The most defining characteristic of global banking today is
fragmentedness, and the exclusive and comprehensive stock taking of the Top
1000 World Banks by The Banker continue to show that most of the issues facing
lenders could be among the products of the vagaries of their home markets. High
interest rates buoyed banks' prospects across much of the world this time last
year, but as of now, the picture of profitability in banking and the more
general outlook is steadily becoming inside.
Profits are swelling in the US, particularly on Wall Street,
while Europe remains stuck. Meanwhile, the wobbling giant of the
world—China—houses the world's four largest lenders.
Contrary Finds The US Globally
Using the latest annual data of the largest 1000 banks in
the world, US lenders have diverged from the prevailing global trend of decline
in profit-growth due to lower interest rates and poor economic performance.
US investment banks particularly profited from a year-end
surge in M&A and other deal-making activity due to expectations of renewed
economic growth following the election of a perceived industry-friendly
president.
Most of this optimism surrounding US banks has largely
carried over to 2025, notwithstanding the April shock of Donald Trump's
"reciprocal tariffs" and unfolding trade wars, and stands in stark
contrast to the economic uncertainties weighing on other major markets.
The data presented in this year's rankings spell out the
widening chasm that continues to surreptitiously grow between US lenders and
those in Europe, which still contend with weak domestic growth and sluggish
response times. Despite climbing up the ranks of the Top 1000 World Banks in
assets and capitals owned, the earnings capacity of the Chinese banks is still
hindered by their country's weak economy, especially considering that the
country's long-lasting real estate crisis weighs down economic growth.
All combined, the US, Europe, and China share the same
ownership of 41 of the 50 largest lenders in The Banker's Top 1000 World Banks
ranking.
1000 World Best Banks: CLICK HERE
Geopolitics and Trump's trade war may in the end make Wall
Street's profitability worse, states a banker based in London with a US
institution, but for now "US banks still rule global investment banking by
a mile...I doubt European banks will get close to US banks in the near
term". They add that this is still mostly down to talent, banks'
incumbency, and their global connectivity.
Another banker who has seen both sides-on Wall Street and
for European names-agrees: US banks are unmatched to attractive talented
professionals-appear as a function of compensation and development prospects.
"In French banks or German banks, you could hardly find a head of
investment banking who is not French or German; the same applies to Asia,"
they say. "But look at JPMorgan, the co-head of global banking is
Italian."
They add, "there is an entrepreneurial spirit within US
banks that is quite lacking or unencouraged elsewhere."
'There is a slowdown in all three key headline aggregate
measures defined by the rankings of The Banker-Tier 1 capital, assets, and
pre-tax profits. But the starkest contrast is in the change of annual
performance for the last of those three.
In the 2023 report, aggregate pre-tax profit growth for the
world's 1,000 largest banks was 14 percent slumping sharply to just 3 percent
in 2024. After enjoying to the fullest the windfall from a huge jump in net
interest income in 2023, NII on a total scale did not move at all within the
industry in 2024.
At the very top of the US group, JPMorgan boosted its
pre-tax profits by 21.9 per cent, in addition to expanding Tier 1 capital by
6.3 per cent and assets by 3.3 per cent.
All from the above included double-digit increases in
pre-tax profit for JPMorgan, Citigroup, Morgan Stanley, and Goldman Sachs (the
case of Goldman being by more than 70 percent). European counterparts had it
very differently than the American ones (as were Chinese lenders).
Incredible too is the profitability average of the American
market in comparison to the even lesser names than those listed among the Wall
Street banks. Aggregate recorded pre-tax profit increases for 192 US lenders
represented in this year's ranking showed a 17 percent increase for 2024 which
is a very significant difference against records across other major banking
markets for the year. The US was the best performing economy in the G7 last
year.
This steady increase continued into 2025 in the early
months, with rising trading revenue resulting in increased non-interest income
from the fees and commissions segment. According to the figures in the
aggregate of The Banker's Database, pre-tax profits for the top 10 US banks
rose just above 12 percent in January.
There has been an unsettling trend in the sector, however,
as it speculates about the potential cooling of the US economy and,
particularly, how President Trump's aggressive tariffs policy might impact
credit quality among US companies. In describing how some creditors have
improved their allowances for credit losses since the beginning of the year,
S&P Global Ratings analysts reported in April noting how new tariffs appear
to be increasing chances for a recession in the US in 2025.
However, Fitch, in June, said that even slowdowns in
economic growth would not alter the fact that the conditions in the US banking
sector were still broadly stable for the year.
China Crisis
The impact of Trump's tariffs will probably be most severely
felt in China and the rest of the Asia-Pacific region.
While smaller banks in export-oriented areas such as
Guangdong and Zhejiang are more susceptible, a trade war under such
circumstances is unlikely to have too much impact on debtors, or for the sector
as a whole, says Ming Tan, director at S&P Global Ratings.
City and rural banks have few options other than remaining
tied to their home regions. The reality is that the housing situation may be
worse than the national average," he says.
Beijing's taking no chances so far this year with an
interest rate cut in May, the last installment in a string of actions the
People's Bank of China has undertaken dating back to the end of 2021, seemingly
all aimed at remedying the country's languishing economy.
This year, China's top megabanks, including the ICBC, ChinaConstruction Bank, Agricultural Bank of China, and Bank of China, have remained
steadfast at the top four slots in the overall ranking of this year's Top 1000.
Six out of these 15 Chinese banks within the top 50 improved their standings,
while none went down.
“China has been lowering rates to ensure cheaper funding is available to local companies struggling with economic challenges.”
From among the country's biggest banks, the single
outstanding performer is China Merchants Bank. It stands to gain from the
highest percentage rise in Tier 1 capital, at 11.3 percent, more than any of
the other banks in the top 30, thus moving it from the 10th position to eighth,
exchanging places with Wells Fargo.
