Superregionals as a group continued to beat out other categories of banks in profitability, according to American Banker's latest survey of quarterly bank earnings.
The average return on equity among superregional banks - those with assets between $25 billion and $75 billion - rose to 16.86% in the first quarter. That was well above the 13.33% ROE posted by banks with at least $75 billion of assets, and more than a point above the 15.47% registered among large regional banks - those having between $10 million and $25 billion of assets.
Wells Fargo & Co., San Francisco, retained its top profitability ranking among superregionals, with a 28.25% return on equity.
The latest quarterly data underscore the widening gap in profitability between superregionals and other categories of banks.
Analysts and bankers said a combination of factors, including superregionals' longstanding emphasis on cost control, more focused marketing and a heavier concentration of low margin loans among money- center banks, contribute to this trend.
"Superregionals grew up with more of an emphasis on earnings and return to shareholders," remarked Lawrence R. Vitale, a bank analyst with Bear, Stearns & Co. in New York.
Mr. Vitale added that lower average profitability at big banks was also a matter of "culture and mindset."
"Big banks have been the last ones out of the low spread, high end corporate lending business," he said.
Other analysts seconded his views, even though they noted that profitability does vary from bank to bank and generalizations can be difficult.
"Money-center banks have been consistently less profitable because they've had a bigger portion of their asset base invested in low yield, low spread assets," said Moshe Orenbuch, an analyst with Sanford C. Bernstein & Co.
Bankers at superregionals, like John T. Thornton, chief financial officer at Norwest Corp., also said that both a broader spread in products and geographic distribution have helped widen the gap in profits.
"We view ourselves as a diversified financial services company rather than a bank," he observed. "Regionals and money-center banks are locked into geography whereas we operate in all 50 states, Canada, and the Caribbean."
Mr. Thornton also suggested that superregionals' profits have been higher because they are in the stronger margin, faster growing consumer banking sector and because they have taken a lead in sharpening their business focus, cross-selling products, and analyzing profitability of individual operations and customers.
"We can identify the more profitable products and customers, focus on selling more to profitable customers, and even analyze why we are losing money with some customers," he explained.
Among megabanks, Citicorp retained its position as the bank with the best performance, posting a 19.97% return on equity during the first quarter. MBNA Corp., a credit card bank, was the top performing large regional bank with a 32.59% return on equity.
There were relatively few surprises in the data, although some banks dramatically improved or lowered their rankings as they overcame or encountered temporary earnings setbacks due to exceptional losses or expenses related to mergers and acquisitions.
Bankers Trust New York Corp. climbed back to an 11.84% return on equity from the year-earlier figure of minus-15.69%, which was due mainly to high provisions for possible losses on derivatives contracts. Chase Manhattan Corp. posted a minus 3.14% return on equity compared with 14.44% a year ago after setting aside heavy allowances for expenses related to its merger with Chemical Banking Corp. Similarly, First Interstate Bancorp's return on equity fell to minus-3.29% in the first quarter - from 25.45% - after expenses related to its April 1 acquisition by Wells.
