Reuters reports that Societe Generale has downgraded Credit Suisse to 'sell' from 'hold', saying that the Swiss firm remains heavily leveraged and adding that expectations on investment returns and a subsequent increase in assets under management at the Swiss bank are still too high.
SocGen also said that, in general terms, European banks can expect poor revenues from debt capital markets and exceptionally low trading volumes in fixed income and equity markets.
'If revenue trends continue to the end of the quarter, we expect banks to counteract top-line challenges with the announcement of material headcount reductions both in investment banking and wealth management', said analyst Dirk Hoffmann-Becking.
Hoffmann-Becking upgraded Deutsche Bank to a 'buy' from a 'hold', however, on continued revenue share gains in investment banking and the fact that the German bank can achieve substantial cost reductions due to a still high share of variable compensation, and its proven ability to reduce headcount rapidly.
One banker told Here Is The City: 'Many of the big firms have stayed their hand and refrained from largescale headcount reductions this year so far. But Q2 has been a disaster, and many recognise that they are just carrying too many staff. With profits under pressure and revenues hard to come by, cutting costs is the only way forward. Unless things improve dramatically in the next few weeks, there will be a lot more blood on the streets'.
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