Shifting Power in Banking

 | Jan 14, 2013 | 4:30 PM EST
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A few weeks ago I wrote about the different business strategies being employed by the big four U.S. money centers, JPMorgan Chase (JPM), Citigroup (C), Bank of America (BAC) and Wells Fargo (WFC), as reflected in the way they manage their assets. Let's review their deposits next.

There are two dominant global banks, Citigroup and HSBC Holdings (HBC). (I won't discuss HSBC now but I will in the future.) Of the four big U.S. money centers, Citi has the strongest global presence by far. JPMorgan is targeting that market, though.

If you are doing business anywhere in the world outside of the U.S. and need a bank that operates globally, your primary and, in many cases only, choices are Citi and HSBC. This is starkly clear in the deposit data for C, JPM, BAC and WFC. Deposits at BofA and Wells are overwhelmingly from domestic U.S. individuals and corporations at about 93% for each, respectively. The business focus is U.S.-centric.

By comparison, Citi gets only about 40% of its deposits from U.S.-domiciled individuals and organizations, with about 60% coming from outside the U.S. Citi is also the only one of the four big U.S. money centers that has experienced an increase in foreign deposits since Lehman Brothers failed, even though it required more support from the U.S. government than JPMorgan, BofA, or Wells Fargo. In fact, as the U.S. government's support for Citigroup increased after Lehman's failure, the amount of foreign deposits into the bank also increased, counter-intuitively, as depositors sought the perceived direct protection provided.

The lack of foreign capital flight from Citi and the actual increase in flight to it is one the prime reasons Citi continues to exist. Even as Citi tries to repair its balance sheet and takes a very conservative stance on the management of its assets, as I discussed a few weeks ago, JPMorgan is seeking to exploit Citi being sidelined by expanding globally. About 30% of JPMorgan's deposits come from outside the U.S. Although this is down from about 40% before Lehman failed, and foreign deposits at JPMorgan have fallen since, the increase in foreign investments indicates that one of its primary goals is not only to grow its global business but probably to displace Citi as the primary alternative to HSBC for global banking.

As Citi seeks to recover and JPMorgan seeks to exploit that sidelining, the U.S. is left with two money centers focused on the domestic U.S. market: BofA and Wells Fargo. This in itself is a very interesting situation, as neither is a New York-based institution. JPMorgan and Citi are both headquartered in New York City . Bank of America, however, is in Charlotte, North Carolina, and Wells Fargo's home is San Francisco. As Citigroup and JPMorgan focus their energies on competing for global deposits and business, the center of U.S. banking power is shifting away from New York to California and, to a lesser extent, North Carolina.

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