Because the long ordeal of our latest banking crisis is ending, I think it is only appropriate to look at the U.S. financial banking record to see how well the different banks performed during the crisis.
Before looking at the banks individually, however, I think it is worthwhile to show the reader how three different groups of banks faired during the crisis. The three bank groups that I am going to discuss in this article are defined below:
- The Big Four Banks (Bank of America, JPMorgan/Chase, Citigroup, and Wells Fargo)--each of these banks currently show more than $1.2 Trillion of Assets on their Balance Sheet—currently averaging $1.57 Trillion in Assets per bank;
- The Next Thirteen Largest Banks operating in the U.S. (US Bancorp, Capital One, PNC, Mellon, State Street, TD Bank, HSBC, BB&T, Sun Trust, Regions, Goldman Sachs, Fifth Third, and RBS). All these banks currently have more than $100 billion and less than $310 Billion in Assets—currently averaging $209 Billion in Assets per bank; and
- All the Remaining Mid-and-Small Banks (all the other 7,160 mid-and-small sized banks operating as of 09/30/2012)—currently averaging $728 million in Assets per bank.
As I have mentioned in earlier articles for Business Insider, signs of our latest banking crisis began showing up prior to the financial quarter ending 12/31/2007 and signs of its unofficial ending is beginning to show up now--twenty-quarters later, the financial quarter ending 09/30/2012.
Since everyone knows that bad lending was the key proponent behind the crisis, I thought it prudent to look first at how the bank loan portfolios of the different bank groupings performed during the crisis. Exhibit 1 below tracks the loan performance of the different bank groups throughout the crisis season. This exhibit shows the percentage of loan assets that were non-performing (i.e., delinquent more than 90 days, in foreclosure, or assigned to the bank) as reported to the Federal Government at the end of each quarter.
Exhibit 1
I have to admit that I was not all that surprised when I first looked at the above statistics. Exhibit 1 shows that the loan performance of the Big Four banks was substantially worse throughout the crisis season than the other two banking groups that I had identified. Not only were the Big Four worse throughout the crisis, they are still worse at the end of the crisis, showing even less improvement late in our crisis period than the other two bank groups.
But even as important as the non-performing loan asset measurement of Exhibit 1 is, I knew it was important to dig deeper into the statistics. Since the above statistic considers only those loans still on the books, it was only prudent to also look at the loans that had been written off as losses and removed from the books during the crisis period.
Therefore, I created Exhibit 2, which shows the relative percent of loan assets that each bank group had identified as losses on their income statements at the end of each of the twenty-quarters of our long crisis season.
Exhibit 2
Exhibit 2 shows that the Big Four were outperformed by the other two of my bank groupings in terms of actual loan losses, too. Not only that, the exhibit shows that the smaller banks as a group outperformed the Big Four throughout the crisis. Quarter after quarter after quarter, the Big Four took greater losses as a percentage of their loans than the other two bank groups.
But loan losses only tell part of the story. Asset and loan growth are also important to the health of the banking industry. Exhibit 3 below provides a table that shows the amount of loan assets and total assets for each of my three bank groups as reported at the quarter ending 12/31/2007 (the beginning of the financial crisis) and for the last reported quarter ending 09/30/2012.
Exhibit 3
Change in Total Assets and Loan Assets by Bank Group
From 12/31/2007 to 09/30/2012
(Dollars in Billions)
Interesting, isn’t it? Total Banking Assets during the twenty-quarter period of our crisis increased by $1.2 Trillion from $13.0 Trillion to $14.2 Trillion. During the crisis period, the banking assets of the Big Four, the Next Thirteen, and all the Small/Mid banks changed by $1.3 Trillion, $1.0 Trillion, and ($1.2 Trillion), respectively. The Big Four now manage 39.9% of all banking loan assets, up from 33.1% at the time that our latest banking crisis began.
Go figure.
Yes, I know that statistics can lie and that we should be grateful that Wells Fargo took over Wachovia; Bank of America—Countrywide; and JPMorgan/Chase—Washington Mutual, during the crisis. But sometimes I wonder. Weren’t the operations of most of the banks closed down by the FDIC during the crisis taken over by the smaller and mid-sized banks?
The above analysis makes me wonder whether we learned anything from our latest crisis. Personally, based upon the above statistics I remain in doubt.
Oh, and I already know, so please don’t get me started on Fannie Mae and Freddie Mac—the real culprits behind the mess that turned our economy upside down. They, too, are still operating fat, dumb, and happy.
Next week I am providing Business Insider a view of how each of the individual Big Four banks performed during the crisis. Like I have said before “not all banks are created equal”, and that holds true for Goldman Sachs and each of the Big Four, too.
