Combined profits for the three biggest US banks last year were $65bn, exceeding the combined market values of Deutsche Bank and Credit Suisse, underscoring a pronounced shift in power away from Europe since the financial crisis.
Fourth-quarter figures released on Friday by JPMorgan Chase, Bank of America and Wells Fargo, the top three US banks by assets, showed total net income of $64.6bn in 2016, up 2 per cent from 2015, as a rousing fourth-quarter made up for a stickier start to the year.
This week quarterly figures from Morgan Stanley, Goldman Sachs and Citigroup are expected to confirm a revival in the US banks’ trading units, spurred by hopes of higher growth, lower taxes and lighter regulation under the incoming Donald Trump administration. Continued resilience in retail, wealth and asset management divisions is also seen. At Goldman net income for the year is expected to leap 27 per cent to $7bn.
The figures are likely to contrast with more downbeat updates from the big European banks in coming weeks, showing they are weighed down by sluggish economic growth, negative interest rates, high levels of bad debts and political uncertainty over Brexit and the future of the eurozone.
Goldman’s share price has recently surged close to its record high of $247.92 set in October 2007 and JPMorgan has been setting new all-time highs for several months. Meanwhile, shares in Barclays, Deutsche Bank, UniCredit and Royal Bank of Scotland are trading at a fraction of their pre-crisis levels.
The US banks also have fewer big legal overhangs. Last month Deutsche and Credit Suisse said they would take fourth-quarter charges of $1.2bn and $2bn, respectively, after agreeing settlements with the US government over mis-selling mortgage-backed securities in the run-up to the financial crisis. Barclays has chosen to stand and fight, while Royal Bank of Scotland, HSBC and UBS are yet to resolve their mis-selling cases.
“The US banks are so huge, they can absorb all sorts of hits that the Europeans can’t,” said Arnie Danielson, chairman emeritus of Ambassador Financial Group, who has written a book on the growing dominance of America’s universal banks.
In 2006 the top five European banks had a combined 20 per cent share of the worldwide investment-banking fee pool, according to Dealogic. Last year that share dropped to 16 per cent, even though Barclays had swallowed much of Lehman Brothers in the meantime.
The European Commission needs to find ways to protect its weakened banks, otherwise it’s “open-field running” for the US banks to do more business in Europe, said Ken Leon, research director at CFRA in New York.
JPMorgan noted on Friday that it had gained market share in investment-banking fees in the US and Europe, stretching away as the world’s number one.
Marianne Lake, chief financial officer, told analysts on Friday that the bank was “proud” of its gains and would “try its hardest” to repeat them. “I don’t think you should necessarily expect that we can continue to gain share at that pace; but defend it, we will,” she said.
The US banks are also looking to press home the advantage of a steadier domestic economy. Brian Moynihan, chairman and chief executive at BofA, contrasted uncertainty over Brexit with a brighter picture back home.
Whatever happens as the UK prepares to leave the EU, he said, “the good news is, the US strengthens in the first part of the year. We’ve seen a good normal first quarter developing, and we’ve seen customer activity strong, all of which bodes well”.
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