The country’s largest banking institutions may have long diversified into every possible financial service available, but the origins can often be traced back to a plain vanilla retail banking business in which the bank accepts customer deposits and hands out loans. Quite recently, we wrote about the first aspect of a traditional banking model – deposits – and how the size of a bank’s deposits base is a strong indicator of customers’ trust in that bank (see Proof That The Banking Industry Is All About Customer Perception). In this follow-up article, we take up the other aspect – loans – and detail the changes in outstanding loan portfolio for the country’s five largest commercial banks: JPMorgan Chase (NYSE:JPM), Bank of America (NYSE:BAC), Citigroup (NYSE:C), Wells Fargo (NYSE:WFC) and U.S. Bancorp (NYSE:USB).
Banks lend out money to individuals and companies for reasons as varied as buying a house (mortgages), buying a car (auto loans), higher education (student loans), setting up a factory (commercial loans) and even for day-to-day personal expenses (credit card loans). But in the end, every loan is an asset for the bank as it is given out with reasonable surety of the fact that it will be repaid over time along with an interest which is commensurate with the risk it entails. And the more loans a bank has on its balance sheet, the more its potential revenue income over the years to come.
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The table below captures the average size of each bank’s total loan portfolio for each of the last ten quarters. The data has been compiled using figures reported by individual banks as part of their quarterly announcements and includes every single type of loan handed out by the banks.
|(in $ billions)||Q1’11||Q2’11||Q3’11||Q4’11||Q1’12||Q2’12||Q3’12||Q4’12||Q1’13||Q2’13|
|Bank of America||938.97||938.51||942.03||932.90||913.72||899.50||888.86||893.17||906.26||914.23|
Quite notably, Bank of America has a larger loan portfolio than any of its competitors with an average of $914 billion in outstanding loans for the second quarter of the year. The bank has reported a steady decline in total loans over the years – visible in the table above too until late 2012 – as a direct result of its diligent efforts to cut costs and improve its operating focus under its sweeping reorganization plan dubbed Project New BAC. A chunk of the decline over the period comes from a reduction in Bank of America’s mortgage portfolio which shrunk from nearly $413 billion in early 2011 to almost $350 billion as of now. At the same time, a focus on its commercial lending business and the rising demand for cash by companies as the economy recovers has helped the bank raise the size of its commercial loans portfolio from under $250 billion to over $330 billion over the same period.
Wells Fargo comes in second with a loan portfolio of just over $800 billion. Not surprisingly, mortgages make the largest portion of this figure – $325 billion as of Q2 2013. The bank has after all been focused extensively on growing its mortgage business since the economic downturn and is the undisputed leader in the industry when it comes to mortgage originations and servicing.
JPMorgan Chase’s loans portfolio is heavier on commercial lending than any other bank on this list with these loans contributing to almost 45% of its total loan portfolio. In fact, JPMorgan’s commercial loans have also seen the fastest growth over the period – jumping 50% from the $215 billion figure in Q1 2011 to $310 billion now.
Citigroup stands out as the banking group to report a near-constant loan portfolio size over the entire period with the figure remaining around $640 billion. The banking group also has a more equitable distribution of various loan types, with commercial loans, mortgages and credit card loans comprising of 33%, 27% and 22% respectively of its total outstanding loans. The bank’s considerable geographical presence explains the fluctuations in the portfolio size as the dollar value of the loans changes with marked currency movements.
As a predominantly regional bank, U.S. Bancorp comes a distant fifth in the list with loans of $225 billion for the last quarter. But as the bank’s business model relies more heavily on traditional banking operations than any of the other competitors, U.S. Bancorp’s share price is also the most sensitive to changes in the size of its loan portfolio.