Credit Suisse, BNP break bank gloom with debt trading gains

Bloomberg

Traders at Credit Suisse Group AG and BNP Paribas SA broke some of the gloom in European banking, beating most of their Wall Street peers in the second quarter of 2019.
The results represent a rare bright spot for institutions contending with a deteriorating economy and huge job cuts, including the 18,000 positions that Deutsche Bank AG expe-cts to eliminate as it exits its equities business.
“The weakness in the European banking sector does not apply to all financial institutions,” said Andreas Meyer, a portfolio manager at Aramea Asset Management AG. “The French and Swiss banks are able to produce good results again.”
Credit Suisse posted a 6 percent gain in fixed income and only a slight decline in equity revenue. In contrast, the biggest Wall Street firms recorded a 7 percent drop in fixed income and an 8 percent slide in equities, capping what’s shaping up to be the worst first half for securities trading in a decade.

DEBT TRADING
BNP Paribas, the second biggest lender in the euro zone by market value, saw debt trading rise almost 9 percent, extending a surge in the first three months of the year.
The French bank’s global markets unit — its key trading division — saw revenue decline by almost 3 percent, dragged down by a 14 percent drop in equity and prime services. While that was worse than most Wall Street peers, some analysts had expected BNP to post a drop of about a quarter. The bank had a particularly difficult end to last year when it lost about $80 million on derivatives trades linked to the US stock market. It’s now seeking to take over some Deutsche Bank’s business with hedge-fund clients.

SHARES RISE
Shares of both lenders rose, with BNP adding 3.3 percent at in Paris trading and Credit Suisse jumping 4.3 percent in Zurich. The trading results at Credit Suisse add to evidence that the bank has turned a corner at its global markets division — which had a reputation for surprising investors with losses — after emerging from its three-year turnaround, though trading at the bank’s Asian unit slumped.
Equities trading fell about 1 percent, head of investor relations Adam Gishen told reporters on a conference call. The bank, which has two separate trading businesses, didn’t publish year-on-year changes for group-wide equities or fixed income trading in its earnings materials, in contrast with its large rivals.
The lender had healthy inflows of 9.5 billion francs ($9.6 billion) in wealth management, compared with outflows at rival UBS Group AG.

RATE ‘CHALLENGE’
Both BNP and Credit Suisse have held off on the sort of drastic job cuts announced this year by competitors including Deutsche Bank and SocieteGenerale SA. Credit Suisse said it saw “healthy levels of client engagement” so far this quarter, contrasting with warnings from peers that clients were staying on the sidelines and lower rates would hurt income from lending.
Still, there are plenty of challenges ahead with the Federal Reserve and the European Central Bank preparing further interest rate cuts to stimulate the economy. “Negative interest rates are a challenge,” Credit Suisse Chief Executive Officer Tidjane Thiam said in an interview with Bloomberg TV’s Francine Lacqua.
While the bank is less dependent on income from lending than some peers, its domestic business remains exposed.
Credit Suisse will announce some measures in August to change pricing and protect income from lending, Thiam said.
The trading gains weren’t just restricted to the two large European banks. Japan’s Nomura Holdings Inc. saw net revenue for global markets rise 21 percent from a year earlier, spurred by the highest amount generated from fixed-income in the US in 10 quarters.
Mitsubishi UFJ Financial Gro-up Inc.’s first-quarter profit jumped as gains from securities trading offset a decline in lending income.