US regional banks benefit in absentia
Europeans setting out to discover the States head for New York, Boston or San Francisco. But latter- day De Tocquevilles should visit cities such as Dallas, Cleveland or Buffalo if their curiosity extends to finding out what is deemed best in US banking.
The shares of financial institutions based in these regional centres trade at earnings multiples that should humble universal and investment banks like JPMorgan and Goldman Sachs.
However, Wall Streeters' naturally low levels of humility hormone will be further suppressed by the top 5 banks winning 33.5 per cent of the fee pool in the year to date, compared with the feeble 17.2 per cent commanded by their top 5 European rivals.
This reflects the shrinkage of the investment banking divisions of Old World banks such as Barclays and UBS in an era of higher capital buffers. Another factor has been a surge in US M&A at a time of low interest rates and healthy economic growth. Takeovers by US corporations have totalled a record $1.2tn in the year to date.
The only time European deals approached that figure was in 2007. US investment banks also benefit from higher local fees. They are about 7 per cent for small floats compared with 2 per cent in the UK. US banks analyst Guy Moszkowski says: "The view of senior corporate management is that advice from investment bankers is too critical to haggle over."
He jokes that in Europe "it is seen as a privilege to lose money".
Such disparities explain why the universal banking model remains tenable for US exemplars, but not for Europeans. Even in the US it is impaired by opaque earnings and accretions of conduct fines. Investors prefer fastgrowing regional banking groups such as Utah- headquartered Zions, which trades at a 50 per cent earnings premium to Goldman Sachs. The reason? Such institutions are generally absent from the league tables investment bankers obsess over.
JRR Tolkien depicted Shire folk as cuddly little hobbits with furry feet. But the boss of Irish drugs group Shire, Flemming Ornskov, must look more like a dark rider to Baxalta, the US rival he aspires to buy for $30bn.
As for long fund elves, some are likely to quit the battlefield, to be replaced by the orcs of event-driven hedge fund management.
These warlike types are always attracted by a scrap, which is what Shire's hostile approach has kicked off. Mr Ornskov, a super-ambitious Dane, believes buying Baxalta will make Shire a world beater in rare disease drugs, while reducing its dependence on mature hyperactivity treatments.
Investors are mulling it over. Shire shares have dropped 6 per cent while Baxalta's have jumped 10 per cent. Will Shire go higher than its $45 per share opening shot? Perhaps only if the US haemophilia specialist lets Mr Ornskov peek at its books.
Most long funds hold Baxalta shares because they owned stock in a Baxter, a medical company that demerged drugs division Baxalta a month ago.
Those rattled by bid uncertainty could lock in a gain by selling their Baxalta shares to hedgies with stronger nerves.
Baxter could be tempted to follow suit. The US company still holds 19 per cent of Baxalta. US tax authorities would hit the erstwhile parent with a multibillion dollar tax claim if they decided a demerger followed by a takeover was an avoidance ruse. Selling to the hedgie would be one way for Baxter to reduce that risk.
Spoof rock band Spinal Tap accidentally ordered a Stonehenge stage prop that was 18 inches rather than 18 feet high. Muddling metrics also result in inaccurate risk pricing. Shares in Coca-Cola HBC have bounced around this year partly in response to the possibility of Grexit.
The pop bottler is the biggest company on the Athens bourse and a FTSE 100 member.
However, little of its business is in its country of origin. Here it is doing decently, but it was emerging market strength that prompted an 8.5 per cent share price rise.
The stock of travel group Tui, which has Greek linkage too, was up about the same amount. Tui said a slew of cancellations of Greek holidays had been shortlived. The real issue was June's Tunisian beach massacre. The group rightly stressed that the €35m-€40m overhead was negligible compared with human costs.
Shares rose in response to a guarantee that group operating profits would increase 12.5-15 per cent.
If the market had previously mispriced the Greek risks of both businesses it was the result of muddling political metrics, where Grexit matters hugely, with financial ones, where it matters less. As for Stonehenge, Lombard once made the mistake of telling a visiting Greek he really ought to see the Neolithic site. "The national treasures I'm keenest to see here are the Parthenon friezes," he said, acidly. These, controversially, are in the British Museum.