It's fitting that the big European banks report well after all the big U.S. ones are done presenting earnings. Otherwise the contrast would elicit an inflated sense of accomplishment among traders stateside, whose performance in this maddeningly low-vol period isn't as poor as it could be (with some exceptions) but certainly isn't anything to write home about. But even so, the Jamies and Lloyds of the world must be feeling alright about this:
Revenue from trading bonds and stocks plunged 30 percent at Deutsche Bank and 31 percent at Barclays, the lenders reported Thursday. That’s twice the 15 percent average decline of their largest U.S. peers. For Barclays, its the worst performance since Staley took charge.
No one expected these two banks to blow it out of the water in the third quarter, but these results are pretty Deutsche Bank, even for Deutsche Bank. But while their trading revenues came out relatively similarly, the John Cryan and Jes Staley are coming from two opposite directions when it comes to their investment banking strategy.
The Barclays CEO has spent the last year “doubling down” on the investment bank that his predecessor had declared dead, hiring new traders and pumping in resources as the rest of the bank got whittled down. Thursday's news doesn't change that bet:
“We’re not going to change our strategy,” Staley said. “You cannot cut yourself to glory and those that have tried to do that will ultimately fail.”
Cryan has been doing the opposite, gently smothering units of the German bank's trading division in the night until just a few more affordable desks remain. That strategy – a reversal of a reversal – has conveniently helped bring costs down in line with persistently sinking revenue, but only at the cost of driving refugees to greener pastures and making everyone else a Deutsche feel like scheiße. Yet, as Cryan assures us, there is light at the end of this long, dark tunnel:
Mr. Cryan said Thursday in a statement that the bank has made “significant progress” in turnaround plans. “We are convinced that the benefits of our efforts will step-by-step become more apparent in the coming quarters and years,” he said.
Whatever the causes, the results raise the perennial question of how it is Cryan and Staley can hold onto their jobs (particularly the latter, given his recent naughtiness). Their positions aren't enviable, and much of the dysfunction they're up against preceded each of their arrivals, but eventually investors expect something other than “it's not so bad if you squint.”