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NORTH AMERICA

NORMAL SERVICE HAS BEEN RESUMED

The US banking industry has recovered from the financial crisis and is functioning relatively normally, although mortgage lending has only recently begun to pick up. Canadian banks, which were less challenged by the crisis, are continuing to perform well despite a sluggish domestic economy. There are areas of concern, however, as banks loosen their lending standards and net interest margins remain tight.

The US Office of the Comptroller of the Currency and other banking regulators have warned of serious deficiencies in leveraged lending, particularly for commercial real estate. Nevertheless, the Federal Reserve says the big US banks have sufficient capital on hand to withstand a drastic economic downturn.

There were 291 banks on the Federal Deposit Insurance Corporation’s problem list at the end of 2014, down from 888 at the peak in March 2011. A majority of banks reported higher operating revenues and improved earnings in 2014 from a year earlier. However, total industry earnings declined slightly as a result of legal fees at a few large banks.

Wells Fargo, the world’s largest bank by market capitalization, has benefited from conservative risk-management policies and a diversified business model. The bank’s revenue is balanced between net interest income and fee-based income. Wells Fargo earned a record $23.1 billion in 2014, a 5% increase from a year earlier. From its San Francisco base, the bank has expanded to become a nationwide financial institution. While most of its assets are in the US, Wells Fargo now operates in 36 countries.

Wells Fargo is using its sustained earnings strength to return more capital to shareholders. It purchased 87 million of its shares on a net basis last year. The bank’s credit losses have remained near historic lows, while nonperforming loans have declined. Wells Fargo leads all US banks in small-business lending, home mortgage customers, auto lending, agriculture-related loans and commercial real estate financing. It focuses on what it calls the “real economy,” rather than on trading and speculative activities.

Wells Fargo, long a leader in international trade finance, is the largest import factor worldwide. Its supply-chain finance unit offers products to large corporations and their trading partners to help manage cash flow and increase market share.

John Stumpf, chairman and CEO
www.wellsfargo.com

Butterfield Bank reported strong earnings in Bermuda and the Cayman Islands last year, and expanded its core businesses in the Caribbean and Europe, while reducing its non-accrual loan balances. Butterfield acquired parts of the corporate and retail banking business of HSBC in the Cayman Islands for $800 million. It also acquired Legis Group’s trust and corporate services business in Guernsey. The well-capitalized bank offers trust services in Bermuda, the Bahamas, the Cayman Islands, Guernsey and Switzerland.

Brendan McDonagh, chairman and CEO
www.butterfieldgroup.com

Toronto-based TD Canada Trust (the group’s Canadian unit) is the highest-rated bank in Canada, and its affiliate, TD Bank, is one of the 10 largest banks in the US. In the three months ended January 1, 2015, its first quarter, the bank posted strong retail earnings on both sides of the US-Canadian border. Its Canadian retail operations earned $1.4 billion in the quarter, an increase of 8% from the same period a year earlier. TD enjoyed good loan and deposit growth despite a challenging economic environment. In wholesale banking, fee-based revenue declined on lower industrywide volumes. TD recently became the first major bank in Canada to offer SMS-based (text message) customer service.

Bharat Masrani, president and CEO
www.td.com

With more than 8,700 locations in 38 states, Wells Fargo is the leading bank for US middle-market companies that have annual revenue of more than $20 million, as well as for small businesses. Its recent expansion has centered on urban and suburban markets in the eastern US. The bank’s overall deposits rose 8% last year to a record $1.2 trillion. A likely rise in US interest rates and an improving economy portend future gains for Wells Fargo, which derives most of its revenue from the US. Credit losses declined by 35% last year, while net charge-offs fell to 0.35% of average loans.

John Stumpf, chairman and CEO
www.wellsfargo.com