Global brokerage firms have trimmed their European equity brokerage businesses in response to troubles in the region’s economy and financial markets, but so far they’ve resisted major cuts in hopes that the business will eventually bounce back, reports Greenwich Associates.

In a new report, Greenwich says that European equity trading commissions have been in decline for the past several years. It reports that institutional commissions are down by 25% from the first quarter of 2009 to Q1 2012 on a pan-European basis.

Its latest survey of institutional investors predicts that the commission pool will be flat for calendar 2012. However, Greenwich says that “soft equity trading volumes in the first six months of the year and conversations with disappointed brokers suggest the pool will shrink markedly further.”

Greenwich Associates consultant, Jay Bennett, indicates that this slump is due to three main factors: the de-risking of institutional investment portfolios, the recession in Europe, and the European sovereign debt crisis, which is limiting trading activity.

In response, global brokers have trimmed their European equity operations, Greenwich notes, but, it says the reductions “have been modest in relation to the magnitude of the decline in trading revenues.”

“To this point however, they’ve been pruning around the edges,” says Greenwich Associates consultant, John Colon. “But if things continue on this track, at some point they’ll have to move from giving up fingers and toes to arms and legs.”

Greenwich suggests that there are two main reasons why firms have resisted deeper cuts. For one, equity trading and research capabilities are seen as important supports for the investment banking business; and, second, as capital requirements increase, equity trading is still viewed as a highly attractive business.

“There is no doubt that many banks are maintaining staffing levels above what the current business would dictate in anticipation of a recovery,” says Bennett. “They see all this money on the sidelines, they see the miniscule returns investors are getting in fixed income and they conclude that, eventually, risk appetite will have to return.”

Greenwich reports that UBS leads the brokerage league tables, with a 10.5% market share in European institutional equity trading; followed by Credit Suisse, Deutsche Bank and Morgan Stanley, all of which are effectively tied for second place with market shares of 9.4%-9.9%.

In European equity research, Deutsche Bank ranks first, Greenwich says, followed by UBS, Morgan Stanley, and Bank of America Merrill Lynch.