Which of Europe’s three largest investment banks – Barclays, Deutsche Bank and Credit Suisse – presents the best case for change? All three have new leaders bent on strategic tinkering. But Credit Suisse has the edge.
New rules that force European banks to raise more capital or cut leverage have provoked a brutal round of self-examination. Barclays has already chopped almost half of its assets in bond trading, the worst affected area. Even Deutsche, which last year raised a big slug of capital in an attempt to duke it out with U.S. rivals, has effectively capitulated – writing down assets and on Oct. 18 ousting a cadre of senior managers. Both it and Credit Suisse are announcing strategic overhauls this month – a necessity, given both relied on fixed income trading for about a fifth of overall group revenue last year, versus just 12 percent at Barclays.
The question is what’s left after the cutting stops. Credit Suisse has a big revenue contributor in the form of its private bank, which made up 33 percent of its top line last year – and there are opportunities for it to grow in Asia. Revenue synergies at universal banks are usually bunkum, but do seem to exist between wealth management operations and equities trading. Credit Suisse is not only the world’s fourth-biggest wealth manager, according to Scorpio Partnership; Coalition also places it among the top three investment banks globally for trading stocks and their derivatives.
Deutsche, meanwhile, could only muster 28 percent of its 2014 revenue from its two best non-investment banking businesses, transaction banking and asset-gathering. And Barclays houses a hodgepodge of different activities: African financial services, a credit card business, a UK retail bank and a transatlantic broker-dealer. Ring-fencing rules in Britain may eventually further expose that lack of coherence.
These differences are priced in, to an extent. Credit Suisse trades at a 37 percent premium to its last reported tangible book value, while Barclays is around par and Deutsche’s stock is discounted 30 percent. Deutsche thus offers the most upside, but new broom John Cryan has the tougher task in laying out a positive investment story. Barclays, meanwhile, hasn’t even formally replaced Antony Jenkins, the chief executive it defenestrated in July. For now, it is advantage Suisse.