Second-Tier Investment Banks Face Further Cutbacks

Honey I Shrunk The Banks

Investment banking - never has it been so difficult to be outside the top division.

Europe's mid-tier banks, having already shrunk their investment banking activities, may face increasing pressure to scale back in areas like proprietary trading and M&A advisory as costly regulation and weak demand eat into earnings.

Reuters reports that from Credit Agricole in Paris to Commerzbank in Frankfurt, many European banks have fallen further behind Wall Street institutions such as Goldman Sachs and JP Morgan in industry rankings as they cut most types of lending and scale back risky trading bets.

As the chasm widens, uncomfortable questions are being asked about the presence of some second-division players.

Some investment banking units were built up to sate the ambitions of executives during the boom years. But with their cost of capital now about 12%, compared with nearer 10% for retail operations, that's a luxury many can no longer afford.

Traditionally, banks looking to retrench make the first cuts in equities, derivatives and M&A advisory, while trying to keep a presence in foreign exchange and treasury, areas that are most useful for corporate clients.

Hit the link below to access the complete Reuters article:

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