Market share movements
■ By reconstructing historic reporting we show that balance sheet deleveraging has been a key driver of the loss in market share of EU investment banks compared with US peers. This helps explain the relatively more stable performance of French banks versus bulge bracket peers. For most banks, core and non-core run-off is now substantially complete, however DBK still plans to eliminate a further 20% of core Global Markets RWAs to improve profitability, which we think will have some incremental impact on its market share medium term.
* Near term, US bank comments on Q2 trading suggest some downside risk to EU IB consensus. US banks have guided trading revenues down c10-15% YoY and down QoQ led by FICC macro, versus more benign expectations in Europe. DBK remains most exposed to this business line. The Q2 IBD data from dealogic implies a reasonable quarter for ECM offset by declines in DCM and M&A. DBK looks to have gained in underwriting and lost in M&A, the opposite trend to BARC. We are making some small negative adjustments to our forecasts.
* EU investment banks are still showing weaker profitability and earnings momentum and lower capital returns than US peers BARC (Outperform, 250p target) remains our top pick due to profitability upside from restructuring. DBK (Underperform, E15.5 target), most geared to FICC trading, is our least preferred because although we do not see a lot of absolute downside we think re-rating will be limited vs. peers due to low core profitability. We rate UBS (Neutral, CHF16.5 target) because although earnings momentum has improved, valuation is not particularly supportive.