JPMorgan's verdict on the best investment banks in Europe
If you aspire to change jobs this year and are wondering which bank to work for, you could consult our 2014 strategy primer. Alternatively, if you want to work for a European investment bank specifically, you may be interested in the latest note to come out from JPMorgan's banking analysts on the state of European banks and their investment banking arms.
This is the digested version of JPM's verdict on the European investment banking industry.
1. Most European banks have stated cost savings still to come. Deutsche bank has the most costs still to cut. SocGen has the least.
2. UBS is the best capitalized bank to work for in Europe and is both JPMorgan's favourite bank and its favourite investment bank
If JPMorgan analysts had their way, they would all be working for buying UBS. They point out that UBS is the best capitalized bank, that it has the largest private bank globally, and that it has managed to shrink it's overweight investment bank and turn into an 'asset gatherer.' The analysts point out that UBS has successfully moved away from fixed income, currency and commodity trading which is having a tough time and it's getting its costs under control.
While all of this is good news for the stability of UBS overall, it may be less good news for UBS's investment bankers who face additional cost savings (see point 1) and will see the revenue contribution of their fixed income colleagues slashed to a mere 5% by 2015. On the other hand, UBS's rude health leaves it will placed to deal with any new Swiss restrictions on banks' leverage ratios, which have the potential to cause further investment banking redundancies according to an article in the Financial Times today.
3. SocGen is a fine bank right now
We've already noted the fine fettle of SocGen's corporate and investment bank, where early restructuring and a commitment to sales and trading seem to be delivering results.
JPMorgan's analysts are also partial to the French bank. They point out that deleveraging is over at SocGen, that legacy assets are no longer an issue and that the French bank now seems to offer "double digit earnings progression."
Even better, it seems that SocGen has nearly finished cost cutting (see point 1) and management at the bank have said some very supportive things about the corporate and investment banking business.
4. Barclays is a fine place, but not if you work in the investment bank there
JPMorgan's analysts are also keen on Barclays, whose shares they expect to rise as the bank deleverages and cuts costs. However, Barclays' investment bankers have little reason for cheer. The Barclays investment case is based on its, "attractive and growing franchises in UK retail, cards, commercial banking and Africa," say JPMorgan's analysts. By comparison, the investment bank is a problem - it still consumes 50% of the bank's capital and delivers poor returns. Restructuring is needed.
5. The stock price of leading European banks should rise more than those of leading US banks in 2014
2013 was a good year for US banking stocks. JPMorgan predicts that 2014 will be a good year for European banking stocks. Last year, the average US investment bank enjoyed a 37% increase in its share price, while the average European investment bank enjoyed a mere 9.6% increase (see chart below).
This year, JPMorgan thinks this trend will be reversed. European banks now look undervalued compared to US investment banks. Deutsche looks particularly undervalued (see chart below). This should, at least, provide some consolation to London-based investment bankers who are suddenly faced with share-based top-up payments to compensate for their lower bonuses under the European Union's bonus cap.