After a banner year, North American banks face the coronavirus crisis with strong balance sheets and capital buffers—but no expectation that they will be spared.
Brian Moynihan, CEO of Bank of America
Thanks to several fat years, banks across North America entered 2020 with plump reserve cushions and forward momentum. The outlook darkened quickly, however, under the shadow of Covid-19 and the Federal Reserve’s decision to lower interest rates to near zero in response.
“Growing economic and market upheaval will increase the stress on US banks’ operating environment and asset quality, and emergency interest rate cuts will raise the pressure on profitability,” Moody’s Investors Service said in March as it changed its outlook for the US banking system from stable to negative.
The Fed’s policy actions to keep the financial system’s plumbing working will help sustain banks’ strong liquidity, Moody’s said, even as major corporations moved quickly to draw down multibillion-dollar credit lines. While US banks’ sound capitalization provides a solid buffer against losses, the rating agency warne that “the negative implications for banks will intensify in a prolonged economic slowdown.”
At Bank of America, which is Global Finance’s choice as Best Bank in the US as well as Best Bank in North America for 2020, US economist Michelle Meyer said in March, “We are officially declaring that the economy has fallen into recession, joining the rest of the world, and it is a deep plunge. Jobs will be lost, wealth will be destroyed and confidence depressed.”
In a note to clients, Meyer said BofA expects the economy to collapse in the second quarter, with a drop of 12%, and that full-year 2020 GDP likely will decline by 0.8%. “Although the decline is severe, we believe it will be fairly short-lived,” she added, and the economy could feel “somewhat more normal by July.”
One of the largest US commercial banks, BofA completed more than $3 billion in new technology code initiatives last year, according to Brian Moynihan, CEO and chair. In a call with analysts, he said the bank surpassed 10 million clients using Erica, its virtual financial assistant for consumers.
“We also delivered for shareholders in 2019 by returning a record $3.4 billion in excess capital through dividends and share repurchases,” Moynihan said. BofA and other large US banks halted share buybacks in March to conserve capital for supporting clients during the coronavirus crisis.
Dave McKay, CEO of Royal Bank of Canada
BofA has relationships with 77% of the Global Fortune 500 and 95% of the US Fortune 100 companies, and is also the nation’s leading small-business lender. The bank is a leading dealer in foreign exchange cash, derivatives, electronic trading and payment services, and its investment bank offers one of the top market-making platforms.
In Canada, Royal Bank of Canada is the leader by market capitalization and is Global Finance’s pick for Best Bank in Canada for 2020. RBC reported record results in its Canadian banking operations in its first fiscal quarter, ended January 31, and its wealth management division also performed well despite interest-rate headwinds.
“We are honored to be recognized by Global Finance,” says Dave McKay, president and CEO of RBC. “As our clients and communities work toward economic recovery, we know the coming months will require even greater efforts. RBC came out of the last financial crisis stronger than ever and we’re focused on exiting this crisis in a position to serve our clients in newer and even better ways.”
Butterfield Bank, our winner in Bermuda, saw earnings decline to $177 million in 2019 from $195 million a year earlier, but it made significant moves to bolster its competitive position. Last year “was an important year for Butterfield in terms of operational and financial achievements,” says Michael Collins, chair and CEO. “We successfully acquired the ABN AMRO (Channel Islands) banking business, which significantly increased our presence in Guernsey. This complemented our profitable and well-established franchises in Bermuda and Cayman, and we opened the new Camana Bay Banking Center in Grand Cayman.”
North America Winners
|Canada||Royal Bank of Canada|
|United States||Bank of America|