Monday, May 4, 2020 Stamford, CT USA — Among the myriad ways the COVID-19 crisis will reshape the global economy, the pandemic could alter the trajectory of the European corporate banking market. 

With European banks under strain from the far-reaching economic impact of the pandemic, U.S. banks could have an opportunity to solidify their position and win new relationships with large European companies. To do so, however, they will have to prove their commitment to the region by stepping up with their balance sheets to help European companies through the crisis.

“Although there have been reports that some U.S. corporate banks are pulling back from Europe, this crisis is still in its early days,” says Dr. Tobias Miarka, Greenwich Associates Managing Director and author of Will COVID-19 Challenge U.S. Banks' Expansion in Corporate Europe?. "Companies will judge their banks by how much commitment and support they demonstrate over the full course of the economic downturn.”

On Eve of Crisis, U.S. Banks Were Reaching Parity with European Banks
According to the report, only five years ago U.S. banks were viewed by large European companies as clearly inferior in quality to European providers but have since improved their quality significantly and now rank on par with most European providers.

At the start of 2020, U.S. banks were working to convert this hard-won parity in quality into market share. However, it’s an open question whether U.S. banks will be able to maintain that momentum by continuing to lend to European companies during the crisis. This was not the case during the global financial crisis, when U.S. banks—along with virtually every other bank in the world—were forced to scale back international businesses as part of comprehensive balance-sheet restructurings. Things could be different this time around. Coming into the COVID-19 crisis, U.S. banks were extremely well capitalized—especially in comparison to their counterparts in Europe.

Disruptions caused by COVID-19 could be resetting the playing field by creating a new set of advantages for European banks. For example, European banks’ role as facilitators of government relief loans could strengthen connections between lenders and corporate borrowers. Also, companies’ need to minimize overnight cash balances and avoid negative interest charges could encourage deeper cooperation between companies and their primary cash management providers, which are usually European banks. 

“If the economic contraction forces U.S. banks to retrench, European banks—even as they struggle with the financial consequences of the crisis—could have a chance to revitalize relationships with Europe’s biggest companies,” says Dr. Tobias Miarka.