OREANDA-NEWS. Tough trading conditions mean there is greater downside risk for the European global trading and universal banks (GTUBs) that are still restructuring their capital markets activities, says Fitch Ratings. Execution risks are high for Deutsche Bank, Credit Suisse and Barclays as they exit some segments of their capital-market activities in what we expect to be a challenging year.

We expect continued pressure on the European GTUBs' fixed income, commodity and currency sales, and trading revenue, which has continuously declined to USD26bn from a peak of USD35bn in 2012. Low trading volumes are putting pressure on capital markets earnings, while concerns about interest-rate developments, uncertain economic prospects, depressed commodity prices and emerging-market slowdown are combining to dampen results across several business lines. This backdrop is likely to make it harder to implement revised strategies and adhere to restructuring plans.

BNP Paribas, HSBC, Societe Generale and UBS have less immediate need to restructure their business models substantially, as their underlying businesses are generating sufficient, if unexciting, earnings. They are better placed to weather the difficult market environment.

The cornerstones of Deutsche Bank's restructuring, the disposal of retail bank Postbank and the exit from several sales and trading businesses in its investment bank, should help it concentrate on its key strengths, but successful execution will be critical. We downgraded Deutsche Bank in December 2015 because we believe restructuring will have a greater-than-expected negative impact on its earnings and capital, at least until end-2016. In addition, improvements in capitalisation and earnings heavily rely on revenue being maintained or improved, leaving the bank vulnerable to adverse business conditions.

Credit Suisse recently announced an acceleration of its strategic overhaul. It plans to reduce operating expenses and restructure its capital markets division to become a less leveraged, less capital markets-driven bank and to address its inflexible cost base. We believe the execution risks of the new strategy, a key rating sensitivity for Credit Suisse, have increased in challenging market conditions.

We think Barclays' planned business disposals, most notably the sale of its African and selected investment banking, wealth and credit card businesses, will improve capital ratios, but only once regulatory deconsolidation is achieved, which we do not expect before 2017. According to the bank, it could take up to three years to reduce its 62.3% ownership of Barclays Africa Group to a non-controlling stake.

Our report, "EMEA Banks' Chart of the Month - March 2016", available by clicking on the link above, considers the potential impact of the difficult market conditions on the European GTUBs' 1Q16 capital markets earnings.