Falling interest rates have created profitability jitters
for lenders in the country; pre-tax profits for the year fell among eight of
the 15 largest Chinese lenders and three of the big four. Aggregate NII from
the 158 Chinese banks in this year’s ranking fell by 4 per cent in 2024 due to
the domestic economy's challenges and PBoC's interest rate cuts.
The trend continued into 2025, with the country’s top
lenders reporting an aggregate year-on-year fall of pre-tax profits by 2 per
cent for the first quarter in local currency, as per The Banker Database.
Considering lenders crucial to domestic economic growth, the
PBoC released Rmb1tn ($138bn) of liquidity into the banking system and cut
reserve requirements.
In March, the National Financial Regulatory Administration
of China urged banks to solicit more consumer financing as part of measures to
stimulate domestic demand — an important agenda for the government in the
upcoming years.
As stated in its Global Banks Mid-Year 2025 Outlook
Compendium from June, Fitch Ratings said that "the majority of the banking
sectors have been resilient to trade war pressures;" the general outlook
remains the same.
But for South Korea, Taiwan, Thailand, and Vietnam, their
outlook for the banking sectors in 2025 was lowered for the agency, since
"high trade openness and exposure to US demand" exposes them directly
to US tariffs.
Away from China, banks in other significant regional markets
— India and Japan — stood firm. Indian banks experienced a stellar year, with a
13.5% increase in aggregate pre-tax profits for the 29 lenders in the Top 1000
list. The top lenders of the country, HDFC Bank and State Bank of India,
improved positions in the ranking, becoming the first lenders in the nation to
break into the top 40.
In Japan, all three MUFG, SMBC, and Mizuho FG recorded over
20% increase in their pre-tax profits on the back of rising interest rates for
2024. However, the interest rate hike was a shock for the 4th largest bank in
the country, Norinchukin Bank, which ended up with $11.8 billion in pre-tax
loss — a level unparalleled by any other bank in the stated listing — after the
massive drop in value of its overseas government bond portfolio. European
banks, however, are seeing a most acute manifestation of the fortunes reversed
in 2024.
Pre-tax profit narrowed mostly by 5.47 per cent among banks
in western Europe, while it sank by 4.5 per cent among those in central and
eastern Europe, with steepest declines witnessed in Switzerland, Austria,
Bulgaria, the Netherlands, and Belgium.
NII decreased by 3.5 per cent for western European lenders
and by 4 per cent for CEE lenders, with Eurozone lenders subjected to the
European Central Bank beginning its interest rate cutting programme three
months earlier than the US Federal Reserve. Aggregate return on assets for
these western European banks stood at just 0.64 in 2024, significantly down
from 0.68 in 2023, and lower now anywhere else in the world except Japan.
Ten out of 17 European lenders in the world's largest 50
lost some positions in the global ranking; only two — UK Barclays (thanks also
to the acquisition of Tesco Bank) and Deutsche Bank of Germany — improved their
overall position.
The London-headquartered HSBC remains the largest European
bank by Tier 1 capital and assets, even as it increasingly focuses on Asia and
the Middle East, announcing in January that it would significantly scale back
investment banking offerings in Europe, the UK, and US.
In March 2024, the sale of its Canadian assets to the Royal
Bank of Canada constituted the largest asset sale among the Top 1000-ranked
names of the year, enabling RBC to edge up by one place to 30th in the overall
list.
1000 World Best Banks: CLICK HERE
Fitch gave an "improving" rating outlook to the
banking sector of Spain in June, thanks to "improving business
opportunities." Spanish lenders were otherwise a great exit for Europe.
Although both assets and capital weakened for the year, four out of the seven
largest lenders reported double-digit growth in pre-tax profits.
On the other hand, the seven French lenders present among
this year's Top 1000 recorded an overall growth in pre-tax profits of hardly
3.3% for the year of 2024 and all saw a decline in assets for the year. In
June, Fitch declared the banking sector of the country as
"deteriorating" owing to reasons like "political uncertainty and
risks arising from fiscal policy", even though the agency expects a
moderate recovery in profitability by 2025. Crédit Agricole, the biggest bank
in the country with reference to Tier 1 capital, is still 13th in the ranking,
while BNP Paribas has slipped downstairs by two places to 16th.
Roughly half of the Top 1000 tie-up occurred in Europe. The
largest merging in the banking sector in Europe in 2024 is the October
completion of the Nationwide acquisition of Virgin Money in the UK and has seen
Nationwide leapfrog 10 spots to 98th place in the overall ranking.
This year's discussions regarding the need for continental
European consolidation may not deliver any result. Highly disputed transactions
involving UniCredit's alleged acquisition of Commerzbank and BBVA's bid for
Sabadell are presently suspended.
Despite the show of strong support for a unified banking
market that should also allow the creation of European champions that are able
to compete with their US counterparts more effectively, national politics
remain obdurately in the way.
There are similar delays to the plans for a capital markets
union which will assist lenders in reducing their utilize of balance sheet for
financing corporate clients and eventually bridge the gap with US peers who,
due to active equity and debt markets, are benefiting in effectively serving
their clients' needs.
If the dynamics around politics (and thus bank policy)
change worldwide, then, perhaps, so will the names who matter in global
banking. Some may solidify their hold over local and global banking; others may
drop off the list of influence. This includes Wall Street, with geopolitics
posing a possible threat to it.
"Not much has changed from Trump to date", goes
the US banker. And, for the second banker, the issues are even more malignant:
"European banks are [equally] good at spotting new business opportunities
and markets, but they take years to move — and when they do, the harvest is
done."
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