With President Trump and China’s Xi Jinping still squaring off over a comprehensive trade deal after multiple rounds of negotiation, few issues are more important than the opening of the Chinese financial markets to international banks and investors. As both continue to work towards a deal, U.S. banks continue to encroach on China’s global dominance of the banking market. On the 2019 Forbes Global 2000, JPMorgan Chase supplanted China Construction Bank as the world’s second largest company. The Industrial and Commercial Bank of China took the top spot again this year.
Bank of America entered the top-five on the Forbes Global 2000 list, now sitting at #5 due to its strong financials and $272 billion market capitalization now put it just behind Agricultural Bank of China, which ranks #4. Wells Fargo’s slumping shares and Federal Reserve-administered restrictions on asset growth caused the ailing lender to fall from #7 to #10 on this year’s list. Citigroup, on the other hand, was the banking industry’s biggest gainer, rising 360 spots to rank #14. None of China’s other big banks such as Bank of China, #8, China Merchants Bank, #31, Bank of Communications, #39, or Industrial Bank, #55, were big upward movers on this year’s list.
China, the world’s second largest economy, is seen by global investors and executives as a long-term opportunity for banks around the world. Over time, an entrance of foreign capital may help create sophisticated corporate bond markets that ease lending burdens on China’s state-owned banks and give the region’s corporations more flexible capital structures. In October, China signaled a willingness to increasingly accept overseas influence, allowing foreigners to have a 51% majority ownership of securities firms, investment managers and life insurance providers.
Bankers like JPMorgan’s Jamie Dimon have been closely watching the potential opening of the Chinese banking system and capital markets to foreigners closely, and want to organically build businesses in the country, instead of forming partnerships. Prior to the financial crisis, banks like Goldman Sachs, Morgan Stanley and BofA held extensive minority-owned joint ventures with banks like China Construction Bank and ICBC, but most have since been dissolved.
In November, UBS, now inside the Global 2000 at a rank of #95 (from #163), was the first global banking giant to be approved for a majority venture in China. “Growing our China business is key element of our strategy. The further opening up of China’s financial sector represents great opportunities for our wealth management, investment bank and asset management businesses,” said UBS CEO Sergio Ermotti at the time. “Since establishing our onshore presence in 1989, we have been at the forefront of foreign investment in China. This step underlines our long-term commitment to this market and we will continue to pursue opportunities.”
Outside of China, there are mixed prospects for global banking titans.
The Federal Reserve’s decision halt its interest rate hiking program will cost America’s big six lenders billions of potential profits as rising net interest income from their balance sheets either flattens or declines. In Europe, financial prospects remain mixed and the ECB is a long way off from the interest rate hikes that drove a doubling of many U.S. banking stocks after the election of President Trump.
Germany is a trouble spot. Deutsche Bank, the largest lender in Europe, ranks #547 on the Forbes Global 2000, due to its meager $341 million annual profit and $15 billion market value. Brexit continues to roil the United Kingdom’s banks, where HSBC leads the way at a rank of #21, down four spots. Royal Bank of Scotland fell to #185 and two spots behind was Barclays, #187. Those two placed behind PNC Financial, which ranked #146. Japanese banks Mitsubishi UJF, #43, Sumitomo Mitsui Financial Group, #67, and Mizuho Financial #125 all lost ground.
Canada had three banks within the top-100, RBC, #41, Toronto-Dominion Bank, #46, and Bank of Nova Scotia, #87. Brazil had two banks in the top-100, Itau Unibanco, #58, and Banco Bradesco, #68. Spain’s Santander, #30, France’s BNP Paribas, #34, Russia’s Sberbank, #47, Australia’s Commonwealth Bank, #79, and Switzerland’s UBS, #95, also made the top-100 of the 2019 Forbes Global 2000.