natixis SA saw some 2.5 billion euros ($3.02 billion) in combined revenue from equities trading erased in 2020, even as investors across the globe rushed to bet on gyrating stock markets by buying shares and derivatives.

The Paris-based firms had embraced structured products, a complex variation of equities trading, that blew up when corporations began canceling their dividends early in the year. And while BNP offset the losses with gains from fixed-income trading, Naxitis posted a decline there as well.

©2021 Bloomberg L.P.

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