U.S. Banking Boom Attracts British Lenders

By Lawrence White and Sinead Cruise

LONDON (Reuters) – Britain's major global banks, including HSBC, Barclays, and Standard Chartered, are eager to leverage the U.S. commercial banking boom as corporate America turns to them for international expansion expertise.

Revenue Surge

A significant opportunity lies in U.S. commercial banking revenues, which soared to $429 billion in 2023 from $310 billion in 2019, fueled by a robust U.S. economy and improved margins from rising interest rates, as revealed by data from consulting firm BCG.

European banks collectively command less than 7% of this revenue pool but are optimistic about future growth, regardless of the outcome of the upcoming election on Nov. 5, driven by global trade dynamics.

Stuart Tait, head of commercial banking at HSBC UK, mentioned that the East-West trade is crucial for HSBC, especially given its strong Asian presence; however, the main corridor for business is transatlantic.

Growth in Transactions

From the year ending June 30, payments from HSBC UK's business clients to the U.S. climbed 15%, with reciprocal transactions increasing by 5%. Rising M&A activity across the Atlantic fuels interest, with U.S. companies increasingly eyeing UK tech and R&D sectors, as UK asset valuations appear attractive.

Data shows that U.S. acquisitions of UK businesses through HSBC rose by 71% year-on-year in the first half of 2024, while UK clients seeking to invest in the U.S. rose by 45%.

Trade Corridors Focus
Amit Sukhija from BCG stresses that banks like HSBC can concentrate on trade corridors with the U.S. to better serve commercial banking clients, aiming for market share.

This U.S. expansion follows British banks scaling back operations in Europe, struggling to attract domestic corporate clients in markets like France and Germany. Challenges in HSBC and Standard Chartered’s core Asian segment, including losses in China’s real estate market, have also been notable.

A Positive Shift

The U.S. business boom signals a shift towards a more positive chapter for British banks, contrasting with their tumultuous recent history, including HSBC's previous missteps in the subprime mortgage sector before the 2008 financial crisis.

HSBC and Standard Chartered have paid over $3 billion in fines for anti-money laundering failures since 2012, while Barclays incurred a $361 million penalty in 2022 for mis-selling securities in the U.S.

These issues prompted banks to focus on corporate services over retail banking in the U.S.

Political Considerations

Barclays CEO C.S. Venkatakrishnan declined to comment on whether presidential candidates Donald Trump or Kamala Harris would positively affect their business outlook. He noted that policy outcomes will depend on many factors, including congressional dynamics and upcoming confirmations, with clarity expected only in 2024's first quarter.

In 2023, Barclays derived 31% of its revenue from the U.S., up from 25% in 2022, largely attributed to strong performance in its U.S.-based trading and growing credit card divisions. Third-quarter results showed an 8.4% return on average allocated tangible equity in its U.S. consumer banking division, up from 5.7% a year prior.

Barclays is ramping up recruitment of sector experts to attract business from competitors and has doubled U.S. dollar deposits at its New York branch in 2023, reflecting a push to onboard more corporate customers.

Meanwhile, Standard Chartered is leveraging its historical ties in Asia, Africa, and the Middle East to assist major U.S. corporations in those regions. CFO Diego De Giorgi revealed ambitions to increase the bank's income from U.S. financial firms to 60% by 2024, up from 49% in 2023.

"We will continue to invest in strong relationships in Europe and the United States," De Giorgi stated.