Stormy weather

By C.R.

WITH the exceptions of pop music and pornography, no industry has embraced globalisation as keenly as banks. And among financial centres, few locations have gone as wild for internationalisation as London. There, over the past few decades, institutions long focused on domestic markets, like Barclays and Royal Bank of Scotland (RBS), invested heavily in investment banking and expanded their operations abroad.

But Britain's big four international banks—which include HSBC and Standard Chartered alongside Barclays and RBS—are now in trouble again. Hit badly by the financial crisis and the regulatory backlash that followed, they nonetheless enjoyed renewed growth in profits as the global economy improved. Good times proved short-lived, however. Last week, Barclays announced that its full-year profits for 2014 declined 17%. RBS posted a loss of £3.5 billion ($5.4 billion). This week's news has got worse. On March 3rd Barclays revealed that its profits slid 21%. On March 4th Standard Chartered announced a 30% fall.

The banks' sprawling investment bank operations in foreign markets have hit their profitability. Barclays's investment arm, for instance, managed only a 2.7% return on equity in 2014, compared with the 11.9% return made in personal and business banking. As a result, they are now hacking back their operations. RBS may cut as many as 14,000 jobs in investment banking. Cuts at other banks are expected to follow.

Britain's banking bosses may take some small comfort in the knowledge they are not alone. The international banking model is in trouble elsewhere too. In recent weeks Jamie Dimon, the boss of JPMorgan Chase, has confronted questions about whether his bank should be broken up. Citigroup is still in post-crisis intensive care. In Europe, Deutsche Bank is rethinking its strategy; most analysts expect it to shrink its investment banking operations further.

Parochial lenders long overshadowed by the likes of Barclays and HSBC now look comparatively healthy. Last week, Lloyd's, a purely domestic affair, revealed bumper profits and announced that it will pay its first dividend since the financial crisis. And in America the most highly rated banks—based on their share price relative to their book value—are a host of mid-sized domestically-focused firms, joined by Wells Fargo, a huge but all-American outfit.

Not all banks around the world are packing their bags and heading home. Japanese banks are on their first cross-border lending binge since the 1980s. China’s banks are steadily expanding overseas. Whether they can make global banking pay where British banks could not remains to be seen.