Citigroup Inc. grabbed a bigger slice of banking's capitalization pie during the fourth quarter as its valuation soared while the value of most other institutions tumbled amid a rout in bank stock prices.
Seen as a model of banking in the "new economy," the New York-based banking, brokerage, and insurance giant was worth $187.8 billion in the market on Dec. 31, a handsome quarterly gain of 26.2%. As a result, it accounted for an extraordinary 20.3% of the total market value of the nation's top 100 banking companies. Indeed, the jump in Citigroup's value was the reason the top 100 banks overall posted a 2.2% gain in market capitalization during the fourth quarter, to $926.7 billion. The other 99 banks tallied a 2.5% decline in market worth, according to a survey by American Banker.
Still, the value of the top 100 is 14% below its midyear peak of $1.07 trillion, reflecting the out-of-favor status of banks among investors in a rising interest rate environment. And for the full year, the erosion amounted to 5.5%, the first drop in overall market value since 1994 - also a year of rising rates.
Given its breadth of businesses, opinions differ on whether Citigroup - the amalgamation of Citicorp and Travelers Group - is rightly considered a bank at all. The company is no longer designated a bank by Standard & Poor's Corp. within the financial sector of the S&P 500 stock index. Instead, it is categorized as a general financial services company.
However you slice it, Citigroup stood apart by virtue of its impressive 68% gain in market value last year.
"Those banks that rejected traditional bank thinking were rewarded by investors in 1999," said Richard X. Bove, a banking analyst at Raymond James & Associates Inc. in St. Petersburg, Fla. Among large banks, he singled out Citigroup, Chase Manhattan Corp., and Wells Fargo & Co.
The biggest winner of the fourth quarter was Silicon Valley Bancshares, based in Santa Clara, Calif., at the heart of the nation's high-technology sector. Its market value shot up 119.7%, to $1.1 billion, placing it 67th among the top 100 banks on Dec. 31. Three months earlier Silicon Valley wasn't even among the hundred industry leaders, ranking 108th.
Silicon Valley is not the typical bank. Its shares have been buoyed by its lending to start-up technology firms. In some instances, it takes warrants in such companies that hope to go public, which can later yield huge gains.
Investing in Silicon Valley Bancshares is similar to investing in a mutual fund of high-tech companies. Its meetings for the investment community draw as many technology analysts as banking analysts.
Similarly, the second-leading gainer was Silicon Valley's neighbor, Greater Bay Bancorp of Palo Alto, Calif., which posted a 37% gain and joined the industry leaders, in 98th place, with a yearend value of $528 million.
San Francisco-based Wells Fargo, whose management team and business strategy are widely admired, increased its market value by 1.6% in the fourth quarter, to $66.4 billion. It ranked third on the top 100 list.
But there were far more losers than winners in the autumn quarter, and they included some of the industry's biggest and best-known names.
Bank of America Corp. fell 10.9% in market value, to $85.7 billion. Though it remained the nation's second-largest banking company in capitalization, it is now a distant second - $102 billion behind Citigroup.
The beleaguered Bank One Corp., which this week issued its third earnings warning in five months, fell another 10.9% in value during the quarter, to a yearend level of $36.7 billion. The Chicago banking company's market value was cut nearly in half during the final six months of the year. It was worth $69.8 billion in the market June 30.
The biggest quarterly loser among the top 100 was U.S. Bancorp of Minneapolis. It plummeted 21.5% in value, to $17.3 billion, after surprising investors with news that results would fall below expectations.
Shifts in market capitalization signal how investors feel about banks' management and business strategies, as well as the economic environment in which they are operating. A bank's market capital is calculated by multiplying its outstanding shares by their quarter-end price.
The key to avoiding a loss of market value in the just-completed quarter, obviously, was to stay close to the bull market itself and wear the label of a global investment bank. Banks with major brokerage, capital markets, or market-related lines of business avoided serious damage, and some did very well.
Citigroup, with its Smith Barney brokerage affiliate, was the best example. Bank of New York Co., with its large trust and custody activities, was up 15.9%, to a value of $29.5 billion. J.P. Morgan & Co. was up 9.3%, to $21.9 billion, and Chase 2.1%, to $54 billion.
"People criticize Chase for not having bigger brokerage operations, but Chase has also not gone out and overpaid for acquisitions," said Frank W. Anderson, an independent banking analyst in Dallas. At the same time, it clearly ranks as a major global player.
Besides its huge brokerage unit, Citigroup was a big winner because investors greatly admire its management under Sanford I. Weill, Mr. Anderson said.
Mr. Weill has "articulated a growth strategy," said Mr. Bove of Raymond James. Chase, "despite its size, also seems capable of executing a growth strategy," he said.
Similarly, Mr. Bove said, Wells Fargo chief executive Richard M. Kovacevich has stressed running his business for growth - and at the same time "refused to call his company a bank."
For more information related to this article, see the following table in our Ranking the Banks section:
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