Any movement in The Banker’s Top 100 US Banks has been minimal but the sector is far from stagnant.

The Banker’s latest listing of the Top 100 US banks, ranked by Tier 1 capital at year end 2002, reinforces a sense of déjŕ vu with the major banks again improving profitability. Citigroup continues to dominate the list in spite of the difficulties it has experienced in investment banking and the depressed state of the global economy and the insurance market worldwide.

The Top 10 banks remain the same although some minor place changes have occurred. The polarisation in the market continues, with these 10 accounting for 57.2% of the total Tier 1 capital of the Top 100 – coincidentally at $457bn, nearly identical to the total Tier 1 capital for the Top 200 banks last year($458bn). The Top 10 also account for 62.8% of the total assets of $7005bn (Top 200 last year $7008bn), and 59.6% of the total profit of $118.5bn (Top 200 last year $100.1bn).

The gap between US Bancorp at 10 and MBNA at 11 is a large $3.1bn in Tier 1 capital terms and is unlikely to be closed bearing in mind the somewhat specialised nature of MBNA’s business. The gap to 12th place

SunTrust Banks is some $3.8bn which – while it is slightly less than last year – would still require a major merger with a near equal to bridge. This suggests that this polarisation will continue to develop with merger and acquisition activity currently confined to the small to medium-sized banks.

Foreign players

Of the Top 100, 10 banks are foreign-owned with two from the UK, four from Canada, one from each of Ireland, Netherlands, Japan, and Spain. HSBC North America may well move up the list next year following the completion of its acquisition of Household International at the end of March. However Allfirst Financial, Allied Irish’s erstwhile subsidiary, is making its farewell appearance in our listings following the completion of its merger with M&T Bank Corporation in January of this year. Allied Irish will retain a 22.45% interest in M&T and have four seats on an enlarged board.

Surprise rises

The remarkable fact about the current list is that, at a time of low interest rates and with the depressed state of the loan market, especially for commercial lending, 88 of the Top 100 reported improved pre-tax profits. In the Top 10 only JP Morgan Chase saw profits slip, down 1.8% to $2519m, and it was the only institution in the top group to record a return on average Tier 1 capital in single digits at 6.7% while Citigroup’s profit grew 4% to $22.8bn with return on average capital of 38.8%.

This trend has continued into quarter one of the current financial year 2003 as can be seen from the table summarising the results for that period of the Top 10 banks in our main listing. Capital and asset growth has continued, with one exception in each case, and eight out of the ten have recorded growth in pre-tax profits over the same quarter of the previous year.

Of the two showing reduced profits FleetBoston continues to suffer from exposure to the volatile markets of South America, particularly Argentina, and continued weakness in commercial lending demand while Metlife is predominantly an insurance company with banking interests which, while having bank holding company status, is more prone to the vicissitudes of the insurance market than the banking one. However with these two exceptions the remaining banks are showing a healthy return on capital for the quarter from a low of 4.87% to a high of 10.79% which if maintained at the same rate over the full year will give a range of 19% to 43%.

As the first quarter is usually regarded as the slowest of the year and this one was conducted under threat of an imminent war in Iraq, it is interesting to contemplate what effect an economic upturn would have on bank profitability.


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