Equities, deals revenues to offset slower trading - Deutsche Bank
By Anjuli Davies
LONDON (Reuters) - European investment banking revenues are likely to have been flat in the second quarter compared to last year, with a slowdown in trading offset by better revenues in equities and advisory divisions, Deutsche Bank analysts said on Tuesday.
Trading revenue from the world's biggest banks showed signs of recovery in the first quarter as market volatility boosted dealing room profits after years of attrition.
However, revenues from fixed income, currencies and commodities (FICC) which accounts for about half of investment banks' revenues, could still drop 10 percent year-on-year across European investment banks, Deutsche Bank analysts predict.
"During Q2, average volatility levels dipped slightly, albeit remaining above 2014 levels," Deutsche analysts wrote.
"Still, we expect the tailwind from higher volatility to have abated somewhat in the second quarter."
With June IPO volumes in Europe remaining robust and merger and acquisitions activity up 27 percent in the second quarter compared with last year, these divisions are likely to post higher quarterly revenues, Deutsche Bank predicts.
Investment banking fees -- which includes equity issuance, debt raising and advisory activity - from Europe totalled $9.9 billion so far this year, a 24 percent decline from the same period in 2014. Europe also accounts for 24 percent of total global investment banking fees, according to estimates from Thomson Reuters/Freeman Consulting.
European stock market flotations in the first half raised a quarter less than a year before, whilst M&A in Europe rose 10 percent to hit $497.7. billion, marking the strongest start to the year for the region since 2008, Thomson Reuters data calculates.
"Q1 was a better quarter for earnings momentum, but we think most likely consensus expectations should be unchanged or perhaps even pull back a little over earnings season for the European investment/universal banks," the analysts wrote in the note.
"Although some of the European investment/universal banks are certainly cheap, without a case for earnings upgrades, we do not see the case for outperformance over the summer months."
JPMorgan and Wells Fargo will kick off second-quarter earnings seasons for the big banks on July 14.
Jefferies Group [JGLL.UL] , already reported on June 16 a 2.5 percent fall in quarterly profit as a prolonged slump in its bond trading business more than offset a rise in investment banking revenue.
(Reporting By Anjuli Davies; Editing by Keith Weir)
