Howdy, world

[unhappycamper]

Howdy, world
Nov 22nd 2010 | from The World In 2011 PRINT EDITION

In 2011 American bank bosses will start trying to reverse one of the biggest mistakes their firms made over the past two decades. That was not the creation of subprime debt, nor the culture of excess on Wall Street, but the decision to grow bigger in their home market rather than try to dominate global banking. Given that the demand for financial services in America will stagnate or even decline over the next decade and a barrage of new rules will hurt profits, the shift into reverse makes sense. But since the 1960s and 1970s, when American banks had their last big push abroad, international competition has got far tougher.

America’s big industrial firms are truly global. Compared with them its banks are pygmies. Of the biggest four, three get a quarter or less of their revenue from outside North America. Although some American firms are prominent in financial centres such as Hong Kong and London, beyond these entrepôts, and beyond investment banking, their presence is lightweight. This weakness is glaring in emerging markets, where the top two foreign firms are usually European (the main exceptions are Citigroup in Mexico and in South Korea). The total amount of American banks’ loans to emerging economies is a fifth of the total lent to those markets by European firms.

Much of this reflects a late and faltering start. Nationally licensed American banks were allowed abroad only in 1913. Whereas Citigroup steadily built its international presence, in 1960 only seven others of the several thousand American banks had any foreign branches. That quickly changed as banks rushed overseas to side-step balance-of-payments restrictions and tap into new offshore lending markets. But after a peak of activity in the late 1970s many firms retrenched again. Chase Manhattan, for example, shut down much of its emerging-markets network in the 1980s.

All banks then fell for America’s comforts. By the 1990s the debt boom had begun and banks were at last allowed to operate in lots of different states and to run investment banks and insurance operations. A wave of consolidation followed. Citibank became a financial supermarket, Chase and J.P. Morgan combined. Bank of America, a serial acquirer at home, sold its big Latin American operation in 2006. Its former boss, Ken Lewis, took a certain gleeful pleasure in expressing his lack of interest in banking abroad. Lots of European firms were seduced by America too, buying brokerages, regional banks and even subprime outfits.

If 2010 was the year in which bankers began to appreciate just how sluggish and heavily regulated the American banking market will become, then in 2011 they will grapple with two other strategic reasons to shift abroad. The first is that if global trade changes its balance, banks will have to react. American companies that are keen to export more will expect their banks to help them more overseas. And assuming Asian countries save less and spend more, there will be a big rise in their consumers’ demand for financial products. American banks will be keen to profit from this.