US investment banks

As New York officials fret over the apparent erosion of the city’s dominance as a financial centre, Wall Street’s finest are rewriting the record books. Admittedly, Goldman Sachs’s fourth-quarter performance stood out for sheer scale of its net profits (more than $3bn in one quarter). But Lehman Brothers on Thursday delivered another strong quarter, while Bear Stearns actually beat expectations by a wider margin than Goldman.

The bottom line is that the big banks do not mind where they do business. If clients want to transact in Asia or Europe, they can still take advantage. UBS estimates that Goldman, Lehman and Morgan Stanley all generate close to 40 per cent of revenues from outside the US. More important, the US itself is hardly running out of opportunities. Bear, which still relies on the US for 86 per cent of revenues, has by no means lagged peers on share price performance over the past three years.

The question is sustainability. US financial markets are enjoying fantastic conditions – boosting profits across traditional parts of banks’ advisory, underwriting and trading businesses. On top of that is the cream that comes from innovation as clients require new products. For example, the surge in hedge funds has created huge demand for lucrative prime brokerage services and helped create a market for increasingly complex structured credit products.

The debate about New York’s pre-eminence focuses on its loss of market in initial public offerings. That is hardly the right measure, given how small the business is compared with others on Wall Street. But it is clear that financial markets in Europe and particularly Asia will narrow the gap with the heavily penetrated US markets. If the cycle turns and the rush for new products cools, it will be increasingly important how well each bank is positioned in Asia and Europe – where structural growth should remain stronger.