Wall Street may never have been as cosmopolitan a financial centre as the City of London. Foreign banks have been eager enough, but their US rivals have traditionally grabbed most of the spoils.
Today, more than ever, many bankers believe Wall Street is becoming an American-only club. The drag of the eurozone crisis, and regulatory crackdowns in Switzerland and the UK, mean the biggest US investment banks, from JP Morgan and Bank of America Merrill Lynch to Goldman Sachs, are licking their lips at the chance to capture business from weakened European challengers.
"Before the crisis, Deutsche Bank and UBS got close to making it big time,” a senior US bank executive says. "But it’s a misperception that European banks ever really got there. And in the past few years American firms have become more dominant still.”
Even some Europeans agree. Jean-Pierre Mustier, the former head of investment banking at Societe Generale and now a senior executive at Italy’s UniCredit, says: "There has never been a European bank that’s been really successful on Wall Street. Having headquarters in Europe [poses] the difficulty of giving local management enough room and freedom.”
And yet, there is plenty of evidence to disprove the naysayers. Data on capital markets and deals suggest a clutch of European groups – led by Barclays, Deutsche and Credit Suisse – together with one or two other foreign groups, such as the increasingly ambitious Royal Bank of Canada, are vying successfully to break up the traditional dominance of the big US names, making substantial headway over the years of the financial crisis.
With the US market still accounting for 60 per cent of the global fee pool for M&A advisory and capital markets businesses, and a weak outlook for the economy back home, it is easy to see why the big European banks are keen to keep up their Wall Street push.
Aided by local acquisitions – First Boston in Credit Suisse’s case, Bankers’ Trust in Deutsche’s and, most recently, the US Lehman Brothers franchise for Barclays – the Big Three Europeans are now routinely jostling for top five positions, especially in debt.
The foreigners’ position in the rankings has been helped, too, by the early ravages of the crisis – the demise of Bear Stearns (now part of JPMorgan) and Merrill Lynch (subsumed into Bank of America), as well as Lehman. Together, the trio of Barclays, Deutsche and Credit Suisse claimed a 23 per cent share of the US debt market in the first half of the year, nearly double the tally six years ago, according to Dealogic, the data provider.
A similar story is evident in M&A, albeit amid thin pickings for deal bankers. In the first half of the year, Credit Suisse, Deutsche and Barclays ranked fourth, fifth and sixth behind Goldman, JPMorgan and Morgan Stanley, but ahead of BofA and Citigroup.
Even in equities, where the US Big Five typically take the top five slots, four of the top 10 come from Europe, with shrinking Swiss bank UBS, currently ranked 10, buttressing the main European challengers.
Sceptics of the foreign banks’ ability to grow on Wall Street see more challenges ahead for European banks than for domestic operators. The European crisis has been, and will continue to be, a powerful drag, says Kian Abouhossein, global banks analyst at JPMorgan. "European banks have been held back by Europe’s muddle-through approach to the crisis, versus the US attitude of clean up fast and move on.” Among other consequences, funding in dollars has become impossible to source in the quantity that many banks, such as the big French groups, had previously enjoyed.
Uneven regulation is another obvious headwind. Capital requirements demanded by regulators in Switzerland, and to a lesser extent, in the UK may restrain the ambitions of Credit Suisse, UBS and Barclays, some analysts believe. Enforced structural changes – conceived by the UK’s Vickers Commission and by the EU-appointed Liikanen Group – could disrupt the viability of investment banks’ funding and capital efficiency by ringfencing certain activities inside separate subsidiaries. These look more punitive than the US reforms imposed by the so-called Volcker rule on proprietary trading, and other Dodd-Frank legislation, bankers say.
A final challenge – in the form of a threatened imposition of bonus caps on the global operations of EU banks under a plan being pushed by the European Parliament – would hit bankers where it hurts most.
All of that feeds into the conviction on Wall Street that foreigners just cannot cut it in the US. Many, including some second-tier European groups, have tried and failed. Once ambitious Asian groups, such as Nomura, which were only ever tiny in the US, are now shrinking their global operations radically.
"At some point another European or Asian or Latin American bank will try to crack Wall Street and fail,” says one London-based veteran of the industry. "Stupidity is the only constant. There is no chance for non-US banks to be successful in the US.”
By Patrick Jenkins and Daniel Schfer
Copyright the Financial Times 2012.