After several difficult years, banks in North America are now getting back to business.
Banks across North America are doing what they are supposed to do. They are lending more money and making more money. There is some concern among regulators, however, about the potential fallout from the record low interest rates that have been a fact of life for an extended period. This may have led some financial institutions to reach for yield, which could have increased their exposure to interest-rate risk, liquidity risk and credit risk, says Martin Gruenberg, chairman of the US Federal Deposit Insurance Corporation (FDIC).
Nonetheless, revenue and net income were higher at FDIC-insured institutions last year, loan balances grew, and asset quality improved. The number of unprofitable banks and “problem banks” fell in the fourth quarter of 2016 to 123, the lowest in more than seven years, Gruenberg says.
Each of Bank of America’s business segments performed better in the fourth quarter of 2016 than in the same period a year earlier. Altogether, the bank earned $17.9 billion last year, while lowering costs and improving productivity to take our regional award for North America.
With the largest share of US retail deposits, Bank of America earned more than $7 billion from consumer banking in 2016, which remained its biggest earning business. The bank’s global banking business, serving commercial customers, generated $5.7 billion of earnings last year, followed by global markets with $3.8 billion, the highest in five years for that category.
Bank of America has the leading US market penetration for large corporate banking, cash management and trade finance, according to Greenwich Associates. The bank has relationships with 80% of the Global Fortune 500, and 96% of the US Fortune 1,000 companies. BofA increased its asset quality at the same time that it increased its loans by $19 billion to $916 billion last year. Its net charge-off ratio declined to 0.39% in the fourth quarter of 2016 from 0.52% in the fourth quarter of 2015. Deposits rose by $64 billion last year to $1.26 trillion.
The bank’s earnings have grown even without a significant rise in interest rates, and it is now looking forward to further rate increases, while it expects to drive expenses even lower. At the end of 2016, BofA posted its 20th consecutive quarter of year-over-year reductions in operating expenses. It cut costs by almost 5% last year, or by $2.8 billion. Meanwhile, all of the bank’s businesses are operating at good efficiency levels and are producing returns above the firm’s cost of capital. Share repurchases reduced the share count by 2%, producing a 15% rise in earnings per share in 2016.
In Canada, banks remain highly rated compared with their global peers. Royal Bank of Canada’s earnings rose 4% last year, with strong results in wealth
management and insurance. For its first quarter, ended January 31, 2017, RBC’s earnings rose 24%, including a gain from the sale of the US operations of Moneris Solutions, which processes debit and credit card payments. RBC operates in Canada, the US and 35 other countries.
In Bermuda, Butterfield Bank completed a successful initial public offering on the New York Stock Exchange in 2016 and successfully integrated HSBC’s wealth management business in Bermuda. “In 2016, we recorded core return on average common tangible equity of 20% without the level of credit exposure inherent in a typical US regional bank,” says Michael Collins, Butterfield’s CEO.
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Best Banks In North America 2017 |
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REGIONAL WINNER |
Bank of America |
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Bermuda |
Butterfield Bank |
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Canada |
Royal Bank of Canada |
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United States |
Bank of America |
