European investment banks have spent years debating the best path to profits. Recent results suggest many roads can work — the more important thing is to pick a lane and stay in it.
BNP Paribas has become the standard-bearer for the traditional investment banker’s argument: large corporates will be more loyal to banks that can be a one-stop shop. A European bank might never be fighting Goldman Sachs for the lead role on a US tech IPO, but it should at least be part of the team when its French client wants to do a secondary listing in New York.
Santander is following suit in trying to build up its investment bank, particularly in the US. Both reported stronger than expected financial results this week.
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HSBC’s new chief executive Georges Elhedery is following a different track, abandoning underperforming businesses such as advising on mergers in Europe and the US. Elhedery is betting that clients know what HSBC is good at: a company that wants to sell stock in Dubai isn’t going to drop HSBC just because it doesn’t have enough M&A bankers in New York.
Backers of the HSBC approach point to the success of American boutiques such as Evercore and PJT Partners — they make no pretence of covering everything, but shares have outperformed full-service players on both sides of the Atlantic over the past few years.
But maybe there is a different lesson to take from the boutiques: they know their role, and, broadly speaking, have stuck to it. There are a lot of ways to make money in investment banking; the mistake is to keep making U-turns then wondering why you haven’t reached the right destination.
HSBC has spent years flip flopping, while Barclays’ attitude has shifted with each chief executive. Deutsche Bank at one point managed five different “strategic plans” in seven years.
Contrast BNP, where Jean-Laurent Bonnafé has been in charge for more than 13 years. It was traditionally strong in fixed income, but decided to start building out its equities business in 2016; those efforts have paid off recently, but it took a long time. Investment bank revenues have grown six years in a row — a feat none of its rivals have matched.
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Deutsche’s turnaround only really began when Christian Sewing convinced investors the group was genuinely committed to a major overhaul — including shedding its equities trading business. Barclays has settled on a very different strategy, but has likewise been rewarded by investors for a perception of stability under chief CS Venkatakrishnan after years of back and forth.
Elhedery has acted quickly since taking charge of HSBC last autumn. Decisive moves in either direction are a good start — the challenge will be to stick with them.