Proof That The Banking Industry Is All About Customer Perception

by Trefis Team
U.S. Bancorp
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The idea of banking may have evolved considerably over the centuries to include services that affect practically every aspect of life, but there can hardly be any doubt that the quintessential banking service is and will always remain customer deposits. People deposit money in their account trusting the bank to safeguard their money and to ensure that it is available to them as and when they need it. The keyword here is obviously ‘trust.’

While it can be argued that a large number of factors go into determining how any customer picks a particular bank for opening a deposit account – ranging from a bank’s branch & ATM network to interest rates to the various services/perks offered – in the end it almost always boils down to one aspect: whether the bank is strong enough to ensure that the customer’s money remains safe in the long run. In a way, the size of a bank’s deposits base is hence a strong indicator of customers’ trust in that bank.

Going by this rather simplistic logic, one should be able to get a pretty good idea of how the general public perceives each of the country’s biggest bank if presented with the figures for actual deposit base at each of these banks. But as we show in this article, it is indeed the customer perception that matters the most for any changes in the size of deposits at the country’s largest banks – JPMorgan Chase (NYSE:JPM), Bank of America (NYSE:BAC), Citigroup (NYSE:C) and Wells Fargo (NYSE:WFC).

See the full Trefis analysis for Wells FargoJPMorganU.S. BancorpBank of AmericaCitigroup

Deposits can be categorized into a number of different types based on the amount of liquidity offered – from current deposits which are highly liquid to time deposits which lock-in the money for a specific period of time. But from a bank’s point of view, there are just two types of deposits: those that bear interests and those that don’t. As a general rule, the more liquid the funds in the deposit, the less interest they earn. So current deposits fall under the non-interest-bearing category whereas savings accounts and term deposits are of the interest-bearing type.

To be able to compare the deposit base for the country’s biggest banks with each other and across quarters, we have compiled the following table which shows the average value of all deposits the banks held each quarter over the last ten quarters. The data has been compiled using figures reported by individual banks as part of their quarterly announcements and include both interest-bearing and non-interest-bearing deposits.

(in $ billions) Q1’11 Q2’11 Q3’11 Q4’11 Q1’12 Q2’12 Q3’12 Q4’12 Q1’13 Q2’13
JPMorgan 930.4 979.9 1,038.5 1,097.0 1,098.5 1,093.2 1,098.0 1,133.5 1,143.8 1,173.6
Bank of America 1,023.1 1,035.9 1,051.3 1,032.5 1,030.1 1,032.9 1,049.7 1,078.1 1,075.3 1,080.0
Wells Fargo 861.1 875.1 910.3 945.4 949.5 961.5 988.3 1,022.9 1,040.7 1,069.3
Citigroup 866.0 868.1 860.5 857.0 869.1 893.4 921.2 928.9 920.4 924.5
U.S. Bancorp 204.3 209.4 215.4 223.3 228.3 231.3 239.3 243.8 245.0 247.4
Capital One 124.2 125.8 128.3 128.5 170.3 214.9 213.3 213.5 211.6 210.7

JPMorgan leads the pack by a decent margin with nearly $1.2 trillion worth of customer deposits across its global branch network. Having grabbed the top spot from Bank of America by the end of Q3 2011, the diversified financial giant has continued to grow steadily each quarter. Now here’s the interesting thing. JPMorgan reported a decline in the size of its deposits base in a single quarter over this two-and-a-half year period – in Q2 2012. It is not too difficult to figure out what the reason for this is, as that was the quarter in which the bank drew a lot of flak for its multi-billion dollar London Whale debacle. See the link between trust & deposit base yet?

No? Then lets move on to Bank of America and Citigroup. It is no mere coincidence that these two banks have seen the smallest growth in their deposit base over this period, of 5.5% and 6.7% respectively. After all, they are the ones who have faced (and continue to face) the largest losses in the aftermath of the economic downturn and are still hard at work cleaning up their balance sheet. Customers have clearly been cautious about parking their cash with the banks, which explains the slow deposit growth rates.

Still not convinced? Well, then take a look at the figures for Wells Fargo and U.S. Bancorp. These two banks have been on a roll over the last two years from their focus on the mortgage business. The banks benefited considerably from the mortgage refinance wave (Wells Fargo in particular) and as thousands of customers shifted their mortgages out from rivals to these banks, they would have also on most of these occasions moved their deposit accounts to to the same bank. That is what likely contributed to the strong organic growth in their deposit base (excluding U.S. Bancorp’s acquisition of a few small failed banks over the period).

So there you go. Concrete proof of the fact that when it comes to strong performance in the banking industry, what really counts is the amount of trust customers have in the bank. Perception really is everything.

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