Despite the pandemic, US and European banks are still operating as usual

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Investment Bank Update

Banks in the United States and Europe have begun to escape the worst effects of the coronavirus pandemic and try to resume normal operations.

The results of the second quarter showed that investment banking revenues soared to pre-pandemic levels, while U.S. and British banks have recovered most of the capital reserved a year ago to prepare for a wave of defaults.

Nearest Europe Bank stress test The results also show that even in the worst-case scenario designed by the regulatory agencies, most large lenders have enough reserve capital to withstand the long-term economic consequences of the pandemic.

James Macdonald, a fund manager specializing in banking at BlueBay Asset Management, said: “We must be at a point where investors are reassessing whether they made a mistake when thinking about banks last year.”

U.S. investment bank reaffirms dominance

The most recent quarter has highlighted how the balance of power in the investment banking industry continues to shift from Europe to the United States.

in a A series of transactions, Goldman Sachs received more than $3.6 billion in revenue through advisory on transactions and underwriting debt and stock issuance. In contrast, the highest income from investment banking among European banks is Barclays, with revenue of US$1.2 billion.

Part of the gap is attributable to the fact that the United States accounted for less than half of all M&A transactions so far in 2021. But Bank of America also reaffirmed their dominant position in European investment banking.

According to Refinitiv data, in the first six months of this year, the four investment banks with the highest returns in European transactions are Bank of America: JPMorgan Chase, Goldman Sachs, Citigroup and Morgan Stanley. With the exception of Goldman Sachs, all companies are gaining market share.

Last summer, BNP Paribas’s investment bank announced one of its best quarterly results in Dominant force in Europe.

But one year later, BNP Paribas’s corporate and institutional banking income Has fallen Compared with the strong growth in the second quarter of 2020, this is an increase of nearly 10%, although it is still an increase of 20% compared to the same period in 2019.

Benefits shift from trading to consulting

although 2020 year Seeing the turbulent market push transaction revenue to record levels, this year’s earnings were driven by mergers and acquisitions and capital market activity.

Business and Private property Since trillions of dollars in government stimulus measures have supported asset prices, the group has released a repressive interest in transactions, and as the pandemic has weakened, companies are eager to lock in cheap financing before raising interest rates.

This helped ease the sharp decline in fixed income transactions, which fell by about 40% in the second quarter as the market returned to normal after the chaos at the beginning of the pandemic.

However, Citigroup analyst Andrew Combs warned that the good days may not last. The profitability of Barclays Bank, whose consulting revenue has soared 160%, “is driven by impairment reversals and a strong investment banking background, both of which are unlikely to prove completely sustainable.”

Due to the bank’s efforts to control, Credit Suisse’s revenue fell across the board as a result of The collapse of Archegos Capital resulted in a loss of US$5.5 billion and the closure of a US$10 billion supply chain finance fund related to controversial financiers Lex Greenhill.

Unwind loan loss provisions

At the peak of the coronavirus pandemic in the first half of 2020, banks set aside billions of dollars to cover potential loan defaults. The new accounting rules force them to bear the loss immediately when they see the danger of loan default, instead of waiting for the borrower to run into trouble.

However, the government’s support measures have caused the actual default rate to be much lower than expected, and the macroeconomic forecast has been revised upwards.

This trend has benefited banks across the board, but European banks are still more cautious than their American counterparts. The largest banks in the United States began to withdraw provisions as early as January and continue to do so in subsequent quarters.

Since the beginning of this year, JPMorgan Chase alone has paid back more than US$8 billion. The Bank of England took the lead in following up. Three of the four largest banks announced a reversal after the first quarter, and all four withdrew some of their provisions in the second quarter.

However, in continental Europe, most major banks continue to increase the size of their reserves, albeit at a much slower pace than last year.

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