By Arno Schuetze, Pamela Barbaglia and Maya Nikolaeva
FRANKFURT/LONDON/PARIS (Reuters) – U.S. investment banks are shrinking lending activity in Europe as the pandemic forces them to focus on home, allowing BNP Paribas and other European lenders to fill the gaps and grab market share, sources familiar with the matter told Reuters.
Facing unprecedented demand for loans, and under pressure to support their local economy, the likes of Bank of America
Goldman Sachs
With U.S. banks focusing on their home turf, French lender BNP Paribas
Bank of America, Goldman Sachs, JPMorgan, Morgan Stanley and BNP Paribas all declined to comment.
The U.S. banks remain active on selective deals, however, with Goldman Sachs and Citigroup underwriting a 3.5 billion euro credit facility for Fiat Chrysler
They are also deploying different financing tools – such as issuing bonds as well as providing bridge capital or bilateral loans – to spread their bets in Europe.
Sources at the banks say that their European rivals can afford to be more aggressive in their capital allocation strategy as they can access ultra cheap financing from the European Central Bank.
The retreat of Wall Street’s giants nonetheless follows a lending bonanza of several years, with U.S. lenders consistently dominating European investment banking league tables since the financial crisis in 2008, Refinitiv data shows.
“U.S. banks are right now more concerned with their domestic commercial and retail banking activities, so they are taking a more careful approach to Europe,” said Societe Generale Germany country head Guido Zoeller.
Bank of America, for example, turned down requests by British events organiser Informa
BNP Paribas, HSBC and Santander decided instead to take on the job and underwrite the facility while Goldman Sachs and Morgan Stanley agreed to syndicate the debt.
Bank of America subsequently failed to land a key role in handling Informa’s share sale on Apr. 16 which raised 1 billion pounds and was led by joint global coordinators Goldman Sachs and Morgan Stanley, the source said.
Informa did not immediately respond to a request for comment.
A source close to Bank of America said the bank had committed over $9 billion to European clients for liquidity back-up facilities since March 1.
FRENCH OFFENSIVE
BNP Paribas, with CEO Jean-Laurent Bonnaf at the helm, is leading both Refinitiv and Dealogic’s league tables for syndicated loan bookrunners in Europe, with Dealogic data showing it has underwritten $32 billion worth of loans so far this year.
Despite disruption in the oil market, BNP Paribas solely underwrote a $10 billion credit facility for Britain’s oil major BP
French lenders Societe Generale
While facing pressure to provide much-needed financing to domestic businesses, French banks have the backing of the country’s political establishment in efforts to expand overseas.
Having high levels of liquidity means French banks are likely to be less affected from the fallout of the coronavirus pandemic than other European lenders, one of the sources said.
BNP is widely seen as having emerged a relative winner from the financial crisis by keeping a tight rein on costs and risk. French banks say they have built up higher capital ratios and liquidity levels than during the last crisis.
“The French banking system is seen as the most active and the most solid,” said a Paris-based banking source.
EXCEPTIONAL DEMAND
American banks’ international focus had to give way as the fallout from the coronavirus pandemic has triggered exceptional demand for liquidity from both U.S. and European clients.
The eight banks topping this year’s Refinitiv league table for syndicated loans are all European, while Bank of America – which was number one last year – has slipped to 10th position, providing around $6 billion of loan commitments.
JPMorgan is the highest-ranked American bank, in ninth place, down from seventh last year.
Graphic – European lenders fill gaps left by U.S. banks: https://fingfx.thomsonreuters.com/gfx/editorcharts/ygdvzzmgvwa/eikon.png
For an interactive version of this graphic, click here https://tmsnrt.rs/2XZv6NO
Banks have seen cash-strapped clients around the world draw down more than $150 billion of revolving credit facilities in the first quarter of the year as business activity came to a halt in many countries.
The rush to deploy lifelines has prompted lenders to set aside billions of dollars in provisions to cushion potential losses, while missing financial targets and stomaching sharp declines in profit.
The bleak outlook, combined with a series of government relief packages for struggling businesses in the United States and Europe, has increased pressure on lenders to prioritize domestic clients, using state guarantees to rescue companies in financial distress.
“In this crisis most banks need to align their interests with their own governments’ and come forward to support state-backed schemes,” said a London-based banker.
“That’s where nationalism comes from. It leaves banks with tough choices to make as there is huge demand for liquidity across borders.”
(Reporting by Arno Schuetze in Frankfurt, Pamela Barbaglia, Abhinav Ramnarayan in London and Maya Nikolaeva in Paris; Additional reporting by Karin Strohecker; Editing by Pravin Char)
