International Banking

By Arnold G. Danielson

The story of international banking over the last twenty years began as an assembling of financial power in Europe, with London as the focal point, that would be totally reversed by the financial crisis of 2008. This was a crisis with its origins in the United States that caused such well-known institutions as Citigroup, Merrill Lynch, Wachovia, Lehman Brothers, Bear Stearns, AIG, Fannie Mae and Freddie Mac to be quasi-nationalized, forced to sell, or in the case of Lehman Brothers, fall into bankruptcy. Yet seven years later, America’s four largest banks—JPMorgan, Bank of America, Wells Fargo and a recovered Citigroup—had left every other non-state bank in the world far behind except for HSBC, and had made New York, not London, the indisputable financial capital of the world.

This book has numerous tables that record the transformation of banking power from Europe to United States, but a number that makes this transformation particularly dramatic is market capital. I have tried to avoid stock valuations in this book and concentrate on earnings, assets and equity capital, but the difference in American and European market values are hard to ignore. In May 2016, the market value of Wells Fargo was $250 billion and that of JPMorgan was $225 billion. At that time, England’s domestic banking leader, Barclay’s, had a market value of $40 billion, and Germany’s leader, Deutsche Bank, had a market value of just $23 billion. These market capitalizations were earnings justified.

An irony relative to the events of the last eight years has been watching the “too big to fail” concern work in favor of the big American banks as regulators in Washington, London and Basel made life more difficult for their competitors. In Washington, regulators chased away the largest of the big banks’ non-bank rivals, GE Capital, and deterred others from going beyond $50 billion in assets. In London, regulators with “ring fencing” appear to have made the United Kingdom’s last serious investment bank, Barclays, a second tier player. Meanwhile, continuing announcements from Basel of more capital required of large banks is forcing most of the larger European banks to shed assets.

• Language: English
• Publisher: SDP Publishing
• Release date: Aug 22, 2016
• ISBN: 9780997722413

Arnold G. Danielson

The impact of economic crises and consolidation on banking is something that Arnold G. Danielson witnessed beginning in the early 1970s from inside a bank holding company and from 1977 to 2007 from his firm, Danielson Associates, which was an advisor to banks and thrifts attempting to adjust to a continually changing banking environment. From 1985 to 2007 he wrote the regional and national Danielson Reports that described what was happening in the industry at the time. In 2007, he published his book, “Consolidation of Banking: or How Five Banks Bought 50% of America’s Biggest Business,” of which this book is a revision of and updated to include the period from 2008 to 2013 and place a greater emphasis on the impact of economic crises on banking. Today, Mr. Danielson is retired, and he and his wife, Vivian, split their time between homes in Potomac, Maryland and Nice, France. His time in France and love of history are reflected in a book far removed from banking, “A Traveler’s History of Cote d’Azur,” published in 2012.

Book preview

International Banking:

America’s Rising Role

How Four American Banks Assumed Worldwide Leadership

Arnold G. Danielson

International Banking: America’s Rising Role: How Four American Banks Assumed Worldwide Leadership.

Copyright © 2016, Arnold G. Danielson

Published August, 2016

Proofreading Services: Karen Grennan

Interior Layout and Cover Design: Howard Johnson, Howard Communigrafix, Inc.

E-book Formatting: Maureen Cutajar

Front cover image: Depositphotos: Dramatic Sky Over New York City Skyscrapers: 31360503

Published by SDP Publishing, an imprint of SDP Publishing Solutions, LLC.

