Record earnings, all-time-high assets under management, expanding margins and new revenue streams for the biggest banks in the U.S raise expectations of their European peers. 

Imagine being the speaker after Bill Gates at Davos. European banks – due to announce results starting next week – probably know the feeling well. A slew of numbers from American banks, all of which have exceeded analysts’ expectations and some of which have been fuelled by a pivot towards wealth and asset management, have heightened pressure on lenders across the Atlantic to hold their own. 

Watch Out Julius Baer

Of particular interest is the broad base upon which American banks have grown revenue streams in 2019 – away from traditional strongholds such as equities trading or mergers and acquisitions advisory. At Goldman Sachs, for example, the spotlight was on its newly carved out asset and wealth management business – assets under management had grown by an impressive 25 percent over the last year to $561 billion.

The sum may be paltry in the context of the American bank’s other businesses but put it in the same category as European players such as Julius Baer which had less than $500 billion in assets at the end of 2019.   

Thanksgiving and Trade War Notwithstanding 

The outperformance comes despite the considerable overhang of trade tensions with China which dogged U.S lenders and their clients for most of the year as well as the uncertainty of a presidential impeachment that stalled domestic politics.

«Typically in the fourth quarter you see a slowdown after Thanksgiving, and we didn’t see that,» said Morgan Stanley Chief Financial Officer Jonathan Pruzan as he unveiled strong results backed by 125 percent growth in income from the bank’s fixed-income business. The blowout performance by the world’s largest stock-trading firm followed on the heels of similar growth at both J.P. Morgan and Goldman Sachs. Indeed, the largest U.S bank by assets, J.P. Morgan had its most profitable year since before the financial crisis. 

Next Stop China 

Adding to these woes is the deep war chest each of the three large U.S. banks – J.P. Morgan, Goldman Sachs, and Citi – bring to their ambitions for mainland China. Taking their cue from cooling trade tensions, each of the banks has reiterated its commitment to investing in Asia’s largest economy, adding to the pressure European banks are already facing in the region.

Some, like UBS which has licensed operations in both Beijing and Shanghai, have had their hopes pinned on a strong North Asian footprint for a few years now but have found it a difficult market to crack. Their American peers have the advantage of well-established investment banking franchises that have greater brand recognition amongst China’s newly minted millionaires. 

Earn Their Keep

In a continuing low rate environment, European banks will have to depend on fees rather than earnings from interest for growth. Whether or not they have the wherewithal to earn their keep will become clearer when industry-leader UBS flags off fourth-quarter results season for European banks on January 21. Julius Baer and Credit Suisse follow suit in February.

The success of American banks in areas such as asset management, bond trading, and wealth management – thus far, businesses that have been dominated by European banks outside of the domestic U.S market – have sparked worries of eroding market share.