By Jamie McGeever and Anjuli Davies
LONDON (Reuters) - French banks made the most of a third quarter surge in financial market trading, cashing in on a spike in volumes and volatility to outperform most of their larger European rivals.
Britain's surprise vote in June to leave the European Union and a sell-off in bonds as investors began to wonder if central banks' super-easy monetary and credit policies may be drawing to a close increased currency, credit and bond market volatility.
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This was a cash-generator for most banks, even though tighter post-crisis regulation is forcing them to reduce the amount of bonds they can hold, curbing liquidity and greatly reducing their footprint in these markets.
While French banks took advantage of the pick up in volatility and their strong presence in equity derivatives markets, leading German and Swiss players struggled.
BNP Paribas and Societe Generale <SOCG.PA> led Europe's top investment banks in fixed income, currency and commodity (FICC) trading. Both posted an increase in FICC revenue of more than 40 percent from the same period a year ago.
Societe Generale posted a 17 percent rise in equity trading revenue, the strongest performance of all European and U.S. banks, according to data compiled by Reuters.
"The third quarter was just after Brexit, July was marked by a strong volatility ... August was calm and things have normalized in September, (which) was beneficial for fixed income activities, namely credit and rates and also for a recovery in demand of structured products," Severin Cabannes, SocGen's deputy chief executive officer said on Thursday after its results.
BREXIT FUELS BONANZA
The Brexit vote sparked a 20 percent plunge in sterling that rippled across foreign exchange markets, while bond yields snapped back sharply from multi-month - and in some cases, record - lows.
Analysts say French banks were better positioned than some of their European peers because they are further ahead in complying with regulations on banks' risk-weighted assets and reducing leverage.
"They did that in 2011and 2012. They took a more aggressive approach back then," said Chris Wheeler, a banking analyst at Atlantic Securities in London.
Germany's biggest lender Deutsche Bank <DBKGn.DE> and Switzerland's Credit Suisse <CSGN.S>, both in the midst of restructurings, failed to take advantage of these conditions.
Deutsche's 14 percent rise in FICC trading lagged well behind the French banks and the 49 percent average increase posted by U.S. banks, while Credit Suisse barely saw any increase at all.
Data compiled by Reuters showed that Credit Suisse and UBS <UBSG.S> saw by far the lowest increase in FICC revenues of 11 major European and U.S. investment banks.
Credit Suisse also struggled in equities, posting a fall of more than 30 percent in trading revenues, due to a heavy slump in Europe. As in FICC, Credit Suisse was among the worst two performers of the major U.S. and European banks in this sphere.
"We've had a bad quarter in London (for equities). These activities are volatile. The heart of the franchise, which is in the Americas, has had a good quarter," CEO Tidjane Thiam said on Thursday, adding that the outlook remains "challenging".
(Graphics by Vikram Subhedar; Editing by Rachel Armstrong and Alexander Smith)