Opinion – Playing catch up: European banks outperform the Americans
First-quarter earnings from European banks – Barclays, BNP Paribas, Deutsche Bank, HSBC, Societe Generale and UBS – have followed the trend set by their US counterparts: muted deal flow but volatility driving strong trading revenues.
The strength in trading meant that the markets businesses of the top US and European investment banks generated more than four and half times as much revenues as investment banking. Volatility buoyed activity levels and there was a huge amount of repositioning by speculators and end-users across a wide range of markets.
Notably, it was time to shine for once derided equities businesses. The big five US investment banks, in particular the top three of Goldman Sachs, Morgan Stanley and JP Morgan, have been massive market share winners in equities trading over the past three to five years. But for the first time in ages the Europeans are keeping up.
The big five US banks and the European banks saw an average Q1 2025 revenue growth of 34% year on year from equities trading (BNP Paribas +43%, UBS +34%, Barclays ex-one-off gain in prior year +27% and SG +22% – HSBC doesn’t report equities separately but was up an even more impressive 50% across debt and equities).
Europeans doing better might have been expected given the geographical pivot in stock markets in recent weeks – the US selling off, elsewhere doing rather better – but the relative strength of European stock markets is not as much of a tailwind for the European banks as one would expect.
Barclays’ equities franchise has a heavy skew toward the US, for instance. And, while Asian equities have been very busy – see HSBC’s numbers – the US banks are very strong in Asia. Morgan Stanley cited Asia as key to its +45% equities outperformance in the first quarter.
Europeans have even made decent progress with hedge funds. The biggest US equities franchises dominate the particularly active hedge fund client base. Nevertheless, BNPP, which acquired Deutsche Bank’s prime brokerage business a few years ago, UBS and Barclays all cited strength in hedge fund activity. The top three US players are not threatened but the likes of Barclays have been winning market share at the expense of others in prime brokerage.
Back, back, back
In fact, where the Europeans really are back is in FICC.
Revenue growth for the big five US banks in FICC averaged 6%. At the high end were JP Morgan and Citigroup – both up 8% thanks to macro trading and internationally focused franchises. At the lower end was more commodities and credit-focused Goldman Sachs – up just 2%.
By contrast, the European banks averaged around 15% revenue growth in FICC in the first quarter. This was led by Deutsche (+17%), Barclays (+21%) and UBS (+27%) thanks to growth in FX and rates trading in particular.
The French banks were laggards. Of course, more exposure to FX trading helped some banks but even Barclays – despite being heavily skewed towards slower credit trading – materially outperformed US peers. Deutsche Bank’s FICC franchise is only slightly behind Bank of America, the number four player.
In absolute terms, the average European bank FICC franchise – like their equities franchises – remain roughly half the size of those at the big US investment banks. But over the past three years European banks like Deutsche and Barclays have gradually started to reassert themselves.
Weakness
In investment banking, the gap between US and European banks is even bigger, but both were broadly flat year on year in the first quarter in terms of reported revenues. Given the time it takes from deal announcement to closing to fees being booked, data on deal volumes are probably a better indicator of the real state of play.
According to LSEG statistics, the global investment banking fee pool was down 8% year on year in the first quarter with weakness across M&A, ECM, DCM and loan syndication. Moreover, the data show that the European investment banking deal fee pool shrank by 20% in the first quarter and most European banks saw significant double-digit fee declines in the US over the same period.
European investment banks made 85% of their revenues from trading and financing in their markets business and half of the rest from debt issuance. In other words, they are more skewed towards volatility than an improving environment for new equity raising or mergers and acquisitions relative to the US banks.
UBS CEO Sergio Ermotti said the April volatility had resulted in UBS seeing trading volumes on many days that were 30% higher than even the Covid-19 period. UBS with its skew towards European equities and FX trading should continue to benefit. The bigger question will be whether the Europeans – in particular Deutsche Bank and Barclays – can continue their recent return to form.
Rupak Ghose is a former financials research analyst