Fancy a good lunch with a fine wine? Befriend a French investment banker. Seeking a growth business in which to invest? Maybe try elsewhere.

Both Société Générale and rival BNP Paribas uncorked vinegary results this week. Moreover, SocGen signalled a further retreat for Europe’s investment banks. The bank will reorganise financial market activities and cut a further €500m in costs after its investment bank reported a 50 per cent slide in fourth-quarter profits.

Trading rooms on both sides of the Atlantic were hit badly by global turmoil late last year. Trading conditions could improve, although SocGen was not optimistic. Investment banks that sink like soufflés are becoming a European disease. Across the border, Deutsche Bank is battling to cut costs at its loss-making unit. In the UK, Barclays faces calls from an activist investor to shrink its investment bank.

SocGen’s fine-dining investment bankers are not its only worry. Competition is fierce in its domestic retail market. The bank is rightly cautious about a rise in eurozone interest rates lifting margins in the near future.

But investment bankers’ underperformance largely explains why European banks’ shares trade so much lower than tangible book value. SocGen’s are on a multiple below 0.5. US investment banks are doing far better, thanks to a big, homogenous domestic market where high fees are customary.

A graphic with no description

The Europeans are in retreat but have not capitulated. Deutsche wants to remain a pan-European force — the German lender has no alternative plan. SocGen has similar ambitions. While risk-weighted assets for market activities will be trimmed by €8bn by 2020, the investment bank will probably still account for about 40 per cent of the group total.

European bank shares have fallen a quarter in the past year. SocGen’s are down 40 per cent. Cost cutting and operational efficiencies will lift investment bank profitability — until the next setback.

Get alerts on European banks when a new story is published

Copyright The Financial Times Limited 2019. All rights reserved.
Reuse this content (opens in new window)

Follow the topics in this article