* European FICC down 6.2 pct y/y
* U.S. FICC up 21 pct y/y
* Further cost cuts loom
By Anjuli Davies and Jamie McGeever
LONDON, July 29 (Reuters) - Total bond trading revenues atfive of Europe's top banks fell in the second quarter, laggingU.S. counterparts who capitalised on a spike in volatility fromthe Brexit vote and highlighting a growing gap between thebiggest Wall Street and European banks.
Despite increased revenue at Barclays and BNPParibas from fixed income, commodities and currencies(FICC), a category which includes bond trading, the outcome forthe European sector as a whole remained weak.
Taken together with FICC figures from Deutsche Bank, UBS and Credit Suisse, revenuesfell by 6.2 percent in the quarter from a year earlier,according to Reuters calculations based on their latest results.
That compares with a 21 percent rise to $13.1 billion inrevenue from FICC trading at the five biggest U.S. banks, whichbenefited from Britain's surprise vote to leave the EuropeanUnion.
The volatility across global markets in the last week ofJune led to record currency volumes for some big banks. But onceagain, Europe struggled where U.S. banks thrived.
"European banks are under more pressure than U.S. banks toshrink their capacities. Time isn't on their side, withcomparably less retail profits to balance out performance," saidPeter Hahn, professor of banking at the London Institute ofBanking & Finance.
"We're likely to see more evidence of U.S. institutionscontinuing to take market share," said Hahn, a former bondoperative on Wall Street.
UBS scrapped short-term guidance on profitability due tomarket uncertainty and Deutsche Bank warned it may need deepercost cuts to turn itself around against a backdrop ofchallenging markets and record low interest rates.
Bond trading revenue has been grinding lower for about sevenyears as new regulations on proprietary trading, derivatives andcapital have restricted what banks can do in bond markets,making the business less lucrative.
But within that, U.S. banks have stolen a march on theirEuropean rivals.
In 2007, the eight biggest European banks' FICC tradingrevenues totalled $48 billion, compared with the $38 billiongenerated by the five biggest U.S. banks, according to data fromanalytics firm Tricumen Ltd.
By the end of 2015, European banks' FICC revenue had almosthalved to $26 billion, while U.S. banks' had risen to $43billion. So in eight years, Europe's 26 percent advantage hadturned into a 40 percent deficit.
MORE PRESSURE
The Brexit vote on June 23 pushed shares of some of Europe'sbanks to record lows, with European financials down 26 percentso far this year versus a 7 percent decline in U.S. financials.
Deutsche is under more pressure than most, as with its bondtrading business sliding by a fifth in the second quarter. Itsshares are down more than 60 percent since John Cryan took overas chief executive in July last year.
"Deutsche remains the 4th largest FICC house but the gap isgetting bigger relative to U.S. money center banks, as well assmaller to 5th placed Goldman Sachs," JP Morgan analysts wrotein a note this week.
Brexit is seen as a negative for banks in the longer term onboth sides of the Atlantic because the prolonged uncertaintycould subdue deal-making and trading activity. Banks may alsoface the cost of relocating some London-based businesses andstaff to other EU cities.
France's BNP Paribas bucked the trend, reporting an 18percent rise in FICC revenue to 1.05 billion euros, but asked byan analyst on whether a spike in trading activity related toBrexit helped the strong performance, chief financial officerLars Machenil said that there was no "material impact".
British bank Barclays also saw a boost in fixed incometrading, with revenue rising 10 percent year-on-year to 881million pounds.
Some analysts say the positive outcome didn't change theoverall picture.
"We're going to see more job cuts and banks starting toclose down some trading desks altogether from September to theend of the year," Octavio Marenzi, CEO and founder ofconsultancy firm Opimas, said.
"There were not the same declines in Q2 as in Q1 but thenumbers are not terribly encouraging and so we could see somemajor headcount reduction in trading arms and exiting ofbusinesses."
(Editing by David Holmes)
Barclays (BARC)
