The banks that need to cut costs in 2018, by division and region

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Are you working for a bank that can afford to pay you and to invest in the sort of infrastructure that will keep clients coming your way in 2018 and beyond? The latest set of charts from financial intelligence firm Tricumen should clarify things.

Based on Tricumen's own research, they reflect its calculations for operating costs in the major divisions of major banks by region. In the charts below, Tricumen defines "banking" as: debt capital markets bonds and loans, securitisation, equity capital markets, and M&A (ie. the traditional investment banking division or IBD). "FICC" is defined as: rates, FX, credit and commodities. "Equities" are defined as: cash equities, equity derivatives and convertibles and prime services.

In the charts below, positive values are indicative of out-performance (ie. comparative efficiency). Negative values are indicative of relative inefficiency. The charts suggest that Deutsche Bank has got a big problem, although not necessarily in IBD.

These are the main takeaways:

1. BNP Paribas and UBS should probably cut costs in IBD

RBS aside, Tricumen says the least efficient banks in European "banking" are BNP Paribas and UBS. The chart below suggests both had divisional operating margins well below the market average for Europe the Middle East and Africa for 2017.

By comparison, most U.S. investment banks look highly efficient.  J.P. Morgan, Citi and Goldman Sachs took first, second and third place for European investment banking revenues in 2017 according to Dealogic. The chart below suggests they're some of the leanest banks in the market. Similarly, Deutsche Bank - which ranked fourth in EMEA IBD last year, had a comparatively low level of costs as a proportion of income in EMEA last year (but is now cutting costs anyway.)

Operating costs/income U.S.$ EMEA, banking 



Tricumen EMEA banking FY18

Source: Tricumen

2. Deutsche Bank's EMEA FICC business has a cost problem. So do the EMEA FICC businesses of Goldman Sachs and Credit Suisse. 

Tricumen's chart below lays Deutsche Bank's cost problem bare. Costs consumed 127% of revenues at Deutsche's corporate and investment bank in the fourth quarter.

The German bank is now cutting up to 500 directors and managing directors globally. So far, Deutsche's cuts have been focused on the investment banking division, but DB might want to think about cutting hardest in FICC instead. Tricumen says Deutsche Bank is by far the least efficient bank in the EMEA FICC market. The chart below suggests that Goldman (which is hiring in FICC) and Credit Suisse have issues too.

The EMEA FICC businesses of J.P. Morgan and Citi judged to be extremely efficient by comparison.

Operating costs/income U.S.$ EMEA, FICC

Tricumen FICC EMEA 2017

Source: Tricumen

3. The EMEA equities divisions of Deutsche, Goldman Sachs and Barclays have cost issues

The chart below helps explain why Peter Selman, the new head of equities at Deutsche Bank, has declared his intention of predominantly hiring students as he builds the business: he can't afford to hire anyone else.

Tricumen says Deutsche Bank's EMEA equities business was by far the least efficient in 2017, implying that Selman really needs to cut costs. Goldman Sachs has a cost problem too, as does Barclays - which engaged in some big hiring last year and is now waiting for results.

Operating costs/income U.S.$ EMEA, equities 

Tricumen EMEA equities 2017

Source: Tricumen

4. Deutsche's U.S. FICC business needs to cut costs

It's not just Europe: Deutsche's U.S. fixed income sales and trading business is also distinguished for its unusually low operating margins. Tricumen says comparative U.S. margins deteriorated dramatically at the German bank in 2017.

The most efficient banks are, again. J.P. Morgan and Citi.

Operating costs/income U.S.$ U.S., FICC

Tricumen US FICC 2017

Source: Tricumen

5. Deutsche Bank's U.S. equities has the biggest cost issues of the lot

As Selman gets established at Deutsche Bank, it's the U.S. equities business that's likely to absorb much of his attention. If Tricumen is right, it's here that DB has the biggest problem.

As the chart below shows, comparative margins in Deutsche's U.S. equities business plummeted last year as the German bank suffered a nearly 20% fall in equities revenues globally. Either Deutsche needs to significantly cut U.S. equities costs, or it needs to significantly increase U.S. equities revenues. Either way, the route to rehabilitation is unlikely to be an easy one.

Operating costs/income U.S.$ U.S., equities

Tricumen Americas equities 2017

Source: Tricumen

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