Most banks are losing money trading stocks in Europe when their cost of capital is considered, said the top equity derivatives executive at BNP Paribas.
Bloomberg reports that Barclays, UniCredit and Nomura Holdings are among banks that have cut their equity businesses in Europe amid declining trading volumes and profitability. Europe’s biggest investment banks’ return on equity has tumbled to between 10% and 12% on average in the past three years, close to their cost of capital, analysts at Barclays Capital say.
Clients are also turning to electronic and algorithmic trading that doesn’t require value-added service from brokers, meaning many equity houses in Europe will struggle to keep enough business to make money, according to Rebecca Healey, a financial-services analyst at Tabb Group in London. Large firms that invested in technology over the past two years will fare better, she said in an interview on December 30th.
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