“Banks often play the last-man-standing strategy of maintaining capabilities until others are forced to leave,” Soares said. “They need to reinvent their core.”
The Bloomberg Industries European Investment Banks Index, which tracks UBS, Barclays, Deutsche Bank AG, and Credit Suisse Group AG, has dropped 4.7 percent this year compared with a 13 percent gain in the 329-member MSCI World Financials Index. European banks that have investment-banking businesses trade at an average of 62 percent of book value, while European financial firms trade at about 90 percent.
The five U.S. lenders with investment-banking and trading units -- Bank of America Corp., Citigroup Inc., Goldman Sachs Group Inc., JPMorgan Chase & Co. and Morgan Stanley -- reported their lowest first-half revenue since 2008 and have stock prices that value the firms at a lower percentage of book value than banks without capital-markets units.
“We’re at an inflection point,” said Steve Hussey, a London-based financial-institutions analyst at AllianceBernstein Ltd., which oversees about $400 billion. “Some banks need to come out and say we need 30 percent to 50 percent fewer people. The hit has to be more severe than 1,000 people here and there. Second- or third-tier players have to get out of certain businesses and focus on niches -- either products or geographies.”
Deutsche Bank, Germany’s largest lender, and Barclays, Britain’s second-biggest by assets, are among those best-placed to benefit because they can exploit their dominant fixed-income, currencies and commodities operations, traditionally the heftiest revenue generators for firms, said Kian Abouhossein, a bank analyst at JPMorgan in London.
The U.S. investment-banking industry is “more consolidated,” resulting in higher fee levels for the top firms, Abouhossein wrote in a March report. Those companies that have a presence in the region, including Citigroup, stand to gain if European banks exit or shrink businesses, he said.
Deutsche Bank has the biggest share of the U.S. fixed- income trading market this year, taking the top spot from JPMorgan, consulting firm Greenwich Associates said last month. Fixed-income revenue at the 10 largest global investment banks dropped at least 25 percent in each of the past two years to $73 billion in 2011, according to Coalition Ltd., a London analytics firm. Deutsche Bank also boosted its share of a shrinking European equity-underwriting market to about 12 percent this year from 9.3 percent in 2011, data compiled by Bloomberg show.