SocGen, Credit Suisse Profit as Trading Boom Endures Into 2021

(Bloomberg) -- Europe’s top investment banks are still profiting from a boom in trading and advisory work well into the first quarter, signaling there’s no end in sight yet to the gains that drove profits last year.

Credit Suisse Group AG is seeing its best start to a year in a decade, and Deutsche Bank AG as well as Societe Generale SA have flagged strong investment banking results. While the tone is optimistic across the board, banks that did well during the onset of the pandemic a year ago are cautioning it will be difficult to top those high trading volumes.

The firms are enjoying a spike in transactions as central banks pump money into the economy, investors buy and sell securities while companies and governments issue bonds to weather the fallout from lockdowns. That’s a stark contrast with traditional banking businesses, which are preparing for a surge in defaults and more relentless headwinds from negative interest rates.

“We had an excellent start to the year,” Credit Suisse Chief Executive Officer Thomas Gottstein told a conference organized by Morgan Stanley on Tuesday. “It’s a broad-based strength in investment banking, capital markets in particular.”

Credit Suisse saw revenue at its investment bank jump more than 50% in the first two months and pretax income for the group rise to the highest in 10 years. But the good news was overshadowed as the bank warned it may take a financial hit related to the implosion of Greensill Capital, which forced it to freeze $10 billion of funds and put a loan to the firm at risk.

Deutsche Bank, which flagged a “strong start” to the year in its annual report last week, is scheduled to present at the conference on Thursday. Investors will probably be focused on the outlook for revenue after the German lender said the investment bank probably won’t reach the high volumes of last year and cited an uncertain economic environment.

That slightly more cautious tone echoes comments by the biggest Wall Street banks. JPMorgan Chase & Co. Chief Financial Officer Jennifer Piepszak said her bank has generated more trading revenue this year than in the same period of 2020, but didn’t want to make predictions for the first quarter because “we’re heading into a much more challenging” comparison to year-earlier figures for March.

Citigroup Inc. expects revenue from trading stocks and fixed-income products will drop by a percentage in the mid-single digits in the first quarter. Investment banking revenue, however, will probably rise in the high teens or low twenties, helped by a strong business of underwriting initial public offerings, according to CFO Mark Mason.

Both Deutsche Bank and Credit Suisse have benefited from a surge in so-called special purpose acquisition vehicles that has boosted income from advising on initial public offerings. Deutsche Bank, which cut back its equities team in 2019, now ranks 10th globally among advisers on IPOs while Credit Suisse climbed to third position.

For the French banks, which were hit hard last year when dividend cancellations caused steep losses on complex derivatives, the continued trading boom offers a chance to restore investor confidence. BNP Paribas anticipates a moderate revenue growth in 2021 and a decline in provisions for bad loans to more normal figures, as lockdowns ease and widescale vaccination programs take hold.

SocGen has finished restructuring its equities division and is seeing a good start to the year, William Kadouch-Chassaing, the bank’s head of finance, told the Morgan Stanley conference Tuesday. The lender posted its first annual loss in more than three decades last year, and has announced hundreds of job cuts in the investment bank.

“So far year to date, things hold well, we have a good start of the year, in some areas I would say even a strong start of the year compared with last year,” Kadouch-Chassaing said.

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