European Wholesale Banks
SECTOR REVIEW
Q2 surprisingly well done
In the coming quarters, we will be monitoring how M&A and equities can
take over from fixed income as growth drivers. More importantly, we will
be listening to managements’ guidance for the rest of the year.
Indeed, the favourable environment for the fixed-income business in H1
may not remain as strong for a number of reasons, in our view:
1. Fixed-income origination revenues have fallen away in high-grade but have
increased in high-yield. This suggests to us that the borrowing surge of Q1 09
has come to an end. The high levels of issuance in the first half of the year will
have completed many companies' borrowing programmes for the FY, meaning
that H2 revenues are likely to disappoint relative to H1.
2. There is some anecdotal evidence of bid-ask spreads in fixed income
markets beginning to narrow as second-tier players return to the market and
incumbents attempt to preserve market share gains in the face of overall falling
volumes.
3. Market shares of established players may erode marginally as the healthy
profit booked in fixed income entices some players to carefully return to the
market.
In our view, market participants will be more focused on outlook
statements (Are spreads coming down? Are volumes slowing?) than on
actual Q2 numbers.
Because investors currently look at both P/TE and P/E valuation methods, any
beat to Q2 earnings has a small positive valuation impact as TE increases, but
the sustainability of the returns is what matters most, in our view.
However, on this front we remain cautious on both capital requirements and
volume development in a poor economic context.
We have recently upgraded UBS to Outperform and continue to like BNPP
for capital management (benefit of the Fortis acquisition), potential for earnings
momentum (Fortis acquisition and fixed-income revenues) and for being the
only AA-rated investment bank in the Western world (although with a negative
outlook). We rate DB Underperform and SG Neutral, mostly on the back of
earnings sustainability and remaining balance sheet risks.

Table of contents
Executive summary 3
What were the interesting trends for Q2? 3
Are the revenues sustainable? More focus on outlook statements 4
DBK: What we have factored in to Q2 numbers 4
UBS: Investment banking market share held up in Q2 5
French banks Q2 CIB preview 6
What does SG’s pre-announcement tell us? 6
1. Summary of quarterly activity 8
2. Global fee pool 9
3. Performance 10
4. Valuation 12
5. Equities 14
5.1 Equity-market volatility 14
5.2 Equity-market and derivatives volumes 15
5.3 Equity trading market shares 18
6. Fixed income 19
6.1 Bond-market volatility 19
6.2 Bond-market volumes 21
6.2 Bond-market volumes 21
6.3 Bond spreads 23
7. Proprietary trading 24
8. Hedge funds 27
9. Mutual funds 29
10. Underwriting 31
10.1 Equity underwriting activity 31
10.1.1 Equity underwriting historical snapshot 33
10.1.2 Equity underwriting margins 34
10.2 Debt underwriting activity 35
10.2.1 Debt underwriting: Historical snapshot 36
10.2.2 Debt underwriting: Margins 36
11. M&A advisory 37
11.1 M&A: Historical snapshot 40
11.2 M&A: Margins 41
12. Corporate banking 42
12.1 Credit default swap spreads 44
iTraxx indices 44
12.2 Corporate defaults 46
12.3 Syndicated loan margins 47
13. Recent Credit Suisse wholesale banks research 48
14. European banks’ credit ratings 49
Team List 50