No U.S. Bank Company Among World's Top 20
For the first time in half a century, a U.S. banking organization does not rank among the 20 largest in the world, according to an American Banker survey.
Citicorp, the sole remaining U.S. company among the top 20 at the end of 1989, fell 11 notchest last year, to 21st, the survey found. (See table on page 10.)
Mergers and rapid growth catapulted a number of European companies past Citicorp, whose assets fell by 5.4%, to $214.8 billion.
Some of the growth of foreign banks is misleading. The survey coverts their assets to dollars - and the decline of the dollar alone effectively boosted their size by an average of 13%.
But even excluding that factor the survey provides further evidence of an unquestionable trend: As the world's largest banks get larger, U.S. institutions are being left behind. Just five years ago, three of the world's 20 largest banking organizations were based in the United States.
The survey's findings provoked a mixed reaction.
Senator |Extremely Frustrated'
Sen. Jake Garn, ranking Republican on the Senate Banking Committee, expressed dismay. "I am extremely frustrated by this reality," he said in an interview Tuesday. "The past decade has seen the steady decline of the U.S. position in world financial markets."
The senator said that "outdated" legislation was hampering U.S. banks. "Our first and most critical step is to make the comprehensive changes in our nation's banking laws which will allow our financial institutions to compete in the world market," he said.
But others pointed out that American banks are placing less emphasis on size and more on profitability.
While "bigger is better" had been the commandment for the industry for decades, that changed about 10 years ago when deregulation suddenly subjected banks to profit pressures.
Equating Earnings, Bigness
"A lot of ink is being spilled on how big Japanese banks are, but Japanese banks never did earn any real money," said Walter Wriston, former chairman of Citicorp.
"Assets are no real measure of success or power," added Lowell Bryan, a banking analyst in New York with the consulting firm of McKinsey & Co.
"Real power comes from earnings - and a lot of those [foreign] institutions are living off cartels and not as strong as they should be."
But while size is less important, most bankers agree that it still counts. And it's particularly important for institutions that want to be national and global players.
Capital-Ratio Issue in U.S.
One important factor constraining the growth of U.S. banks is a heightened focus on capital ratios.
"The regulators had always placed management as No. 1 in terms of deciding whether a bank was sound or not; but the needle has swung over very substantially to capital," Mr. Wriston said. That change has prompted banks to shed assets to boost their ratios.
Mr. Bryan thinks the picture for U.S. banks is not as bleak as it looks. With the industry poised for massive consolidation, and with a major overhaul of banking law working its way through Congress, Mr. Bryan maintains that it is only a matter of time before U.S. banks catch up with foreign institutions.
"I'd bet that by the end of the decade, we'll wind up with institutions that are as large as any others worldwide in terms of profits, market capitalization, and assets," he said.
But for now, it's the foreign banks that are on the rise, the survey showed. (The complete findings, including a list of the world's 100 largest banking companies and 500 largest banks, will be published on July 26.)
Mergers last year created two mega-banks.
Japan's Mitsui Taiyo Kobe Bank Ltd., created out of the union of Mitsui Bank and Taiyo Kobe Bank, jumped into third place with $408 billion in assets. Mitsui ranked 15th a year earlier and Taiyo Kobe 23d.
Holland's ABN-Amro Holding, with $231 billion in assets, jumped into 17th position, following a merger between Algemene Bank Nederland and Amsterdam-Rotterdam Bank. The two banks ranked 47th and 49th, respectively, at the end of 1989.
Roster of Foreign Increases
Meanwhile, other foreign banks also posted sharp increases in assets.
Credit Lyonnais boosted assets 36%, Compagnie Financiere de Paribas 34%, Germany's Deutsche Bank 31%, and Desdner Bank 28%. Those figures include the benefits of foreign-exchange fluctuations.
Japanese banks continued to dominate the list, accounting for seven of the 10 largest. Dai-Ichi Kangyo Bank Ltd., Tokyo, remained the largest institution, with $428.2 billion in assets.
But the rapid growth of Japanese banks in the rankings came to a halt. While their assets rose when converted into dollars, the assets held in yen actually fell in most cases, due to capital-raising pressures.
U.S. banks have ranked among the world's largest since at least 1940, according to statistics compiled by the American Banker.
Their decline in worldwide rankings started in the 1980s.
In 1980, Citicorp ranked first, BankAmerica Corp. third, Chase Manhattan Corp. 11th, and Manufacturers Hanover Corp. 23rd.
By 1985, Citicorp was still first, but BankAmerica had dropped to ninth, Chase to 19th, and Manufacturers to 28th.
The last time a U.S. bank - as opposed to a bank holding company - ranked among the top 20 was in 1986.