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Top 1000 World BanksSeptember 1 2021

Morgan Stanley leads as US banks feel profit squeeze

Morgan Stanley leads the field among large US banks, but on its heels are two more traditional lenders.
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Cushioning operations from the Covid-19 crisis proved tough even for some of the largest banks in the US. For most, profit margins shrunk year-on-year, while pre-tax profits were lower than previously reported for six of the country’s top 10 banks.

Wells Fargo showed the largest drop, closing 2020 with a pre-tax profit that was less than 3% what it secured a year earlier. Based on overall performance, the San Francisco, California-based lender is last among the group of 10.

At the other end of the table is Morgan Stanley, which did particularly well in terms of growth metrics. These look at annual percentage growth in assets, loans, deposits and operating income. The Wall Street bank set itself comfortably ahead of all its large US peers.

Interestingly, out of this group, Morgan Stanley showed the largest improvement in its gross loan portfolio — though in absolute terms, the size of its loan portfolio is only about a quarter of that of JPMorgan, Bank of America and Wells Fargo. Similarly, Morgan Stanley showed the biggest growth in deposits too, though again from a low basis compared with its peers.

While generally the traditional banking model based on taking deposits and making loans has been under pressure because of expectations that its contribution to banks’ total earnings would be lower, there are exceptions — even among banks for which these activities represent a larger part of the business.

PNC Financial, for example, focuses on retail and small and mid-sized corporate clients and, based on The Banker’s analysis, tops the profitability ranking. This metric takes into consideration return on assets, returns on equity, profit margin and asset utilisation ratios, as well as their annual change. Pittsburgh, Pennsylvania-based PNC Financial also leads the return on risk and soundness tables, and is third in the overall performance table.

Second in the overall list is Truist Bank, which shows the best leverage indicator. This measure takes into consideration the total liabilities-to-total assets ratio and its annual change. In 2020, Truist also had the most improved asset utilisation ratio, now the second highest in the group of 10 after Morgan Stanley.

Like PNC Financial, Truist also has a strong deposit and loans activities relative to its size. The bank, headquartered in Charlotte, North Carolina, was born from the merger between SunTrust and BB&T at the end of 2019, in a deal that created a new large national player.

PNC has also grown in size, after completing the acquisition of BBVA’s US operations this June. Other changes may follow, as some observers believe the pandemic will cause smaller banks and foreign players in the US to review their options.

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Silvia Pavoni is editor in chief of The Banker. Silvia also serves as an advisory board member for the Women of the Future Programme and for the European Risk Management Council, and is part of the London council of non-profit WILL, Women in Leadership in Latin America. In 2019, she was awarded an honorary fellowship by City University of London.
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