Barclays BCS 1.09%

and Deutsche Bank DB 1.37%

are in good shape right now, but investors should be cautious about their growing ambitions for the volatile investment banking business.

The major European lenders on Wednesday published strong half-year results, benefiting like their American counterparts from a solid investment banking market. Both companies have built generous capital buffers since their regulators banned dividends last year. Barclays resumed payments with a dividend of 2p per share and a buyout of £ 500million, equivalent to $ 694million. Deutsche Bank has set aside 575 million euros, or $ 678 million, this year for the payment of dividends next year, after its restructuring is completed.

Investment banks saved the day for many lenders during the pandemic, generating windfall profits to offset large loan loss provisions and reduce consumer borrowing. This has encouraged some European lenders to consider growing their capital markets business again after years of cuts. While following the money is an understandable strategy, the results generated during such an unusual time for the global economy can be an unusually poor indicator of future performance.

Managing Director Jes Staley began restructuring Barclays six years ago, cutting international retail operations and parts of investment banking. There was pressure to dump the entire investment bank, including a vocal campaign by activist shareholder Edward Bramson of Sherborne Investors. The bank’s performance during the pandemic justified Mr Staley’s strategy. Its global markets business delivered results while its credit card and retail divisions struggled.

As the recovery gathers pace, plans are now to “fill” the investment bank, Barclays CFO Tushar Morzaria told analysts, citing equity markets, securitized products and some emerging industries. It could be prudent investments, but spending has increased this year and some long-suffering investors may fear that the expansion will increase risk and the cost base.

Deutsche Bank also plans to develop its investment bank, although it is still under restructuring. The lender’s overhaul in 2019 reduced its prime brokerage and equity sales and trading activities. Despite the changes, his investment bank has generated strong profits this year and even increased its market share in some markets. Fixed income and leveraged finance have performed well and are two of the growth-oriented investment banking businesses.

Regulators continue to express some concerns about Deutsche Bank’s controls and risk appetite. This heightened oversight could help it make informed decisions – the bank avoided losses due to the Archegos collapse that hit Credit Suisse.

However, it also raises the uncomfortable possibility that a growing market share may offer more than a fair share of risk.

Investment banking is a cutthroat business, and European ambitions to attack Wall Street have often produced more pain than profit. Stable results despite extraordinary times lend credibility to the strategic thinking of Barclays and Deutsche Bank, but new circumstances also make it very difficult to extrapolate their recent streak of good results.

Write to Rochelle Toplensky at [email protected]

Copyright © 2021 Dow Jones & Company, Inc. All rights reserved. 87990cbe856818d5eddac44c7b1cdeb8