The Rise and Dramatic Fall of European Investment Banks in the US

The modern investment banking industry is one of the most important aspects of the capitalist economy. It is also seen as one of the most sought after career choices for people in the finance industry given the lucrative remuneration and perks that the job offers. Ever wondered how this industry came into existence? How did it help to channel liquidity in the economy and boosted wealth creation? Let’s peep into the history of the glorious investment banking industry.

In its nascent phase, the investment banking industry was limited to investment financiers. The investment financiers were extremely wealthy individuals who had the surplus wealth to spare. They provided funds to governments and the Royals as loans which were backed by taxes collected from the citizens. The modern investment banking started much later and is a part of modern history.
The United States was the founding nation of this industry during the times of the Civil War where Government bonds were circulated to investors as a financial instrument of investments. It followed by issuing war bonds to the public for raising money. After the war was over, the investment banking industry was formally established to fund large scale projects related to railways, manufacturing, etc. Investment bankers were primarily mediators who matched the parties seeking a fund with parties looking to invest in profitable avenues.

European Investment Banks In The US Territory

There was a time when the European investment banks went on an acquisition spree in the United States to tap on one of the most promising trading and banking markets in the whole world. The year 1978 saw the first move from European lenders in the US market when Credit Suisse made an exemplary move into First Boston, a top tier advisory firm in the US. By 1998, Credit Suisse acquired the third position in the industry in terms of investment banking fees, beating both Morgan Stanley and Goldman Sachs.
The pre-global financial crisis market saw the proliferation of European investment banks in the US market. Some of the most prominent acquisitions which were the highlights of the growing European expansion were as follows; Deutsch Bank’s acquisition of Banker’s Trust, in a record-breaking $10 billion deal (1998), HSBC’s takeover of Consumer Finance Business Household (2003), Credit Suisse’s acquisition of DLJ (2000).

All these deals amounted to billions being pumped into the US market from European lenders. European investment banks became prominent players in fixed income trading and leveraged the finance segment by hiring top-notch talent in Wall Street. The period between the years 2002-2007 saw a rise in the market share of European investment banks in the US territory.
The reign of the European Investment Banks in the US territory began to crumble in the last decade around the global financial crisis. By the year 2007, the Deutsch Bank was ranked 9th in terms of Investment banking fee that was approximately equal to $1.6 billion, far less than its competitor JP Morgan’s $4.4 billion. Retail operations of the European Investment banks also struggled; HSBC’s household business was shut down just after the few years of its purchase.

The period between the years 2012-2019 marked a steep decline in the proliferation and profitability of the European Investment Banks. In more recent developments it was found that HSBC was shutting down 30% of its US branches after admitting the losses from US operations. In addition to this, another prominent European player the Deutsch bank closed its global equities business which resulted in thousands of job losses. One of the most prominent reasons for this steep decline has been the strict regulatory challenges faced by the European Banks after the global financial crisis that shook the world.

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