Rising Markets Lift Banks
North America’s banking system is in much better condition than it was before the financial crisis erupted. It has significantly more Tier 1 capital and plenty of liquidity, thanks in part to the Federal Reserve’s quantitative easing. Canadian banks remained focused on long-term strategies and prudent lending throughout the crisis and are a model of probity for bankers worldwide.
An extended period of relatively low growth and record-low interest rates are making it difficult for bankers to maintain substantial growth in their revenue, however. The capital markets and the economic backdrop are improving, but loan demand remains weak and the housing market is still struggling.
Meanwhile, the financial services sector is changing, and regulators are demanding more-sophisticated risk management systems. And while some of the major banks are thriving and increasing dividend payouts, the number of banks on the Federal Deposit Insurance Corporation’s list of problem banks rose to nearly 900 by the end of last year. Nevertheless, the FDIC says it believes the number of bank failures peaked in 2010, and it expects both the number and total assets of this year’s failures to be lower than last year’s.
JPMorgan Chase has a market-leading position in most of its business lines across North America. Not only is it a leader in the US market, but it also has more than 1,600 employees in its offices across Canada. In March 2011, the bank raised its dividend to shareholders to $0.25 per share from $0.05 per share, after the Federal Reserve completed a second round of extensive stress tests on banks. The Fed concluded that JPMorgan Chase could release some of its capital reserves and still withstand any foreseeable future economic shocks. The bank also announced a $15 billion multi-year common-stock repurchase program.
“Our earnings power will allow us to generate significant capital in excess of our objectives, allowing us to aggressively invest in our future,” CEO Jamie Dimon said in announcing the stock-repurchase plan. “JPMorgan Chase has substantial organic growth opportunities—building branches, adding bankers and expanding product and service capabilities globally. Quality organic growth is our top priority and our best use of capital,” Dimon says.
Jamie Dimon, chairman and CEO
HSBC Bank Bermuda
HSBC Bank Bermuda is the highest-rated bank in the country, where it operates from six locations, including its new Harbourview Centre head office, which opened last year. The bank was formed in October 2003, when UK-based HSBC acquired Bank of Bermuda, which was founded in 1889. “Utilizing the HSBC network’s global capabilities positions us to better serve the needs of our clients and the jurisdiction,” says Philip Butterfield, the bank’s CEO. The bank offers a wide range of services, including global fund services, asset management, community banking and corporate banking. Its earnings rose 15% last year to $254 million. In March 2011, HSBC Bank Bermuda sold its insurance management business to Kane Group.
Philip Butterfield, CEO
Royal Bank of Canada
Royal Bank of Canada (RBC) is not only Canada’s largest bank but its largest company by assets and market capitalization. RBC serves more than 18 million customers in 58 countries, including 11 million clients in Canada. RBC had record earnings of $1.8 billion in its fiscal first quarter, ended January 31, 2011, an increase of 23% from the same period a year earlier. Its fiscal 2010 earnings totaled $5.2 billion, up from $3.9 billion a year earlier.
In addition to retail banking, RBC offers wealth management, insurance, corporate and investment banking, and transaction-processing services. It operates the leading full-service brokerage service in Canada and the largest bank-owned insurance company. Last October, RBC agreed to sell Liberty Life, its US life-insurance business, to Athene Holding for $628 million.
In December 2010, Moody’s Investors Service lowered RBC’s deposit rating to Aa1 from Aaa, citing the bank’s growing exposure to the capital markets business with its potential income volatility.
Gordon Nixon, president and CEO
JPMorgan Chase’s earnings rose 48% last year to $17.4 billion, as losses on troubled loans declined, supporting the claims of those who say the bank emerged from the financial crisis stronger than ever. To boost the US economic recovery, JPMorgan Chase provided credit to and raised capital for its clients of more than $1.4 trillion during 2010. This included more than $10 billion of credit to 250,000 small businesses in the United States. The bank hired more than 8,000 people in the US alone last year.
Meanwhile, J.P. Morgan has emerged as one of the top investment banks globally, thanks in part to its acquisition of Bear Stearns in 2008. J.P. Morgan earned more investment-banking fees than any other institution for a second straight year in 2010.
Jamie Dimon, chairman and CEO