'Too Big To Fail' Revisited

 | Feb 20, 2014 | 5:30 PM EST  | Comments
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wfc

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jpm

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c

A year ago I offered a review of the U.S. banking system with a concentration on the similarities between the big four money centers with respect to their assets under management and number of employees: Bank of America (BAC), Wells Fargo (WFC), JPMorgan Chase (JPM) and Citigroup (C). Since then, the pace of balance sheet repair has accelerated and that presents a timely moment to evaluate where these numbers are today and what they may portend, at least for these money centers.

Bank of America reached a peak of about 215,000 employees in December 2008 after acquiring Countrywide Financial and agreeing to acquire Merrill Lynch. The number has been in decline every month since. The company closed 2012 with about 188,000 employees and went on to cut another 21,000 in 2013, closing the year with 167,000. As a percentage of all bank employees, it's been reduced to 8.1% from 8.7%.

Assets under management have also declined in the past year by $70 billion dollars, to $1.62 trillion from $1.69 trillion, or about 4%. Its average cost per employee continues to rise, however, to $107,000 from about $102,000 last year.

Although BofA has accelerated its legacy issue resolution in the past year, it is still primarily in a consolidating as opposed to a growing phase. The advancement in its stock price over the past year indicates that investors believe a reversal of this trajectory is imminent, though there are few signs of this yet.

After acquiring Washington Mutual and Bear Stearns, the number of employees at JPMorgan increased by about 23%, to 191,000 from 156,000. This number continued to rise until the middle of 2012 when it peaked at about 216,000. It closed 2012 with about 214,000 and has since fallen slightly to about 208,000. This still represents just over 10% of the total number of bank employees in the U.S. and has held at that level for the past few years.

Unlike BofA, JPMorgan's assets under management have increased during the past 12 months by about $50 billion, to $2.08 trillion from $2.03 trillion. Although this represents a decline in the fourth quarter from the third in 2013, the trend toward asset growth over the past three years has been steady.

Its cost per employee has also risen steadily, however, to $120,000 from $115,000 in the past 12 months, by far the highest of the four money centers. Unlike BofA, the evidence suggests that the reason for this is that JPMorgan is buying talent away from the other money centers, whereas BofA appears to be increasing employee compensation to defend against people leaving.

Citigroup is a different story, closer to BofA's situation, although it was already in trouble by the time Lehman Brothers failed. It was insolvent just a few months later and was essentially nationalized a result. Its number of employees peaked at about 248,000 in September 2007, a year before Lehman failed, and began a rapid decent almost immediately. By the end of 2012 and 2013, it had declined to 192,000 and 184,000 employees, respectively. Like BofA, that trend continues. It's gone from just over 9% of all bank employees to just below that level.

Unlike BofA, Citi has been able to continue growing its assets, and in the past year has increased them by about 2.5%, to $1.35 trillion from $1.32 trillion. It's also unlike BofA in its ability to maintain the lowest cost per employee of all four money centers, at about $76,000 each, which is down by $5,000 in the past year.

Wells Fargo experienced the biggest increase in the number of employees following its acquisition of Wachovia, moving to 231,000 from 141,000 in the fourth quarter 2008. It's also stayed close to this level since closing out 2012 at 228,000 and 2013 at 224,000. It now represents almost 11% of all bank employees while maintaining a cost per employee of $95,000 vs. $91,000 in 2012.

Its assets have also grown consistently throughout the post-crisis environment and have increased by nearly 7% in the past year, to $1.42 trillion from $1.33 trillion, and still climbing.

The principal conclusion is that JPMorgan, Wells Fargo and Citi are growing while BofA is still very much in the business of managing its legacy issues, loss mitigation and reducing internal expenses. The big questions for BofA and its investors are when will the company be able to revert to growth mode, and what focus will its business take now that its former primary business of mortgage lending has been taken over by Wells Fargo and JPMorgan Chase.

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