Page 2 of 2

In an attempt to cinch that gap, European banks continue to fight the odds (and their shareholders) in a bid to crack the U.S. investment banking market. This is the allure of forbidden fruit – the undeniable cachet of being a trading powerhouse or dominating deal making.

However, over the last few years, activist investors like Ed Bramson at Barclays and disciplined leaders like Tidjane Thiam at Credit Suisse have prodded them back on track, the latter with an admittedly gentler touch than the former. Whether it was voluntary or thrust on them by stakeholder pressure – the big change at European banks has begun.

The Big Change

Credit Suisse completed a three year restructuring last year that pivoted the bank around its wealth management unit; Barclays has pared down its once powerful trading unit and has promised more change ahead for its investment bank; Societe Generale announced it would be cutting 1,200 investment banking jobs as part of a plan to shave 500 million euros of costs; BNP Paribas confirmed it is looking to its investment bank to provide the bulk of a 350 million euro cost-cutting exercise.

UBS, arguably in pole position as a European private banking and investment banking powerhouse, admitted the road was a rocky one with CEO Sergio Ermotti warning that its investment bank had one of its worst starts to a year in recent history.

Get Into The Asset Business

With the war on investment banking faltering, the spotlight is firmly on businesses where banks can develop large footprints with small investments. Asset gathering, rather than risk-taking and success-fee based advisory, has taken center stage.

Retail has been hailed as a possible savior. However, some banks have had their hopes dashed on this front too – overbanked domestic markets coupled with the death of the high street have done their bit as have negative interest rates and the drag of redundant real estate.

Other People’s Money

Cue wealth management, which has provided a steady trickle of fee-based income with good visibility on future earnings and is balance-sheet light – no small feat in these capital conscious times. Credit Suisse is, once again, a great case study. Wealth management revenues rose 5 percent in the first quarter of the year while investment banking revenues fell by as much as 30 percent, prompting Thiam to acknowledge that «our wealth management franchise has proven resilient during a difficult future.»

At industry leader UBS, assets reached an all-time high in the same quarter with $22 billion of net new money, even though the size of its franchise prevented a positive bottom line.

With governments, rather than free-markets, determining interest rates in Asia, Net Interest Margins (NIMs) are higher here than they are elsewhere – in China, for example, average NIMs are 3 percent compared to the sub-1 percent in the U.S. and Europe. Businesses that benefit best from this discrepancy are those that feel the impact both sides of the balance sheet i.e they take deposits and they lend.

Death of the Investment Bank?

It is difficult to consider a scenario where either UBS or Credit Suisse will disband their investment banks completely, but whether they will be retained because of their strategic potential or because they provide exclusive products to be fed into their private banking pipelines is an important distinction.

As far as the regional allocation of resources goes, Julius Baer may have been ahead of the curve when it declared Asia was its «second home». While investment banks have often found themselves frustrated by the near-zero fees associated with the privatization process in large economies like India or the opacity of reporting and governance in China, European corporate and private banks have higher margins here than they do in their home markets.

Lifestyle-Driven Wealth Managers

Even for banks such as BNP Paribas and Deutsche Bank that are not led by their wealth management franchises, it is becoming increasingly clear that investment banking activities like structuring and derivatives – at which both banks excel – are being nurtured because they feed into the wealth management unit.

All that remains to change now, is the inherent disdain investment bankers tend to have for their «lifestyle-driven» wealth management colleagues.