What's going on?
Thursday saw a slew of quarterly updates from big European banks. But while investors seemed to like what they heard from UBS, they were less convinced by Britain’s Barclays.
What does this mean?
Swiss big cheese UBS warned last month that it was experiencing one of its worst quarters in recent years. That led investors to lower their profit forecasts – which the bank has now exceeded. Crazy rich Asians significantly boosted UBS’s business investing on behalf of the super well heeled, an area responsible for 60% of its annual profit. The same trend had lifted American rivals Morgan Stanley and BlackRock too.
Over at Barclays, revenue from helping investors exchange bonds, currencies, and commodities increased last quarter – activity where US rivals reported a decrease. But an overall drop in profit from a year ago may have Barclays’ resident activist investor banging the drum yet louder for cuts to the bank’s riskier trading activities.
Why should I care?
The bigger picture: Germany’s blockbuster tie-up is off the table.
Germany’s two biggest financial firms – Deutsche Bank and Commerzbank – announced on Thursday that their merger negotiations had fallen flat. Despite government backing, potential lost revenues and employee opposition to the job cuts likely to follow such a deal proved insurmountable. As merging firms often overestimate potential “synergies”, the end of the affair may be a blessing. It also leaves the door open to several potential foreign suitors for Commerzbank – although the international nature of such a merger means it would have to satisfy tougher regulatory requirements.
For markets: Banks drag Europe down.
European banks stocks fell overall on Thursday as investors sniffed at Barclays’ profit drop and the German giants’ return to the drawing board. And as banks represent 10% of the European stock market, that helped bring the overall European index down too. Beneath the surface, however, its better-than-expected profit led investors to buy UBS’s shares, pushing their price up.