The Banker's annual list of top 1,000 global banks may have some problems if it has Bank of America Corp. (NYSE:BAC) and Citigroup Inc. (NYSE:C) finishing second and third, respectively. Wouldn't the two be drowning in their own debt if it wasn't for the government bailouts?
The list was based on the banks' capital strength, or Tier 1 capital,
which consists of common stock, preferred stock and hybrid debt-equity
instruments. Curiously, both banks, along with J.P. Morgan Chase & Co. (NYSE:JPM), which ranked No. 1, received government assistance
in the form of Troubled Asset Relief Program capital injections during the global financial crisis. Both Bank of America and Citi each received $45 billion, and J.P. Morgan received $25 billion. Of the top three U.S. banks, J.P.
Morgan was the only one to repay its share of TARP funds and the only one not required to raise additional capital following government stress tests.
So how do two of the most troubled U.S. banks end up topping the list? Maybe those stress tests helped. Bank of America was required to raise $33.9 billion in additional capital, and as of the beginning of the month it was on its way to achieving the government's target. However, Bank of America remains troubled as some believe the acquisition of Merrill Lynch & Co. has truly wounded the banking giant. Controversy has surrounded the deal since BofA CEO Ken Lewis admitted recently he was basically forced by the government to do the deal or potentially lose his job. However, Lewis did not necessarily need the government's help to get BofA into trouble as it hasn't seemed to fare much better with its other addition amid the financial crisis, Countrywide Financial Corp., whose toxic debt threatens to haunt the bank well into the future.
Meanwhile, Citigroup had no trouble meeting the government's $10
billion stress test target because it simply converted the government's preferred
shares into common shares. However, the move assures that Citigroup will remain dependent on the government for years to come and is unlikely to pay off the $45 billion in bailout money anytime soon. Citi is trying to pare down its balance sheet by selling off assets, which in turn should improve its capital position. However, Citigroup is reportedly poised to raise salaries as much as 50% despite its weak bottom line and questionable financial status.
Sitting atop The Banker's list is J.P. Morgan. This choice wouldn't be questioned by many as the New York bank deftly acquired two struggling financial brands, Bear Stearns Cos. and Washington Mutual Inc., for bargain basement prices. The additions strengthened J.P. Morgan's retail savings division and investment banking core without straddling it with a lot of bad assets.
The list is not available on the The Banker's Web site. However, a video discussing the list of 1,000 banks can be viewed online. - Gerald Magpily
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