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AmericasJune 3 2007

US banks make money as sun sets on the economy

Once again four of the top five US banks have bucked the trend with continued profit growth in the first quarter of 2007 compared with the same quarter last year at a time when the economy is finally showing signs of the much-predicted slowdown.
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Citi is the exception as it continues to wrestle with its cost problems through restructuring and strives to integrate its latest acquisitions. However, Citi returns to the top of the list by Tier 1 capital although this may be a short-lived resurgence dependent on the outcome of Bank of America’s legal battle to complete its acquisition of LaSalle Bank from ABN AMRO.

It will be interesting to see how this acquisition affects Bank of America’s share of domestic deposits which must now be close to the regulatory maximum and whether the rules will be changed to accommodate it. Citi’s asset base continues to grow and now exceeds $2020bn.

Non-performing loan ratios for the quarter remain close to those reported a year ago with the exception of Wells Fargo where an uplift of approximately 0.5% over Q1 2006 was seen. As a bank focused on community banking it is perhaps the most vulnerable of the top five to increases in loan defaults but so far the effects have been limited to its car loan book and appear to be diminishing.

Strong growth in fee and commission income underpinned the quarter’s results while, with the exception of Bank of America which saw a downturn over last year, net interest income growth was more modest.

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