For all of the focus on returns on equity or returns on assets, there’s one figure that really shows the size and strength of a financial institution – its market capitalization.
It’s a figure that bank chief executives like to focus on. Euromoney recently heard from one CEO how he and a counterpart at another leading bank spent time at a gathering of the financial market’s finest, checking their smartphones together, as their intra-day share prices moved and overtook the other in the global market cap bank league table.
And on that front, the good news for Lloyds Banking Group keeps on coming. Just a few days after UK chancellor George Osborne announced – now the government is in the money on its 39% stake – it will start to divest shares, the UK bank has secured a new accolade: that of the best-performing bank, with a value greater than $25 billion during the past 18 months.
When markets closed on the last trading day of H1 2013, on June 28, Lloyds’ market cap was $68.332 billion – a rise of 147% since January 2, 2012.
And it narrowly edged out Bank of America, whose market cap rose by 146% to £138.636 billion during the same period.
If a picture is worth a thousand words, how many is a table or chart?
| Top 10 banks by rise in dollar market capitalization |
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Recent data concerning market capitalization from Bloomberg paint a clear picture of the tumultuous market activity as of late and which banks have risen – or fallen – among the ranks.
Lloyds’ success was a remarkable achievement for a bank that just a year and a half ago was struggling along at a share price of 25 pence.
Since then it has reduced its non-core assets at a much faster rate than expected, which has allowed investors to focus more closely on its underlying business.
The new Lloyds business model delivered a statutory profit of more than £2 billion ($3.1 billion) in the first quarter of 2013, up from £280 million in the year before.
Lloyds now provides one-in-four mortgages to first-time buyers; has increased SME lending by 4%, compared with a market contraction of 4%; increased core tier 1 capital to 12%, the highest of any UK bank; and reduced costs by 7%.
Bank of America has benefited from the improvement in the US economy, where its main strengths lie, but also from the growing success of its global investment bank. Dealogic’s just-released results for the first half of 2013 show Bank of America’s investment banking revenues at $2.37 billion, up close to 30% over last year’s results.
The best performer in 2013 year-to-date was Swedbank’s 38.9% increase in market cap. The Swedish bank’s growth coincides with a focus inward on their core markets, as they have just signed an agreement to sell off a Ukrainian subsidiary and discontinue operations in Russia.
Lower funding costs have been a positive for Swedbank, whose ROE for continuing operations was at 15%, while the bank also strengthened its common equity capital ratio to 16.4% during the first quarter.
While Lloyds’ numbers provide cheer for the UK banking market, the performance of RBS does not. The loss of the bank’s chief executive Stephen Hester and the possibility the business will be split into a good and bad bank have contributed to a 20.7% decline in market cap during the past six months.
In the past 18 months, the worst performers among the top 50 banks by market cap are those with principal operations in Brazil. Banco Bradesco, Banco do Brasil and Itau Unibanco Holding SA Pref have seen decreases in dollar market cap year-to-date, of 16.5%, 19.9% and 12.2% respectively.
The financial environment in Brazil has been strained due to the government’s attempts to lower interest rates, as well as the much-publicized recent protests.
However, its problems don’t end there – China, its main trading partner, is stagnating, and commodity prices are on the decline.