Poorly paying French bank is doing fine, thank you
Big French banks don't usually pay as much as big American banks and this will not come as news to anyone who works for one. Nonetheless, banks everywhere that are struggling with costs and contemplating some harsh downwarsd massaging of compensation should be interested to know that despite paying almost no one the sorts of packages associated with highly motivated and profitable employees, Credit Agricole's investment banking has had a fine quarter.
Witness the chart below, taken from today's first quarter results from Credit Agricole. Capital markets (here defined as sales and trading) revenues at the bank were up 42% year-on-year, driven by an equivalent increase in fixed income sales and trading revenues.
Credit Agricole Q1 2023:
Source: Credit Agricole
This was better than BNP Paribas, where fixed income revenues increased a mere 9% YoY in Q1. And it was better than Goldman Sachs and Morgan Stanley, where they fell 17% and 12% respectively. Only Bank of America came close, and it wasn't all that close, with a fixed income currencies and commodities (FICC) revenue increase of 29%.
How did Credit Agricole do it? Not by paying people. Last year, average compensation for high earning material risk takers (regulated staff) in its investment bank, averaged €618k ($680k), compared to $1,191,216 at BNP Paribas.
And while BNP Paribas paid 368 people more than €1m last year, Credit Agricole only paid 38 people more than that amount, of whom only 10 earned more than €1.5m and no one at all earned more than €3m. At BNP Paribas, there were six people earning more than €5m.
If Credit Agricole isn't achieving its results with monetary incentives, what's it doing instead? It's not allocating more risk weighted assets to its investment bank (they fell 7% in the first quarter). Nor is it talking about being Europe's leading investment bank. Instead, it ascribed its good times to more DCM issuance and to some successful hedges.
The reality, though, may simply be that Credit Agricole had a good first quarter this year compared to its first quarter last year simply because it didn't do very well in Q1 2022. The chart below shows BNP Paribas' Q1 performance in 2022: its fixed income sales and trading revenues were through the roof; Credit Agricole's were not.
Credit Agricole may therefore not be a template for modest pay and magic results. The alternative narrative is simply that it underperformed last year and now looks good by comparison.
BNP Paribas Q1 2023:
Source: BNP Paribas
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