A scant seven years ago, two of the three largest banks in the world were American. Today, all of the top 10 are Japanese, and only one U.S. institution, Citibank, even manages to squeak into the top 25.
Are banks becoming another American casualty of global competition? Raising that specter, U.S. bankers are urging that they be given much more freedom to compete, asking Congress to lift restrictions on underwriting corporate and other securities, selling insurance and doing business across state lines. It is an issue that is expected to be at the top of the congressional agenda next year, following recommendations later this year from the Treasury.
"We have deregulated so slowly, we have lost a national asset that we used to have," declared Lewis W. Coleman, vice chairman of Bank of America, once the largest bank in the world but now an also-ran in the global size derby.
Thomas G. Labrecque, president of Chase Manhattan Bank, told Congress recently that "growing international competitive pressures have sparked a wave of regulatory reforms in other industrialized countries" that threaten to leave U.S. banks even further behind.
Moreover, he warned, "let me assure you that these problems are just as real for community banks across the country as they are for money center banks in New York. . . . Just as local car dealers have to compete with Toyota and Volkswagen, U.S. community banks will soon find themselves competing with Sumitomo and Deutsche Bank."
The banks mentioned by Labrecque have grown fast, particularly Sumitomo Bank--the world's second-largest with about $350 billion in assets--in large part because Japan and West Germany have had strong economic growth and large trade surpluses, which have provided financial institutions with plenty of cash to lend abroad. Deutsche Bank is the biggest in West Germany with about $175 billion.
By comparison, Citicorp, the holding company that owns Citibank, has just over $200 billion in assets. Chase Manhattan and Bank of America, No. 2 and No. 3 in the United States, each have just under $100 billion.
Whatever the sizes involved, however, Labrecque appears to be sounding something of a false alarm about competition for smaller banks across the United States.
There is as yet no evidence that foreign banks can outdo American banks in this country in offering retail banking services to ordinary Americans. Even on the rare occasions when they have tried, their record of success has been decidedly mixed, banking experts noted.
Certainly neither Sumitomo nor Deutsche Bank has any plan for a competitive assault on community banks across the United States, two of the banks' top officials said.
"We have been in California since 1927," said Toshio Morikawa, senior managing director of Sumitomo, while attending a recent bankers' conference in San Francisco. "Most of our customers are Asian-Americans, Japanese-, Korean- and Chinese-Americans. We did not buy a bank, we started one from scratch." Sumitomo Bank of California is only the ninth largest in that state with assets of about $3.7 billion.
Hilmar Kopper, chairman of Deutsche Bank's managing directors, indicated that his bank has no intention of launching major new retail banking operations outside Germany, not even in other countries of the European Community when in 1992 banks based in any of the EC nations will be allowed to operate freely in any of them.
"You can do business in France with a few offices. You do not need to be there to do business with French companies," he said.
Swiss Bank Corp. began U.S. operations 50 years ago in New York and has $25 billion worth of assets here. Nevertheless, as Franz Galliker, its chairman, put it, "In Switzerland, our business is retail. Outside of Switzerland, it is wholesale."
Indeed, it is in wholesale banking--lending to businesses of all types--that international banking competition is fierce, not retail banking. Between 1980 and 1988, the foreign share of business lending in the United States doubled, to 28%.
As a result of all the competition, no one is making much money in wholesale banking, particularly since banks everywhere are butting heads not just with each other but also with finance companies, securities houses and other firms offering access to capital markets.
In a sense, banks are even competing with their own best corporate customers, who instead of taking out a bank loan often write a promissory note called commercial paper, which is sold directly to investors such as money market funds.
A. W. Clausen, who retired last month as chairman of Bank of America, offered one American perspective on wholesale lending both here and abroad when he said of Coleman, who directs the bank's global banking group, "He has our toughest job. The spreads are all on the retail side."
Clausen was referring to the spread between what it costs to raise funds to lend and what a bank gets when it lends them. The spread, less a bank's operating costs, represents its profit.