Does this French investment bank contain Europe's best traders?

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The French banks have reported. Earlier this week it was BNP Paribas. Today it's SocGen. The two frenchies didn't do badly in the fourth quarter, but in global markets specifically one did very well indeed - and gave bigger rivals like UBS and Deutsche Bank something to aspire to.

BNP Paribas may not have beaten U.S. banks' exceptional upturn in fixed income trading in the fourth quarter. Nor did it beat J.P. Morgan and UBS's upturn in equities, but overall its sales and trading business had a very solid quarter. Fixed income revenues were up 23% and equities revenues were up 20% year-on-year. This compared to a patchy 8% and 22% respectively at UBS, and a miserable 11% and -23% at Deutsche Bank.

SocGen's sales and trading business, by comparison, was solidly mediocre during the Q4 Trump boom: revenues there rose by 7% in both fixed income and equities vs. 2015.

Should BNP's traders be applauded for their achievement? Yes, to the extent that they managed to increase fixed income revenues far more than their European rivals ("very good growth of rates, credit and bond issues") despite a dramatic reduction in risk-taking. In the fourth quarter, Value at Risk (VaR) in BNP's rates business was cut by 25% on Q4 2015, while VaR in the credit business was cut by 36%. At French rival SocGen, trading VaR was cut by a more moderate 20% in the fourth quarter, but this didn't seem to feed through to its revenues...

Across 2016 as whole BNP's traders also battled a 5.1% reduction in equity allocated to the global markets business last year, a €4.4bn reduction in risk weighted assets, and €91m of cost savings in the corporate and investment bank. In efficiency terms, BNP's sales and trading operation is now on a comparable footing with Bank of America's, and far ahead of Deutsche's. Moreover, the return on equity for BNP's global markets business was 4% for the fourth quarter compared to -7.6% at Deutsche Bank (and 0% at DB for the year).

What next for BNP's trading sales and trading business? There's been hiring: as we reported last year, David Moore was brought out of retirement to lead U.S. G10 rates trading in the fourth quarter. Like most other banks, however, BNP is constrained by rising compliance and control costs, which will keep a handle on pay and recruitment for the foreseeable future. BNP is ambitious though: under 'Strategy 2020" it plans to achieve compound annual revenue growth across the CIB of 4.5% between now and 2020. Global markets will play an important part in that. If you're a trader working for a European bank, maybe BNP is the best place to be right now?


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