Tectonic Shift In Banking’s Centre Of Gravity Over Last Decade

The Financial Times reports on how the fearsome have fallen.

(emphasis mine) [my comment]

The fearsome become the fallen
By Peter Thal Larsen and Simon Briscoe
Published: March 22 2009 18:32 Last updated: March 22 2009 18:32

The worst financial crisis since the second world war has not only forced governments across the western world to step in and rescue giant institutions. Amid the turmoil, there has also been a tectonic shift in banking's centre of gravity.

A decade ago, a list of the world's largest financial institutions was dominated by banks from the US and UK. Today, just four of the top 20 have their headquarters in the US, still the world's largest economy. HSBC, at heart an emerging markets bank, is Britain's sole representative.
[See graphics below]

After writing off more than $1,000bn (€734bn, Ł691bn) on complex debt instruments and raising hundreds of billions of dollars in fresh capital, many banks have watched their market value shrink to a fraction of its level at the peak of the boom.

Looking back 10 years, the banking industry in early 1999 was still dusting off the debris of the previous autumn, when the Asian economic crisis and near-collapse of Long-Term Capital Management in the US left some banks nursing large losses. Though few recognized it at the time, however, the industry was at the beginning of an eight-year growth spurt that would ultimately bring the world financial system to the brink of collapse.

The most striking are the fallen. Citigroup, which dominated the landscape for most of the past decade, now languishes at the bottom of the list and is in effect under government control. Lloyds TSB is now too small to register after its ill-judged rescue of HBOS.

New names have meanwhile arrived as if from nowhere. This is partly a reflection of shifting economic power: China's three big banks dominate the rankings after joining the stock market in 2006 and 2007. Australian and Brazilian banks have also risen to prominence. But the shifting composition also offers evidence of how well different countries have managed their financial systems. Canada, for example, has been praised for its risk-averse approach to regulation. A decade ago, no Canadian bank made the list. Now there are five in the top 50.

Nevertheless, a comparison of the two snapshots masks the destruction of value since the crisis began. Even relative winners have not fared well: HSBC's stock market value peaked at $234bn in October 2007
[HSBC is not a winner. Its short position in gold guarantees its demise]. Today it is worth just one-third of that amount. China's three largest banks have halved in value over the same period.




Does the experience of the past decade offer any pointers for banks hoping to thrive through to 2019? On the face of it, there are few strategic lessons to be learnt. A decade of rapacious consolidation has made JPMorgan Chase the world's largest bank outside China
[JPMorgan has the world's largest gold short position, and it is surviving on borrowed time].

But Royal Bank of Scotland, which was also aggressively acquisitive, is controlled by the British government and now valued at significantly less than the Ł20bn ($29bn, €21bn) in fresh capital that the state pumped into the bank last autumn.

When the crisis eases and confidence returns, valuations are bound to recover
[Wrong. The dollar will collapse before credit markets recover, so toxic US securities trading at firesale prices will never recover]. But regulation will be more muscular and governments more willing to slap down signs of excess.

Banks may also be forced to become smaller and more domestic. Taxpayers, who have been shown to be the ultimate guarantors of the financial system, are bound to be less tolerant of global giants whose collapse could overwhelm their home countries' fiscal resources
[Agreed. Bankers are not going to be too popular for a while]. Not until the current crisis has faded from memory will banking be ready for another boom [bubble].

Make of break: The deals that drove groups' fortunes

In 1999, Citigroup was the newly formed colossus. Conceived by Sandy Weill as a one-stop financial supermarket, it heralded a world dominated by a few big institutions. But Citi's fall has been steep. As catastrophic losses prompted multiple bail-outs, this month its shares briefly dropped below $1.

Today's league table is dominated by China's three largest banks: Industrial and Commercial Bank of China, China Construction Bank and Bank of China. Floated on the stock market in 2006 and 2007, their shares have held up better than those of many western rivals, though they have little clout beyond their home markets. The slowing Chinese economy will provide their first big test as public companies.

