The nation's banks are looking more and more like thrifts as they boost their holdings of mortgage-related assets.
As of last September, banks' portfolios of home loans, mortgage-backed securities, and collateralized mortgage obligations totaled $769.8 billion, according to an American Banker survey. That was about 11% higher than in mid-1992.
The expansion pushed mortgage investments to slightly more than 20% of total bank assets -- nearly double the share in 1987.
It also gave banks a 25.2% share of all home mortgage assets outstanding. The figure, which has been rising steadily for several years, stood at just 16% at the end of 1987.
Last year's increases solidified banks' lead over thrifts in market share of mortgage assets. Thrift's holdings slipped to 21% of outstandings as of September.
The appetite of commercial banks for mortgage investment "is logical in the context of what alternatives there are," said Martin Baumann, national director of accounting and auditing for financial services at Price Waterhouse, New York.
"There's been a general decrease in loan demand and narrow spreads in the kind of loans banks want to be involved in."
He added that banks had grown highly risk averse and that mortgages offered the opportunity to look to the quality of the borrower and not just the collateral.
Other observers pointed to the opportunity for greater geographic diversification in mortgage securities, a hedge against economic disparities among different regions of the country.
B of A Backs Off
The appetite for mortgage investments, though, has been uneven. San Francisco's Bank of America, the biggest investor, shaved its portfolio by 6.6% in the 12 months.
No. 9 Citibank continued to retrench in the mortgage business, cutting its holdings by about 19%, largely through big cuts in mortgage-backed securities.
Other large investors that trimmed their holdings included Mellon Bank, Pittsburgh, 22%; and Bank One Texas, about 18%.
Increases were fairly uniform for the three types of mortgage investment. Banks raised their holdings of mortgages by 10.5%, of mortgage-backed securities by 11.8%, and of collateralized mortgage obligations by 12.8%. CMOs are multiclass securities that typically are backed by traditional mortgage securities.
The willingness of banks to build their CMO portfolios, though, could be substantially weakened if the Financial Accounting Standards Board prevails in a struggle with regulators over the accounting treatment of the securities.
Banks like CMOs because they are available in short maturities and carry higher yields than equivalent Treasuries. Because of the choices of maturities available, they are useful in balancing the duration of assets with liabilities.
Under present rules, low-risk securities need not be marked to market.
The board has said, in effect, that all CMOS must for technical reasons be carried on the books at market value -- or marked to market -- regardless of risk.
Regulators disagree and the Federal Financial Institutions Examination Council, an interagency group, has asked the FASB to reconsider. But the board appears determined to make its interpretation stick.
If the board prevails, banks could decide to lighten up their CMO holdings rather than risk the earnings volatility that could come with marking to market.
More than 30 banks had CMO portfolios of at least $1 billion at midyear. On top of the list was PNC Bank with $9.02 billion, representing almost a quarter of the bank's assets. Its total mortgage investments were about 47% of assets.
PNC was followed by Wells Fargo, San Francisco, with $7.4 billion, and Chemical Bank, New York, with $6.4 billion.
Norwest Bank Minnesota, an enthusiastic originator of home loans, showed one of the highest concentrations of mortgage investments. Its mortgage holdings represented almost 50% of its assets at midyear.
Another leader was European American Bank, Uniondale, N.Y., which looked very much like a thrift with 60% of its assets in mortgage investments, most of it in securities rather than whole loans. But the bank with the biggest concentration was Boston Safe Deposit and Trust Co. at 71%, almost all of it in home loans. Boston Safe is a private banking unit of Mellon Bank Corp., Pittsburgh.
The unit's mortgage investments were little changed from year to year, but its asset base was changed because of its acquisition by Mellon in May 1993, leaving it heavily concentrated in home loans.