Europe's banks stage U.S. retreat

EU banks have pulled out one third of their assets in U.S. banks in the past five years.

Story highlights

  • Eurozone banks have retreated dramatically from the US over the five years
  • Since the financial crisis began EU banks cut their U.S. assets by more than a third

Eurozone banks have retreated dramatically from the US over the five years since the financial crisis began, cutting their assets in the country by more than a third, according to a Financial Times analysis of Federal Reserve data.

Bank failures, asset writedowns and the sale of loans and businesses have sent US assets of eurozone banks tumbling by $540bn from their $1.51tn peak in September 2007.

Eurozone banks have also come under pressure from regulators to boost capital ratios, with many choosing to shrink their US business because dollar funding has been harder to come by.

US assets held by eurozone banks stood at $973bn as of March this year, according to the most recent Fed data, the lowest amount since 2005.

"It's very pronounced against five years ago," said Doug Landy, partner and head of the US financial services regulatory practice at law firm Allen & Overy. "It's more like a return to what the [European] banks looked like 10 or 20 years ago, when their balance sheets were more modest and much more plain vanilla."

The deleveraging process at eurozone banks is reshaping the US banking landscape. Lawyers, bankers and analysts say that many of the spoils of eurozone turmoil have gone to US banks, their Canadian competitors or specialised private equity groups and hedge funds, with Chinese operators also ramping up US operations.

For example, Wells Fargo and JPMorgan Chase, two of the biggest US banks, last year bought a portion of a $9.5bn portfolio of commercial real estate loans sold by Anglo Irish, the nationalised Irish bank. Capital One, the US bank, bought the US online banking business of ING, the Dutch lender.

European banks have reduced their loan exposure in the US as contagion fears hit investment appetite

France and Germany, led by BNP Paribas and Deutsche Bank, still have some of the biggest foreign operations in the US. But French financial groups including BNP, Crédit Agricole and Société Générale have announced plans to shrink their balance sheets.

US assets owned by German banks have fallen from their $427bn peak in 2007, to $267bn as of March. Assets held in the US by French bank-owned offices have fallen from $420bn in December 2007 to $373bn, according to the latest Fed data.

The pullback by banks from smaller eurozone countries is even more stark, as their banking systems come under severe pressure. US assets owned by Irish banks plunged from $130bn in September 2008 to $3.6bn as of March.

Wells has been one of the more active US banks in buying assets from European competitors. The company recently snapped up a $6bn loan portfolio from WestLB, the troubled German Landesbank, as well as the North American energy business of France's BNP.

"There's a lot of activity that's going on," said Timothy Sloan, chief financial officer of the San Francisco-based bank. "Some institution has got to step up and take on that business. It can't just be us, so I think it is going to benefit ourselves, the larger regional banks and the Canadian banks."