Not long ago, Bank of America was challenging Citi for its crown. But the pride of Charlotte, South Carolina, has slipped following i ll-fated acquisitions, particularly its absorption of Merrill Lynch last summer. At first, that deal looked like a masterstroke for Ken Lewis, BofA's chief executive. But Merrill's wobbly balance sheet forced the bank to seek a government bail-out.

Lloyds of the UK is another tale of a mistaken deal. The world's fourth-largest bank in 1999, its ranking fell during the boom as a cautious approach to risk produced dull growth. Lloyds was poised to benefit from the crisis but a hurried merger with rival HBOS last year left it holding toxic assets, forcing it into government control.
[What is the point of being cautious for years and then throwing everything away in one hurried merger?]

Ten years ago, JPMorgan was in danger of slipping out of the top league. But two mergers, with Chase Manhattan in 2000 and Banc One in 2004, created a bank that has weathered the storm better than most. Under the leadership of Jamie Dimon, the bank has rescued Bear Stearns on Wall Street and Washington Mutual, a mortgage lender.

Spain's Banco Santander is another successful predator. Under Emilio Botín, its indefatigable chairman, acquisitions have taken it into Latin America, the US and — following the takeover of Abbey National in 2004 — the UK. A focus on retail banking means it has suffered less than most.

Goldman Sachs continues to defy the odds
[No it doesn't. It got a $10 billion taxpayer bailout and another $13 Billion via taxpayer bailout of AIG.]. Many bankers doubt Goldman will be able to stand alone for much longer. Then again, that is what they were saying 10 years ago.

Below are two screenshots from the interactive graphic associated with the Financial Times article above.

Top 20 financial institutions by market capitalization in 2004

US banks: 11
British banks: 4
Japanese banks: 2

EU
/Swiss banks: 3

Chinese banks: 0
Canada/Australia/Brazil banks: 0



Top 20 financial institutions by market capitalization in 2009

US banks: 3
British banks: 1
Japanese banks: 1

EU
/Swiss banks: 4

Chinese banks: 5
Canada/Australia/Brazil banks: 6



[These fun graphics show the changing world fortunes of financial institutions, specifically the loss of importance of the US and UK in global finance. Click on link to play around with the interactive graphic.]

My reaction: the dramatic shift in banking's centre of gravity over last decade is a reflection of the world's shifting economic power. Looking at the changing market capitalization of banks is a good way to see where political and economic influence is being lost or gained.

This entry was posted in Background_Info, China, Euro_Zone, Wall_Street_Meltdown. Bookmark the permalink.

16 Responses to Tectonic Shift In Banking’s Centre Of Gravity Over Last Decade

  1. Anonymous says:

    That is pretty crazy. We are struggling to pump up our dead financial institutions and the Chinese are just jumping in to fill the void.

  2. Eric, I thought that JP Morgan Chase was going to survive this coming depression because it is protected by the Federal Reserve Bank. What are your thoughts?

  3. Boris says:

    I agree.

    JP Morgan Chase will survive not matter what price is. They are key player in many markets (gold, oil, stocks etc).

  4. This is the deceptive article written by media manipulators in advance and released to naive public to digest now with attempt to cover the real players of the world finchess.
    Where are "Caribbean" hedge funds that in September last year in one day transferred more than 100 bln (not in derivatives, but in gov bonds)?
    I pointed that in my comment with the link to the academic paper from the International Bank of Settlements (Basel), their paper has details who was involved.

  5. In this article seen that
    some shadow player on September 15, 2008 broke unleashed CDS nuke on Lehman Bros breaking big boys inner agreement to write and sell CDS to the public but never exercise them.
    Caribbean funds (the backpocket of the Fed?) triggered suck out 300-600 bln (unleveraged) money out of US.
    The passive market money funds like The Reserve Fund broke the buck, Funny and Freddie could not write a single mortgage, companies like General Dynamics could not get a salary pay, etc.
    Whoever called Ben and Henry bedrooms later at night and told them that all their toys like 401k and Medicare are gone.
    Then the circus for the general public began.

