In contrast to a year ago, half-year results from the
biggest US retail banks show an improved performance from their
consumer finance units compared to their investment banking
divisions. But the year to date has witnessed the failure of 103 US
banks, up from 72 at the same stage in 2009. Douglas Blakey
reports.
Go deeper with GlobalData
This year’s US banking
interim results present a mixed picture but offered one stand-out
feature.
Aggregate net profits at the
country’s 10 biggest retail banks have more than trebled from the
first half of fiscal 2009 to $11.2bn from $3.1bn.
On a less positive note, the year
to date has witnessed the failure of 103 banks (see table,
below), more than in the period from 2001 to 2008 and well
ahead of the 72 banks which had failed at this stage last year.
Though none of the bank failures
this year has involved a large, national company, doubts persist
about the long-term financial wellbeing of a number of significant
regional players.
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By GlobalDataAmong the major figures, the return
to profitability of the retail banking units at Bank of America
(BofA), JPMorgan Chase and SunTrust Banks were particularly
noteworthy.
Good news for
BofA
BofA’s retail-focused deposits unit posted first-half net
earnings up by 17.8% at $1.35bn, while the global card services
division returned to the black, posting net profits of $1.75bn
(H109: $3.34bn).
But according to BofA, the card
unit will take a hit of $1bn after-tax in fiscal 2010 as a result
of complying with the terms of the CARD Act.
A widening in losses at BofA’s home
loan unit, to $3.6bn from a loss of $1.2bn in the corresponding
period last year, meant the bank’s first-half performance was
distinctly mixed.
Net charge-offs were $1.2bn lower
in the second quarter of 2010 than the previous quarter, reflecting
an improvement in the consumer and commercial portfolios.
BofA’s ongoing branch closure
programme resulted in more than 3% of its branches closing in the
past 12 months, reducing the network from 6,109 units to 5,900
outlets (see page 20).
Standing
firm
JPMorgan Chase, commonly regarded as riding out the storm better
than its sector rivals, reported first-half net profits of $8.12bn,
up 67% from the corresponding period last year.
Net income at JPMorgan Chase’s
retail financial services division soared by 86% to $911m, while
the card division returned to the black, posting first-half net
profits of $40m compared to a loss of $1.21bn in the year-ago
period.
First half retail banking
highlights included:
But average retail deposits of
$335.9bn were down 3.2% year-on-year and credit card sales were 8%
down from a year ago.
While the card division reported
vastly improved first-half results, driven by a lower provision for
credit losses, second-quarter cards’ net interest income of $3.4bn
fell by 22% from the year-ago quarter, as a result of legislative
changes and a decreased level of fees.
“Although we are gratified to see
consumer lending net charge-offs and delinquencies decline, they
remain at extremely high levels and therefore returns in our
consumer-lending businesses are still unacceptable,” said JPMorgan
Chase chairman and CEO Jamie Dimon.
“As a result, these businesses did
not meet expectations nor generate satisfactory returns on capital
for our shareholders. It is too early to say how much improvement
we will see from here.”
Reduced
results
Wells Fargo posted reduced group and retail banking interim
profits. First-half net earnings of $3.22bn at Wells Fargo’s
retail-focused community banking unit were down 20.2% from the
first half of fiscal 2009.
Group-wide, Wells Fargo posted
first-half net income of $5.61bn, down 10% year-on-year.
On a positive note, Wells Fargo
said credit problems would diminish for the rest of fiscal 2010 and
disbursed $500m from its accounts for future loan losses that it
said would no longer be required.
In the second quarter, Wells
Fargo’s losses from bad loans declined sharply, down 16% from the
first quarter to $4.5bn.
Compared with a year ago, total
lending declined at Wells Fargo by 7.5%, with total assets down by
4% at $1.22trn.
Positive metrics included:
Beating the
analysts
US Bank, the fifth-largest US headquartered retail bank, posted
an analyst-beating first half set of results, with net profits up
by more than one-third year-on-year to $1.43bn.
Boosted by recent acquisitions, US
Bank’s total deposits increased by 13% – retail deposits were up by
15% – excluding deposits from acquisitions, average total deposits
increased by 4.1%.
US Bank’s net interest margin in
the first half rose by 31 basis points from a year ago to 3.9%.
Among few negative metrics at US
Bank, retail banking net earnings slipped by 1.8% from a year ago,
while total non-interest income for the retail banking division
decreased by 7% due to lower deposit service charges and reduced
overdraft fees.
“Ongoing investments and business
line growth initiatives, as well as recent acquisitions,
contributed to the increase in net revenue,” said US Bank
president, chairman and CEO Richard Davis.
“Growth in earning assets and
deposits, coupled with an expanded net interest margin, led to a
14.5% increase in net interest income year-over-year.”
CARD act has
impact
Citigroup’s first-half retail earnings also suffered from the
impact of the CARD Act, as well as lower card volumes.
Average card loans decreased 4% to
$76.2bn, mainly due to higher payment rates and fewer accounts,
partially offset by a 9% increase in purchase sales.
But first-half total provisions for
credit losses fell by more than a third to $15.3bn, helping Citi to
report first-half net profits of $7.12bn, up 21% from the
corresponding period last year.
Citi’s regional consumer banking
unit posted first-half profits up by 80% at $2.2bn, $496m of which
was earned in the US (compared with only $84m in the first half
last year).
“I am pleased that we have produced
solid operating results for the second consecutive quarter,” said
Vikram Pandit, Citi CEO.
“Although economic conditions
remain challenging and global regulatory frameworks are uncertain,
we believe these results demonstrate that the difficult decisions
made by our management team have put in place all the elements for
sustained profitability.”
Second-quarter revenue at Citi’s
retail focused consumer banking unit dipped 1% to $8bn, with
declines in the US and Europe partially offset by continued growth
in Asia and Latin America.
In the past 12 months, Citi has
shuttered one in four of its EMEA-based branches with the network
declining from just over 400 units to 304 outlets.
By contrast, Citi’s Latin American branch network has grown by
7% to total 2,205 units.
