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Europe’s big investment banks faced weaker capital markets revenues in 2023, as sales and trading activity dropped. But the outlook for 2024 is a bit brighter, says Morningstar DBRS.

In a new report, the rating agency said the major European players in the global capital markets — including UBS Group, Deutsche Bank, Barclays plc, BNP Paribas, and HSBC — reported softer capital markets revenues for fiscal 2023, down 7% year over year on aggregate, and down 9% from 2021.

This decline came as the equity and fixed-income sales and trading businesses underperformed, after driving growth in previous years, DBRS said.

Aggregate revenues from sales and trading were down 8% year over year in 2023, it noted, as heightened economic and monetary policy uncertainty weighed on client activity.

This was partly offset as investment banking revenues rose, bolstered by stronger underwriting business, even as advisory activity was weaker, it noted.

In the fourth quarter, the banks’ capital markets businesses showed some signs of life, with aggregate revenues rising by 7%, compared with the same quarter a year ago, DBRS reported.

This growth was largely driven by strength in equity sales and trading and underwriting revenues, particularly debt underwriting, it said — although fixed-income sales and trading revenues were down, and advisory revenues were flat in the fourth quarter.

“In our view, underwriting revenue growth was supported by the expectation that interest rates could gradually decline [in the second half of 2024], after various pauses in [the first half], and that inflation will remain contained,” the report said.

“The macro and geopolitical environment will remain challenging in 2024. However, global inflation seems contained and interest rates have paused for some quarters now, with most central banks indicating the possibility of a progressive decline,” the report said.

“This should, in our view, benefit investment banking revenues, particularly debt underwriting. We also expect sales and trading revenues to recover somewhat in 2024, after a weak 2023, supported by improved client activity,” it said.

“Advisory revenues are more difficult to predict but recent quarters have indicated a pick-up in activity and revenues which we expect to be sustained or even improve in 2024,” it added.