Big bucks, big bonuses, big margins, big deals, big egos… big is good on Wall Street.

Or so it used to be. Weighed down by onerous capital requirements and slowing deal activity, the largest US banks are feeling the heat and will need to shed some extra pounds if they are going to regain financial fitness.

The first quarter of 2016 was a difficult one for big American banks as they fell out of favour with investors as they grappled with a slowdown in deal-making, plunging oil prices and doubts as to the Fed’s ability to tighten monetary policy against a backdrop of global uncertainty.

While some of these more macroeconomic menaces tend to be cyclical in nature — the oil price will recover at some stage and US interest rates will rise — what will worry the CEOs of these banking titans more than anything is a serious slump on Wall Street that threatens not only their bottom lines but their very business models.

The fear is that a slowdown in deal-making and trading could be more long-term than cyclical. US M&A activity is dramatically down this year while global IPOs plunged in the first quarter to levels not seen since 2009. Meanwhile, as big Wall Street investment banks lose deals to boutiques and small players, the rise of non-bank trading platforms threaten their dominance in the derivatives space.

And when lower bonuses and higher layoffs are thrown into the mix, there are fears that investment banks could struggle to maintain their competitive edge.

Large US banks also have to contend with a tougher regulatory regime. Under a newly-issued rule designed to strengthen liquidity, they are required to prove they have enough cash for up to a year.

This follows US regulators revealing five big banks — JPMorgan, Wells Fargo, Bank of America,  State Street Corp and Bank of New York Mellon — failed their “living wills” or plans for bankruptcies that do not rely on taxpayer money.

Given the challenges in the capital markets and regulatory arenas, it is perhaps not surprising that none of the so-called big six — JPMorgan, Bank of America, Citigroup, Goldman Sachs, Morgan Stanley and Wells Fargo — make it into the top ten of the CoreData Research Healthy Banking Index (HBI).

The index, which uses a range of indicators to measure the health and financial performance of the largest publicly-traded banks in the US, is organized into four sub-indices: solvency, profitability, market value & investor sentiment and capital requirements.

A key finding of the HBI is that big is not necessarily beautiful.

The CoreData study reveals an extremely weak correlation between the size of a bank in terms of total assets and its overall index ranking.

Larger banks are just as likely to be insolvent, unprofitable, overvalued and undercapitalized as smaller banks.

American Express tops the HBI, with Discover Financial Services, PNC Financial Services Group, U.S. Bancorp and Capital One Financial completing the top five. (American Express and Discover are categorized as bank holding companies in the Fed’s CCAR and therefore included in the CoreData index).

American Express and Discover Financial Services both perform very well in the profitability sub-index. Meanwhile, HSBC North America Holdings is the worst-performing bank overall. Santander Holdings USA, Goldman Sachs, Ally Financial and Morgan Stanley complete the bottom five.

The presence of HSBC North America Holdings and Santander Holdings USA in the bottom five of the HBI underscores another key theme to emerge from the CoreData study: the poor performance of foreign banks with a subsidiary in the US.

Indeed of the six foreign banks, five (HSBC North America Holdings, Santander Holdings USA, Deutsche Bank Trust Corp, BMO Financial Corp and MUFG Americas Holdings Corporation) rank in the bottom ten overall. And the highest scoring international bank — BBVA Compass Bancshares — just makes the top 20 overall. International banks score particularly poorly in the profitability and market value stakes.

The poor performance of European banks in the HBI highlights the fact that US banks, despite the challenges facing the largest Wall Street players, are in a relatively better state of health than their European peers.

Large US banks may have had a difficult Q1, but the sector as a whole has staged something of a recovery in recent times as the robust capital requirements put in place in the wake of the financial crisis, coupled with an upturn in the country’s economy, have served to strengthen the industry.

Only recently the word on Wall Street was that US lenders had weathered the macroeconomic storm that erupted at the start of the year well and were on a much firmer footing. This was backed by the likes of JPMorgan, Bank of America and Citigroup announcing dividend hikes.

This contrasts to the situation in Europe where banks have cut dividends as they implement turnaround plans and cost-cutting measures. All of which has been played out against a background of stuttering European economic growth.

The recent turmoil engulfing the European banking sector even prompted some observers to draw parallels to the Lehman crisis. Despite this alarmist comparison, which came after a sell-off in bank stocks, somewhat overstated the danger, banks in Europe are generally seen to be faring less well than those across the pond.

Nevertheless, large US banks with investment banking arms are clearly being impacted by Wall Street’s woes. And going forward these big banking beasts must think carefully about their structure and size and how they allocate resources. The future banking landscape will likely see smaller, simpler and nimbler players thrive under looser regulatory constraints.

Some larger banks may need to shed a little extra baggage – perhaps from their investment banking and trading arms, which in the current climate may happen naturally.

By trimming some fat, lowering their cholesterol levels and generally becoming leaner and healthier US big banks will better positioned to begin to deal with many of the threats to their businesses, including alternate business models from the many Fintech challengers entering the market.

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