In­vest­ment Banks re­warded by vol­ume surge in EU stocks

The Pak Banker - - COMPANIES/BOSS -

Euro­pean stocks have swung this year from a cen­tral-bank-fu­eled rally to a Greece-in­duced slump and back up.

Af­ter years of shrink­ing trades and com­mis­sions, stock desks in Europe are fi­nally see­ing a pickup. In­vest­ment banks in­clud­ing So­ci­ete Gen­erale SA, UBS Group AG and Deutsche Bank AG have re­ported a surge in eq­uity trad­ing rev­enue in the sec­ond quar­ter. The value of stocks traded jumped 25 per­cent to 1.4 tril­lion eu­ros ($1.5 tril­lion) in the first half of 2015, the high­est since at least 2009, data from re­search firm Markit showed.

Volatil­ity and in­vestor in­ter­est have led to a re­cov­ery in trad­ing, ac­cord­ing to Man­ish Singh of Cross­bridge Cap­i­tal.

"You're see­ing much bet­ter earn­ings in Europe, driven by a weak euro and im­prove­ments in the econ­omy, so that's brought peo­ple to the mar­ket," said Singh, who over­sees about $2 bil­lion as Cross­bridge's head of in­vest­ments in Lon­don. "In the sec­ond quar­ter, Greece cre­ated volatil­ity and that in turn brought in more trades.

That you're see­ing bet­ter vol­ume is the ba­sis for be­ing long Euro­pean fi­nan­cials." Stoxx 600 per­for­mance for first 7 months of year Stoxx 600 per­for­mance for first 7 months of year Un­prece­dented mon­e­tary eas­ing by the Euro­pean Cen­tral Bank first sent the Stoxx Europe 600 In­dex to its best start of the year since 1998, be­fore con­cern over Greece leav­ing the cur­rency union dragged the gauge to its worst quar­ter in three years. Shares then re­bounded when the Mediter­ranean na­tion reached a deal with cred­i­tors, be­fore giv­ing up half those gains amid fears China's slow­down is deep­en­ing. The Stoxx 600 climbed 0.8 per­cent at 9:41 a.m. in Lon­don.

The swings spell a boon for bro­kers and in­vest­ment banks, ac­cord­ing to Sat­nam So­hal, a Lon­don-based con­sul­tant at Green­wich As­so­ci­ates. In the cur­rent earn­ings sea­son, So­ci­ete Gen­erale, UBS and Deutsche Bank said quar­terly eq­uity trad­ing rev­enue rose 30 per­cent or more, while BNP Paribas SA and Credit Suisse Group AG also re­ported gains.

"Af­ter years of fall­ing com­mis­sions, the mo­men­tum is turn­ing quite pos­i­tive for the in­dus­try," So­hal said by phone. Trad­ing com­mis­sions have climbed 23 per­cent in the last year, he said, cit­ing a sur­vey by his firm, which pro­vides mar­ket re­search to fi­nan­cial ser­vices. Vol­ume al­most dou­bled to 314 bil­lion eu­ros in ex­change-traded funds, Markit data showed. The surge in ETF trad­ing masks a lack of liq­uid­ity in in­di­vid­ual Euro­pean shares, with in­vestors mainly us­ing trad­ing in­dexes via ETFs or the big­gest stocks, ac­cord­ing to Michael Wois­ch­neck of Lampe As­set Man­age­ment GmbH.

"While trad­ing has had a good run this year, liq­uid­ity has dwin­dled," said Wois­ch­neck, a Dus­sel­dorf-based eq­uity man­ager, who helps over­see 6.2 bil­lion eu­ros. "Our main con­cern is mar­ket depth. There are cer­tain stocks where liq­uid­ity has been con­cen­trated, while broader mar­ket liq­uid­ity hasn't im­proved." Vol­ume may also strug­gle to re­turn to lev­els seen in 2007, ac­cord­ing to Cross­bridge's Singh. New York-based Mor­gan Stan­ley was the top eq­uity bro­ker in Europe by turnover, fol­lowed by Bank of Amer­ica Corp., In­stinet LLC, UBS and Credit Suisse, ac­cord­ing to Markit data. Flows from in­vestor money also sup­port the boost in vol­ume. The re­gion's eq­uity funds have reeled in about $80 bil­lion so far this year, while in­vestors in U.S. stocks with­drew $109 bil­lion, ac­cord­ing to a July 30 Bank of Amer­ica note.

Ex­change op­er­a­tors in Europe paint a sim­i­lar pic­ture. Euronext NV had the best vol­ume since 2010 in the sec­ond quar­ter, while trad­ing on Deutsche Bo­erse AG's Xetra jumped 45 per­cent in the pe­riod. Lon­don Stock Ex­change Group Plc re­ported an in­crease in the value of eq­ui­ties traded in the first half of the year. "We've seen healthy sen­ti­ment for eq­ui­ties in 2015, un­der­pinned by QE, a weaker euro, cheap energy and strong div­i­dend yields in blue chips," said Euronext Lon­don Chief Ex­ec­u­tive Of­fi­cer Lee Hodgkin­son.

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