Why European Banks Lost Wall Street to the Americans After 2008

Sunday evening. July seventh, two thousand nineteen. Deutsche Bank puts out a statement. It is walking away from global equities sales and trading... entirely. Eighteen thousand jobs.

Eighteen thousand? On a Sunday night?

A hundred and forty-nine-year-old bank, one of the pillars of European finance, abandoning a business it had spent twenty years building to fight the Americans on their own turf. The chief executive, Christian Sewing, called it a restart. So here's what I want to answer. In two thousand seven, European banks sat at the top table of global finance. Why aren't they there now?

Hang on. Are they actually gone? Or is this just one badly run German bank?

Look at the fees. Investment banking fees worldwide, first quarter of last year. Europe's share of the pot: twenty percent. That's LSEG data reported by Reuters, and it's the lowest annual figure since their records start in the year two thousand. The American share... fifty-four percent.

Fifty-four to twenty. That's not a gap, that's a different sport.

And it shows in the profits. Barclays estimated that returns on equity at the investment banking arms of Europe's major banks roughly halved. Something like twenty-one to twenty-five percent in two thousand eight... down to about ten to twelve percent by twenty thirteen.

But everyone got hit in oh-eight. Why did only one side get back up?

Reuters puts it plainly. American banks have taken market share ever since the crisis, helped first by a faster clean-up of their balance sheets... and then by deeper, more profitable home capital markets they can use to subsidise competing everywhere else.

Faster clean-up meaning the bailouts, the stress tests, all that.

Capital forced in, losses admitted, move on. Europe took the slow route... and then the eurozone crisis landed on top of it. The IMF estimated that between the end of two thousand nine and August two thousand eleven, eurozone banks picked up two hundred billion euros of extra credit risk tied to the sovereign mess.

So they're still bleeding while the Americans are already out hunting.

Then the rulebook. Both sides signed up to Basel the third. But European banks, Santander, BNP Paribas, Deutsche among them, argue the EU applies it too strictly, and that it hands them a handicap against the Americans.

Sure, and banks always say regulation is killing them. Is that actually true, or is it lobbying?

Fair, and it is contested. Bruegel, the Brussels think tank, looked at exactly that claim and concluded full Basel implementation in the EU would mostly remove a competitive advantage European banks currently enjoy. Not create a handicap. Meanwhile, in the United States, the Basel endgame proposal got significantly watered down after industry pushback.

So both sides are convinced the other one has it easier.

What nobody contests is the retreat. Deutsche builds a bad bank for seventy-four billion euros of assets that ate too much capital. And then Credit Suisse. April sixth, twenty twenty-one. The bank reports losses of four point seven billion dollars from the collapse of one client, Archegos.

Four point seven billion. From ONE fund?

Same year, Greensill. Then October twenty twenty-two, social media rumours that the bank is dying... and a hundred and eleven billion Swiss francs walks out of wealth management in three months.

Posts on the internet, and a hundred and eleven billion just leaves the building.

March twenty twenty-three. A weekend of crisis meetings in Bern. UBS buys Credit Suisse for three billion francs. The Swiss government puts up more than nine billion dollars to cover possible losses, the central bank lines up a hundred billion. UBS chairman Colm Kelleher called the deal attractive for his shareholders, then said, quote, as far as Credit Suisse is concerned, this is an emergency rescue.

A hundred and sixty-seven years... and it ends over a weekend.

The Swiss finance minister, Karin Keller-Sutter, insisted it wasn't a bailout. A commercial solution, she called it. And now UBS is the one European bank still playing at full scale, outperforming its European peers, with a record quarter for its traders.

So what does everyone else do? Just... shrink politely?

Paris, September eighteenth, twenty twenty-three. Société Générale's new chief executive, Slawomir Krupa, four months into the job, stands up and presents his plan. Simplify. Sell four African units, review a fifth. Target a return on tangible equity of nine to ten percent by twenty twenty-six, up from five point six percent that June.

Nine percent as the AMBITION. Americans do double that in a good year.

And revenue growth of zero to two percent. The shares fell more than nine percent that day. For the full year, SocGen reported four point two percent.

That's a bank telling its own shareholders to expect less.

It's a bank doing arithmetic. And the deeper reason isn't any one chief executive. European companies borrow from banks. American companies issue bonds and shares into one enormous single market. Deep markets mean fat fees, fat fees pay the traders, the traders win the next mandate.

Twenty-seven national markets against one. So the bank isn't really losing. The continent is.

And that's where it reaches you. When a European company wants to build a factory, buy a rival, fund a battery plant, somebody has to price that risk. If the only firms big enough to do it sit in New York, then the terms, the fees, and eventually the jobs follow the money home.

So... back to the top. Why aren't they at the table?

Because in two thousand nine, America made its banks take the pain in one go. Europe spread it over fifteen years... and is still paying.

And slow bleeding never looks like a crisis. It just looks like a bank getting smaller.