Britain fades as China tops banking league table
London, with British banks at its heart, remains a global financial powerhouse, if indeed not the most important finance hub on the planet.
But The City’s position seems threatened as the UK’s global banks are losing ground to emerging rivals.
Three of the world’s top five banks are Chinese, with the other two hailing from the United States.
HSBC, Britain’s biggest bank, has fallen from fifth to ninth in the survey by The Banker, which rates institutions by size and tier-one capital.
The world’s leading bank, according to the report, is the Industrial and Commercial Bank of China (ICBC), which boasts more staff than the whole UK banking sector.
It’s a marked turnaround from before the global financial crisis when HSBC was ranked number one and Royal Bank of Scotland (RBS) was third.
Brian Caplen, editor of The Banker, said: “At one time several UK banks were among a handful of truly global players. But since the financial crisis they have reduced their scope and are focusing on fewer areas in a bid to restore profitability. We may have seen the end of the UK-based global bank.”
Barclays slid from 12th to 13th, while RBS fell again to be ranked 18th. Clearly efforts to improve capital ratios have made British banks more lean is impacting on the standings. HSBC has reduced its global workforce by eight per cent, while other leading UK banks have also cut staff just as rivals in other markets are increasing headcount.
However, it is also obvious that China’s financial sector is growing at a startling rate. For instance, while UK banks collectively made more profits than Chinese banks before the crisis in 2008, this situation has flipped around significantly.
The situation could change dramatically if HSBC or Standard Chartered decide to move their headquarters outside the UK. Both have suggested they might redomicile for reasons such as the bank levy and plans for banks to be forced to separate their UK retail and investment arms.
China powers ahead
One of the most interesting things from the report is the profitability of Chinese banks: the top four of its banks have the highest profits in the world.
Moreover, Chinese banks on the whole make 1.75 times the amount US banks make and almost ten times the profits of UK banks.
China’s banking giants made $59.1 billion last year, boasting a return on capital of 23.8 per cent.
The British banking sector, in contrast, made profits of $32.5 billion, a third of 2007 levels. It’s not all doom and gloom though for Britain’s banks - this was up 49 per cent on the year before.
US treads water, European banks falter
The top-ranked US banks were JPMorgan in third and Bank of America in fifth. Citigroup and Wells Fargo also made the top ten.
These positions are largely unchanged from the last survey but the makeup of the top ten, which is rounded out by Japan’s Mitsubishi, clearly shows a tilting in the balance of banking power eastwards.
Problems in the eurozone, as evidenced by the Greece debt crisis, are impacting European banks, which notched up negative returns of 26.1 per cent.
City still in good shape?
First things first - bloated balance sheets don't necessarily make for a healthy bank. Just look at the financial crisis - UK banks are probably much healthier, albeit smaller, now than they were before the crash. The recent rout in Chinese equities also shows up some of the problems facing the sector in the world's second largest economy.
Meanwhile the City remains in pretty good shape as one of the world’s top financial hubs, with or without Britain’s banks as the bulwark. London, a survey last year by PwC showed, has overtaken New York as the preeminent financial hub.
Meanwhile, the Global Financial Centres Index puts the pair pretty well level-pegging in the order of importance, with Singapore and Hong Kong close behind and rising.
But how long can this last? With China’s banks emerging as the world’s preeminent financial institutions, the shift in the balance of power is already underway.