BrazilEuropean and US corporate and investment banks book higher revenues and profits
Major corporate and investment banks in Europe and the United States have enjoyed a good first half of 2024, with both revenues and profitability higher on the same period the year previous. That is according to an industry benchmark report from Eurogroup Consulting.
In the latest edition of its annual Corporate & Investment Banking Outlook report, Eurogroup Consulting breaks down the financials of around 20 large corporate and investment banks, including European leaders HSBC, Deutsche Bank, Barclays, BNP Paribas and ING, and US giants Citi, JP Morgan, Bank of America, Goldman Sachs, and Morgan Stanley.
The study found that in the first two quarters of 2024, revenue of the large corporate and investment banks assessed jumped by 4.4%, close to double of last year’s revenue growth rate, which stood at 2.3%.
Medium-sized banks in Europe were the fastest growers, with BBVA and Commerzbank recording a 61% and 44% increase in revenues, although JP Morgan also had a standout first half with 50% revenue growth.
With banks more focused and successful in curbing cost increases, the cost-to-income (C/I) ratio saw an improvement (down 3.3%). However, these improvements were thanks to European players, which recorded an average C/I ratio of 5.0 percentage points lower than the average, while American corporate and investment banks sat above the average.
Taking a closer look at differences between the two continents, Eurogroup Consulting said that American banks enjoyed more lucrative returns in equity capital market (when financial institutions help companies raise equity capital), with the growth gap between the US and Europe at 6.0%.
Transaction banking revenues, such as fees received for guiding mergers & acquisitions and initial public offerings, rose both in the US and Europe. Credit revenues meanwhile were driven by a surge in volume in US electronic high grade, with European credit revenues following a similar but dampened trend. In commodities markets, revenues declined said the report, although the outlook will turn more positive during the remainder of the year.
Across both continents, commercial banking and treasury services continued to experience strong fee incomes, especially at banks that were able to extract collaboration revenue with capital markets to offset the declining net interest incomes.
These gains translated into positive changes to the Jaws ratio for both US and European banks as asset profitability increased by 28 basis points year-on-year. Most banks recorded an improved Jaws ratio (a measure that tracks the extent to which income growth rate exceeds the expenses growth rate), while several medium sized banks such as Santander and ABN Amro saw a deterioration.
Notably, all five US corporate and investment banks saw a vast improvement in their Jaws ratio while maintaining a fairly consistent cost income ratio.
The outlook
Looking ahead, the Eurogroup Consulting study asserts that corporate and investment banks can “look forward optimistically”, with an improving and stabilising macroeconomic environment, a softening of nd inflationary pressures, growing investment banking activity as the M&A market picks up, and heightened capital markets activity.
“In preparation for the next cycle, banks should drive initiatives to capitalise on the opportunities, and continue further investment in middle and back-office functions to precipitate cost-savings and bottom-line growth,” said Matthieu Prieuret, partner at the management consulting firm. “It also remains vital for banks to internalise non-financial-based metrics to assess performance, such as risk and ESG metrics.”
