LIVE MARKETS-Dominance Reshuffle: US banks face challengers with foreign accents

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DOMINANCE RESHUFFLE: US BANKS FACE CHALLENGERS WITH FOREIGN ACCENTS

In a potential shift to the decades-long dominance of U.S. financial institutions, non-U.S. banks could gain significant market share in a fragmenting global economy, according to Morgan Stanley (MS) analysts.

"We are now in a period of heightened uncertainty...which could fragment the existing global economic system that has prevailed for decades and disrupt the long-standing competitive order in wholesale banking," the Wall-Street brokerage said.

There has been growing uncertainty fueled by geo-political tensions, shifting trade relationships, increasing regulatory divergence — factors that could weaken the global economic system.

The MS note outlines three scenarios for wholesale banking - "Multipolar World", "Stronger American Primacy" and "Global Contraction".

European and Asian banks could capture meaningful market share, even though U.S. institutions would still retain their leading position given their dominant starting point across all scenarios, Morgan Stanley added.

Morgan Stanley identifies "Multipolar World" as the most disruptive scenario. In this scenario, up to 5% of Core Corporate and Investment Banking (CIB) revenues - approximately $20-25 billion - could shift away from U.S. markets as Europe and Asia drive developments in their regional economies.

European banks like Deutsche Bank DBKGn.DE, BNP Paribas BNPP.PA, and Societe Generale SOGN.PA could benefit significantly from deeper European capital markets.

Asian institutions like HSBC 0005.HK, Standard Chartered 2888.HK, and major Chinese banks CITIC Bank 601998.SS and Industrial Bank 601166.SS are well-positioned for regional growth.

However, the report cautions that meaningful change requires substantial policy support, particularly in Europe where initiatives like the Savings and Investment Union could unlock the region's 33 trillion euro household savings pool.

For non-U.S. banks to capitalize on this opportunity, the brokerage identifies several critical gaps they must address: under-allocation of resources to wholesale banking, under-investment in technology infrastructure and challenges competing in the US market.

(Rashika Singh)

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