For more information about this book contact Lisa Akoury-Ross by email at

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ISBN-13 (print): 978-0-9977224-0-6

ISBN-13 (ebook): 978-0-9977224-1-3

Library of Congress Control Number: 2016949546

Table of Contents

Preface

1 Introduction

2 Pre-Crisis Change in Banking Leadership

3 Trouble Finds the United States

4 Across the Ocean in London’s World

5 Continental Europe in the Crisis

6 Post-Crisis Recovery

7 Global Investment Banking

8 2015 Shift to American Leadership

9 Is Being Too Big a Problem?

10 What’s Ahead for International Banking?

List of Tables

Bibliography

Notes and Sources

Acknowledgments

Preface

Idecided to write this short book as an extension of my 2014 book, American Banking through Crisis and Consolidation, into the world of international banking. This is an area of banking in which I have none of the expertise that helped me write its predecessor, but it is something that interested me very much—and the intent is to let the numbers tell the story. I knew as I began to do research for this book last fall that America’s largest banks had made major gains in the relative standings of banks worldwide, but had not realized just how far they had gone.

The story of international banking over the last twenty years began as an assembling of financial power in Europe with London as the focal point that would be totally reversed by the financial crisis of 2008. This was a crisis with its origins in the United States that caused such well-known institutions as Citigroup, Merrill Lynch, Wachovia, Lehman Brothers, Bear Stearns, AIG, Fannie Mae and Freddie Mac to be quasi-nationalized, forced to sell or in the case of Lehman Brothers fall into bankruptcy. Yet seven years later, America’s four largest banks—JPMorgan, Bank of America, Wells Fargo and a recovered Citigroup—had left every other non-state bank in the world far behind except for HSBC and had made New York, not London, the indisputable financial capital of the world.

This all occurred after my finishing thirty years of running a bank advisory and consulting firm, Danielson Associates, that I had founded in 1977, and was then able to spend more of my time at the home in southern France I had purchased in 2002. The thirteen years I spent half my time living in France greatly enhanced my interest in European banking and its economies. The falling apart of Europe and its banks in recent years was fairly evident to those paying attention over there, but somehow things never seem as bad as they really are when you are living in Cote d’Azur— and I did my banking at HSBC. The 2008 financial crisis may not have hit Europe initially as hard as the United States, but European banks were undercapitalized and the recuperative powers of the countries over there were generally much less than those of United States.

In 2000, two years before I went to France, Deutsche Bank was the biggest bank in the world, joined by Barclays and UBS in the top five. From that perspective, it would have been difficult to imagine the international banking structure that would exist fifteen years later. By 2005, nineteen of the world’s twenty-five largest banks were European. By 2008, Royal Bank of Scotland, or RBS, was the world’s biggest bank.

This book has numerous tables that record the transformation of banking power from Europe to United States, but a number that makes this transformation particularly dramatic is market capital. I have tried to avoid stock valuations in this book and concentrate on earnings, assets and equity capital, but the difference in American and European market values are hard to ignore. In May 2016, the market value of Wells Fargo was $250 billion and that of JPMorgan was $225 billion. At that time, England’s domestic banking leader, Barclay’s, had a market value of $40 billion, and Germany’s leader, Deutsche Bank, had a market value of just $23 billion. These market capitalizations were earnings justified.

It would be easy and nice to say, America wins, but in banking like so many others things, instead it is the rest of the world that is losing. Bank of America and Citigroup are not back to their earnings level of 2005 and 2006, and yet they had 2015 earnings and market capital that exceeded all non-American banks and only HSBC was close. This banking structure is not going to change anytime soon, and the United Kingdom pulling out of the European Union makes this even more certain. If there is any such thing as good news in this for America, it is that it is fortunate to have big oceans to its east and west and nice neighbors to the immediate north and south. Europe and Japan should be so lucky.

C H A P T E R

Introduction

With all the bad things being said about banking, and particularly America’s big banks, it might seem unlikely that 2015 could be viewed as the year American banks left all others behind and gained long-term international banking dominance. Or at least that is one way of looking at the numbers. Perhaps, a more realistic view is that 2015 was the year it became obvious that other banks, primarily the ones in Europe that seemed so strong ten years earlier, had given up on being international banking leaders for various reasons.

No matter in what context it is viewed, one of the causes of this shift in favor of American banks was the 2008 financial crisis. That crisis whose origins were in United