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When Donald Trump won the US election in November, many bankers and money managers predicted that his presidency would create a bonanza for American finance. Now he could be Wall Street’s Achilles heel.
For the past 15 years, the big US banks and money managers have been on the march. The banks recovered more quickly from the 2008 financial crisis than their European rivals and have been snapping up market share ever since. Goldman Sachs, JPMorgan, Morgan Stanley and Bank of America each captured at least 5 per cent of last year’s global investment banking fees. The top European bank, Barclays, pulled in just 3.3 per cent.
US money managers, meanwhile, have been gathering assets at a record pace and squeezing fees. In some quarters, BlackRock has recorded more inflows than the entire European asset management industry combined. Americans also dominate the custody market, holding four of the top five slots.
All of them benefited from a vibrant US economy, deep capital markets, and the fundamental appeal of American equities and bonds to international buyers. Trump’s recent selection of light-touch regulators to head the top securities and banking watchdogs appeared to be the icing on the industry’s cake.
But just when American finance was looking unstoppable, Trump pulled out the rug. His aggressive “liberation day” tariffs, followed by a partial 90-day pause, sent the markets into a tizzy. Other belligerent policies, including threats by his advisers to weaponise finance, are forcing overseas companies and governments to question their dependence on US financial institutions and their use of Treasuries as a standard risk-free asset.
Foreign firms are reconsidering their US ties, looking for local service providers and making contingency plans to issue debt in home currencies rather than the now-less stable dollar.
Governments are shedding their laissez-faire attitude to US dominance in technology and banking. “There has always been this fear among European regulators, are we becoming too dependent on US firms? That was always countered with ‘The US is on our side’, and ‘Would you prefer the Chinese?’ Both of those factors have now changed,” says a senior UK regulatory lawyer.
The lack of European alternatives to Google, Microsoft and the like make it hard to reduce dependence on US technology, but financial services are a different story. European banks are not as big or as globally feared as the Wall Street beasts, but their top employees are experts at raising funds and closing mergers.
Even before Trump set world markets on fire, Swiss lawmakers had raised concerns about the wisdom of using a US bank as custodian for SFr46bn in social security funds. State Street was ultimately able to retain the contract after the Swiss government warned that changing providers early in the contract would significantly raise costs. But European states and companies are likely to look closer to home the next time they have mandates to bestow.
“We’ve lost a couple of bond deals already . . . they simply say that, you know, we’d rather just do this with a local bank than with a US bank,” Jamie Dimon, chief executive of JPMorgan Chase, said last week.
Bankers and regulators said they would be surprised to see rapid regulatory changes aimed at hemming in American financial firms. Designing new rules takes time, and formal changes could invite US retaliation.
But there are less visible ways to disadvantage American institutions. Supervisors can insist that local outposts of US banks maintain higher capital ratios and hold different kinds of liquid assets to compensate for Trump-related risk. They could also turn a more jaundiced eye to American innovation.
“Slow-walking a US application [for a new asset management product or a change to a bank’s risk models] is something I could see happening,” one former regulator told me. “Throw some sand in the gears.”
Despite the new obstacles faced by their rivals, European financiers are far from gleeful. Investment bankers are suffering from a global dearth of mergers and acquisitions, and they believe tariff uncertainty will further depress dealmaking. Asset managers worry that choppy markets will drive customers back to cash, and both groups worry about the increased likelihood of a global recession.
As one senior European banker texted me, there are “no winners in this mess.”
brooke.masters@ft.com
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