European equity derivatives outstrip cash for first time

Banks in the European corporate and institutional markets are making more money out of equity derivatives than cash products for the first time, according to Morgan Stanley and consultants Oliver, Wyman.

European equity derivatives revenues in 2001 reached Eur8.5 billion, according to a report conducted by the two firms, while the equity cash market generated Eur7.1 billion. Both areas were weaker than in 2000, when equity derivatives revenues hit Eur9.1 billion, with cash registering Eur10.9 billion.

Ted Moynihan, senior manager in Oliver, Wyman's capital markets practice, said increased demand from retail investors for index-linked and guaranteed products was partly responsible for the relatively higher derivatives volumes.

The report criticised banks for adopting a 'one-stop shop' approach to doing business. “In our view, too many banks appear to be following a ‘me too’ strategy in terms of corporate and institutional banking, and are failing to differentiate themselves in the minds of their customers,” said the report.

The study added that corporate and institutional revenues in Europe were down 7% last year to Eur76 billion, and predicted further declines for 2002. “This shrinking revenue, combined with increased credit losses, would mean industry profits fall again in 2002 by as much as 10%.”

Mark Rodrigues, a managing director at Oliver, Wyman’s New York office, said the implications for north American second-tier banks with operations in Europe were "dire".