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Tier 1 Reclassification: US Banks - Periscoping The Giant Four

Jun 15, 2022   •   by   •   Source: Proshare   •   eye-icon 4036 views

“Progress is cumulative in science and engineering, but cyclical in finance”- James Grant

 

United States of America

The United States banking industry was in the depths of the global financial crisis more than a decade ago. Following the injection of billions of dollars in new capital, US banks have returned to a more sustainable path and increased liquidity. After another systemic shock caused by the COVID-19 pandemic, banks saw no extraordinary losses, major capital calls, or 'white knight' acquisitions this time. Although the pandemic did not have the expected negative financial consequences for the global banking industry, it did have numerous other consequences. Digital banking accelerated, cash use decreased, savings increased, remote working became a part of life, and customers and regulators are more concerned about the environment and sustainability. Now, banks are adapting, adopting, and thinking more about ecosystem expansion.

 

The U.S is dominated by four large banks, JPMorgan Chase, Bank of America, Wells Fargo, and Citigroup. These banks are not only leading banks on a domestic scale but are also among the largest banks in the world, with JPMorgan Chase being the fifth-largest bank by customer deposit, total assets, and shareholder’s funds in the world. 

 

JPMorgan Chase

Considered to be a universal bank and a custodian bank, it is a major provider of various investment banking and financial services. The bank is majorly exposed to the fossil fuel industry, and it is considered the largest lender to the industry. JPMorgan Chase is listed on the New York Stock Exchange with a market capitalization of US$391.68bn and as of fourth-quarter 2021, the bank recorded a US$3.74trn in total assets (see table 14 below). 

 

Table 14: JPMorgan Chase Financial Highlights

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Bank of America Corporation

With an asset size of US$3.17trn as of Q4 2021, the bank ranks as the second-largest bank in the US. According to Data by the Bank, it serves at least 10.7% of all American deposits, its core financial activities revolve around commercial banking, wealth management, and investment banking. Bank of America is listed on the New York Stock Exchange and has a market capitalization of US$334.85bn as of 15th March 2022.

 

The latest result of the bank show improvement in bottom-line earnings and investors’ returns. However, the core capital of the bank fell in the quarter both in value and ratio (see table 15 below). 

 

Table 15: Bank of America Financial Highlights

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Wells Fargo

Wells Fargo operates in 35 countries with over 70 million customers globally and is considered a systematically important financial institution by the Financial Stability Board. The bank is listed on the New York Stock Exchange with a market CAP of US$189.92bn and total assets at US$1.96trn in 2021.

 

The bank’s Q4 2021 result shows that total revenue rose by +10.78%, net income had a more percentage growth, and it increased by +86.08% against Q4 2020 figures. Return on equity improved by +93.94% on the back of the significant growth in net income (see table 16 below).

 

Table 16: Wells Fargo Q42021: Financial Highlights

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The Financial Position 


Total Assets

In 2021, the total assets of the three top banks in the United States recorded an average growth rate of +7.57% in assets. JP Morgan Chase was the largest bank by total assets in the two periods (2020 & 2021) under review. The Bank had total assets of US$3.74trn, Bank of America came in second place with US$3.17trn in total assets while Wells Fargo ranked the third-largest large bank by total assets in the United States in 2021.

 

Bank of America had the highest growth rate of +12.41%, which came on the back of a +43.48% increase in debt securities and a +6.34% rise in Loans and net allowance.

JPMorgan’s +10.56% growth in total assets was on the back of growth of +80.21% in securities Held-to-Maturity, +42.10% increase in deposits held with other banks, and +2.25% rise in cash and due from banks.

 

While a decline of -11.48% in cash and cash equivalent dragged Wells Fargo's total asset to US$1.94trn in 2021 (see chart 16 below).

 

Chart 16: Total Assets of Top Three US Banks 2021 (US$’trn)

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Shareholders’ Fund

In terms of shareholders’ funds, the ranking remained the same with ranking by total assets. JP Morgan Chase shareholders' fund was up by +5.29% to $294.12bn in 2021. the improvement was largely driven by a +15.88% increase in preferred stocks and +14.89% growth in retained earnings, positioning the institution as the bank with the largest shareholders fund in the US.

 

Bank of America had s shareholders’ fund of US$270.07bn which fell slightly by -1.05%, supported by a +208.21% in the accumulated comprehensive loss and -27.43% decline in common stock.

Wells Fargo, which has the lowest shareholders fund attained the second position with a growth rate of +2.37% and $190.11b in value (see chart 17 below).

 

Chart 17: Total Shareholders Fund of Top Three US Banks 2021 (US$’bn)

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Customers Deposits

The top three banks reported a remarkable growth in customers deposit with an average growth rate of +11.79%. Bank of America recorded the highest percentage growth in customer deposits, it grew by +14.98% to $2.06trn which was supported by a +55.14% increase in deposits from non-US offices and +12.29% rise in interest-bearing deposits.

Wells Fargo recorded a slight increase in deposits, resulting in +5.56% growth Y-on-Y from $1.40trn to $1.48trn (see chart 18 below).

 

Chart 18: Customers Deposits of Top Three US Banks 2021 (US$bn)

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Loans And Advances

JP Morgan Chase had the highest loans and advances in two consecutive years, with an increase of +7.80% in 2021. While Bank of America ranked second both in value and the percentage growth of +6.34%, Wells Fargo ranked third position in value and the percentage growth of +1.59%, the marginal increase was on the back of a -32.54% decrease in allowance allocated for loan loses (see chart 19 below).

 

Chart 19: Loans & Advances of Top Three US Banks 2021 (US$bn)

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Downloadable Versions of Tier 1 Banks Report (PDF)

1. Executive Summary: Nigeria’s Banking Industry: The Case for Redefining Tier 1 Banks - May 28, 2022

2. Full Report: Nigeria’s Banking Industry: The Case for Redefining Tier 1 Banks - May 28, 2022

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