  6. Anonymous says:

    if you think these banks are actually separate or independent of each other you are very naive. Your predictions for the dollar may be correct, eventually, but for the wrong reasons. This "crisis" has been manipulated. Who benefits?

    When Nero burned Rome, he blamed it on the Christians. He made sure to burn down his own house too.

    Maybe do some research for us all into the real owners of these banks. Like our Federal Reserve, the owner's might be the Bank Of England.

    Thanks for all your work.

  7. Anonymous says:

    I'm sorry, Hakuna, but which article refers identifies the Caribbean funds as the source of the 'drawdowns on the money market funds?'

  8. Banks are very dependent, as just components of mechanisms behind them.
    10 years ago I was working for one bank from the list here. Typical trader unleveraged position in any security was 0.5 bln. There were more than 100 traders in this bank, and each of them usualy had more few open positions. So, it sums up to in excess 100 bln per day unleveraged. Market capitalization of these banks are misleading, it is pure simple PR for window shopers from the street. I also could see that in executions of these trades bank was very careful and dependent. Not trader, not his boss did not know the origins of this money, and the higher officers up to the board level did not want what to know, as these amounts were just digits for today to play around. The bank board itself is primary for PR.
    So, for the shadow powers all this banks like ATM machines on the street for you, even this bank assets are in excess of trln.
    This scale we should consider.

  9. Yuri says:

    Fools; the lot of you.

    This is all nothing more than a sideshow, a distraction. The truth is here:

    http://meltdown2011.com/2009/03/24/planet-x-and-2012/#comment-2938

    Read the comments below the post in the link I've provided, and click on the link in those posts. Come autumn, we'll all be shown the truth, and it hasn't anything to do with our financial markets.

    Prepare, while you still can.

  10. http://www.bis.org/publ/qtrpdf/r_qt0903.htm
    though I don't know the names of caribbean hedge funds (they are not transparent); the are 4th position in US Treasury
    http://www.ustreas.gov/tic/mfh.txt
    I saw some speculations in blogs that they are backpocket of the Fed, pointing to TIC US treasurys auctions. Though for me their role is unclear. One of them could be the Trout hedge fund from Bermuda. As I am from tech and acad trades, I applied to the job there as I recall in the beginning of 2001. Their IT department gear was compatible to Deutsche bank in scale.

  11. Goldbug says:

    Yuri, are you kidding me? You want us to believe in some half-baked conspiracy theory? Let's live in reality, calling people fools for believing in empirical reality seems a little crazy. I'll stick to financial news and buy gold and silver. I'm not going to buy a bunker to prepare for planet X lol Give me a break. It's like the Enlightenment never happened.

  12. Cornholio says:

    ERIC!

    Eric,

    Jim Sinclair is writing about you! You're going mainstream, buddy!

    http://www.jsmineset.com/

  13. KD says:

    Eric,

    You're also on prisonplanet.com today...you're going parabolic, son.

  14. Anonymous says:

    Eric,
    You are officially superfamous now. Being talked about by one of the legends.

    http://jsmineset.com/index.php/2009/03/25/demand-side-of-gold-will-carry-the-day/

    Dear CIGAs,

    1. Has it ever struck anyone that 1.1 billion dollars in today’s world is chump change? When the time comes, demand for gold will smash through a modest one point one billion dollar hole "in the dyke" wall of a quadrillion plus dollar problem.
    2. You are giving the supply side of gold banks too much credit when it is the demand side that will carry the day.
    3. Spamming the question below everywhere might well be in support of gold bank sales, knowingly or inadvertently.
    4. Eric, spam this if your intentions are really supportive of gold.
    5. If you received what is below but do not get what is above from the same source one question is answered.

  15. Anonymous says:

    prison planet???

    Alex jones is a fake...a shill.

    That's one site to avoid.

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