Unlock Editor’s Digest Lock for Free
FT editor Roula Khalaf will select your favorite stories in this weekly newsletter.
When Donald Trump won the US election in November, many bankers and money managers predicted that his presidency would make a jackpot for the US finances. Now he could be the Achilles heels on Wall Street.
For the past 15 years, large US banks and money managers have been marching. Banks recovered more quickly from the 2008 financial crisis than their European rivals, and have since increased market share. Goldman Sachs, JPMorgan, Morgan Stanley and Bank of America all won at least 5% of global investment banking fees last year. Barclays, the top European bank, pulled in just 3.3%.
Meanwhile, US money managers collect assets and narrow down their prices at a record-breaking pace. In some quarters, BlackRock has recorded more influx than the combined European asset management industry. Americans also dominate the custody market, holding four of the top five slots.
They all benefited from the vibrant US economy, deep capital markets, and the fundamental appeal of bonds to American stocks and international buyers. Trump’s recent Light Touch regulators heading top securities and bank watchdogs looked like industry cake icing.
But when America’s finances seemed unstoppable, Trump pulled out the rug. His aggressive “liberation day” tariffs followed by a 90-day partial suspension that munched the market. Other belligerent policies, including the threat of fiscal weaponization by his advisors, force foreign companies and governments to question their dependence on US financial institutions and their use of the Treasury as an asset without standard risk.
Foreign companies are rethinking US relations, looking for local service providers, and are creating contingency plans to issue debts in home currency rather than the current stable dollar.
The government has abandoned its laissez-faire attitude towards US domination in technology and banking. “There has always been this fear among European regulators. Are we relying too much on American companies? It has always been countered by the fact that “the US is on our side.” Both of these factors are changing,” says a senior UK regulatory lawyer.
With no European alternatives like Google, Microsoft, and more, it will be difficult to reduce US reliance on technology, but financial services are a different story. European banks are not as big or globally as the Wall Street beasts, but their best employees are experts in closure of fundraising and mergers.
Even before Trump burned global markets, Swiss lawmakers raised concerns about the wisdom of using US banks as SFR46bn custodians in the Social Security Fund. State Street was finally able to hold the contract after the Swiss government warned that changing providers would significantly increase costs early in the contract. However, European states and businesses may be approaching their home the next time they are obliged to award.
“We’ve already lost some bond transactions. They simply say they want to do this with local banks rather than US banks,” said Jamie Dimon, CEO of JPMorgan Chase, last week.
Bankers and regulators said they would be surprised to see rapid regulatory changes aimed at boosting American financial companies. Designing new rules takes time, and formal changes could lead to US retaliation.
However, there is no invisible way to put American institutions at odds. Supervisors can argue that local front posts of US banks maintain a higher capital ratio and hold different types of liquid assets to compensate for Trump-related risks. They also managed to turn a more yellowish eye on American innovation.
“Slow-walking through US applications (changes to new asset management products or bank risk models) is something I can see happening,” one former regulator told me. “Throw sand into the gear.”
Despite the new obstacles facing rivals, European financiers are far from overjoyed. Investment bankers are struggling with a global shortage of mergers and acquisitions, and believe tariff uncertainty will further curb deal-making. Asset managers are worried that the choppy market will bring customers back to cash, and both groups are worried that there will be a greater chance of a global recession.
As a senior European banker texted me, “There is no winner in this mess.”
brooke.masters@ft.com
Follow Brooke Masters on Mast and more x.
