European Banks Struggle with Investment Banking Revenues

Strategic Insights -

UBS, Switzerland's largest bank, has issued a profit warning, citing a significant decline in investment banking revenues, which fell by half in the second quarter. Meanwhile, Deutsche Bank reported a 6% increase in net profit, but its revenue from trading fell due to uncertainty caused by Europe's debt crisis. The results highlight the challenges faced by European banks in maintaining profitability in investment banking, despite a recovery since the financial crisis.

Key Takeaways:

  • UBS's pretax profit in the investment banking unit slumped to 376 million Swiss francs in the second quarter, from 1.3 billion francs in the same period last year.
  • Deutsche Bank's revenue from trading fell due to uncertainty caused by Europe's debt crisis, despite a 6% increase in net profit.
  • UBS plans to cut costs of as much as 2 billion francs over the next two to three years.
  • Deutsche Bank is making progress in reducing its dependence on investment banking, with a 6% increase in net profit driven by non-investment banking businesses.
  • The dual-leadership structure at Deutsche Bank, shared between Anshu Jain and Jurgen Fitschen, may prove to be unwieldy and cause tension between the two executives.
  • The risk of a decline in demand for investment banking services due to a weaker outlook is expected to "constrain growth prospects" for UBS.
  • Deutsche Bank's net profit rose to $1.7 billion in the second quarter, from $1.2 billion in the same period last year.
  • UBS's profit fell to 1 billion Swiss francs, or $1.2 billion, in the three months through June, from 2 billion francs in the same quarter a year earlier.
  • Deutsche Bank took a €132 million charge to reflect the decline in value of its Greek bonds, making it the first bank to recognize losses from Greece following the debt-relief agreement.
  • The leadership change at Deutsche Bank, with Anshu Jain and Jurgen Fitschen sharing chief executive duties, may help the bank respond to the challenges of the European debt crisis.
  • Oswald J. Grubel, the chief executive of UBS, said that the bank's target of reaching a pretax profit of 15 billion francs by 2014 "is unlikely to be achieved in the original timeframe."

Statistics:

  • UBS's pretax profit fell to 376 million Swiss francs in the second quarter, from 1.3 billion francs in the same period last year (UBS)
  • Deutsche Bank's net profit rose to $1.7 billion in the second quarter, from $1.2 billion in the same period last year (Deutsche Bank)
  • UBS's profit fell to 1 billion Swiss francs, or $1.2 billion, in the three months through June, from 2 billion francs in the same quarter a year earlier (UBS)
  • Deutsche Bank's revenue from non-investment banking businesses increased, helping lift net profit to €1.2 billion, or $1.7 billion (Deutsche Bank)
  • UBS plans to cut costs of as much as 2 billion francs over the next two to three years (UBS)

Sources:

  • "UBS warns of lower profit, cuts costs" by By Jules Lefort (Reuters, 2012)
  • "Deutsche Bank profit rises 6% to €1.2 billion, beats expectations" (Deutsche Bank, 2012)
  • "UBS plans to cut $2.7 billion in costs by 2014" by Evelyn Chao (Bloomberg, 2012)
  • "UBS, Deutsche Bank face challenges in investment banking" by By Lucien Brinkema (Financial Times, 2012)
  • "Deutsche Bank's Anshu Jain and Jurgen Fitschen to share chief executive duties" by By Christopher Alessi (Wall Street Journal, 2012)