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 Credit Suisse <CSGN.VX> also said it had seen a slowdown in parts of
fixed-income trading, adding to warnings from U.S. rivals JPMorgan <JPM.N>
and Citigroup <C.N> that this year has got off to a weak start for
investment banks, continuing a slowdown seen in the second half of
last year.
"To us, the year started slow. Obviously through political
uncertainty we started to have market uncertainty again and a
slowdown in business," said Stefan Krause, chief financial officer
at Deutsche Bank, Germany's biggest bank by market value.
"Ukraine, the data from China caused some slowdown ... We had some
ups and downs in Germany on data as well," Krause told reporters on
the sidelines of a banking conference in Paris, organized by The
Economist magazine.
Credit Suisse also said some business areas had slowed.
"We have seen a slowdown in certain parts of fixed income," said
Gael de Boissard, Credit Suisse's head of investment banking and CEO
for Europe, Middle East and Africa.
Revenues from fixed income — especially rates — have slumped since
May, blamed on tougher regulation and a move by the U.S. central
bank to put the brakes on its bond-buying program.
While some banks say the fall is temporary, other bankers and
analysts say requirements to hold more capital has squeezed margins
and left overcapacity, and banks will need to cut hundreds of jobs
to shrink and restructure.
PROFITABILITY REBOUND?
Last year's drop in investment banking revenues and hefty fines for
past wrongdoing hit profitability across the industry, which has
been under pressure since the financial crisis.
Krause said banks should be able to generate profitability above the
cost of capital and funding from investors in 12 to 18 months.
He said most of what Deutsche Bank currently earned was used to deal
with "the sins of the past".
"We hope that starting in 2015 most of the increased expense is
behind us," he said.
However, UBS's <UBSN.VX> Chief Executive Sergio Ermotti said on
Thursday getting returns back above the cost of equity — which is
typically 10-12 percent for banks — could take longer. "I am not so sure that there is a 12 to 18 months solution," Ermotti
said.
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"Without GDP growth, without the economy growing in a sustainable
and predictable way that allows clients and people to get less
concerned and the interest rates to grow where they should grow, it
is very unlikely that we will see a return of profitability in the
banking industry that would justify the cost of equity," he said.
Krause said Deutsche Bank still sees positive results for the whole
year.
But his comments add to concerns that revenues in the first quarter,
often the most lucrative for investment banks, will suffer from
continued slow trading in fixed income, which makes up half of
investment banks' revenues.
Citigroup said last week its first-quarter bond trading revenue
would be down by the "high mid-teens" in percentage terms from a
year ago due to economic uncertainty and JPMorgan said on February
25 its markets revenues were down 15 percent on the year.
Revenue in the first quarter from fixed income at Europe's
investment banks is set to fall 20 percent from a year ago, analysts
at Morgan Stanley estimate. Deutsche and Barclays <BARC.L> would be
hardest hit as they have the biggest bond trading businesses in
Europe, and they appear to be losing share to U.S. rivals.
Revenues from fixed income, currencies and commodities last year
fell by an average of 10 percent across the top dozen banks. By
comparison, equities income rose 17 percent last year and advisory
revenues grew by just over a tenth on average.
Morgan Stanley said equities income for Europe's banks in the first
quarter was likely to be up 4 percent and advisory revenues down 6
percent on the year, leaving overall investment bank revenues down
10 percent.
(Writing by Steve Slater; editing by
Leigh Thomas and Pravin Char)
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