Ranking the 10 Biggest Banks

Quickly:

  • Bank Director’s year-long Ranking Banking study focuses less on current profitability and market capitalization & more on how the top 10 banks in the U.S. are strategically positioned for success.

By Al Dominick, CEO of DirectorCorps — parent co. to Bank Director & FinXTech

WASHINGTON, DC — It is with tremendous pride that I share the results of Bank Director’s year-long study on America’s 10 largest banks.
  As my colleague, Bill King, wrote to open our inaugural Ranking Banking, we felt that a truly comprehensive analysis of the largest banks was missing, one that includes not just profitability or customer satisfaction ratings, but also compiles numerous measures of strength and financial health — a project to rank each of the largest banks for each major line of business based on qualities that all big banks need.

For instance, we decided to rank banks for branch networks, mobile banking, innovation and wealth management. We analyzed corporate banking and small business lending. We interviewed experts in the field and did secret shopper visits to the biggest banks to find out what the customer experience was like.  Unlike other rankings, we even included complaints lodged with the Consumer Financial Protection Bureau as one of many customer satisfaction metrics that we analyzed.  In other words, there is little about the biggest banks in the nation that we left out.

So who came out on top?

JPMorgan Chase & Co. topped Bank Director’s 2018 Ranking Banking study.

In fact, Chase won five of the ten individual categories and ranked near the top in three more, and was judged by Bank Director to be the most worthy claimant of the title Best of the Biggest Banks.  The individual category winners are:

Best Branch Network: Wells Fargo & Co.

Despite its well-publicized unauthorized account opening scandal, Wells Fargo topped the branch category by showing the best balance of deposit growth and efficiency, and scored well on customer experience reports from Bank Director’s on-site visits.

Best Board: Citigroup

In ranking the boards of directors of the big banks, Bank Director analyzed board composition by factors such as critical skill sets, diversity, median compensation relative to profitability and independence. Citigroup’s board best balanced all components.

Best Brand: JPMorgan Chase & Co.

Chase and runner-up Capital One Financial Corp. stood out for their media spend as a percentage of revenue, and both exhibited strong customer perception metrics.

Best Mobile Strategy: JPMorgan Chase & Co.

Chase has been successful in driving new and existing customers to its mobile products, leading to an impressive digital footprint, measured through mobile app downloads. The bank’s app also scored well with consumers.

Best Core Deposit Growth Strategy: BB&T Corp.

BB&T had a low cost of funds compared to the other ranked banks, and its acquisitions played a strong role in its core deposit growth, which far surpassed the other banks in the ranking.

Most Innovative: JPMorgan Chase & Co.

Chase most successfully balanced actual results with sizeable investments in technological innovation. These initiatives include an in-residence program and a financial commitment to the CFSI Financial Solutions Lab. Chase has also been an active investor in fintech companies.

Best Credit Card Program: JPMorgan Chase & Co.

Chase barely edged out fast-growing Capital One to take the credit card category, outpacing most of its competitors in terms of credit card loan volume and the breadth of its product offering. Chase also scored well with outside brand and market perception studies.

Best Small Business Program: Wells Fargo & Co.

Wells Fargo has long been recognized as a national leader in banking to small businesses, largely because of its extensive branch structure, and showed strong loan growth, which is difficult to manage from a large base. Wells Fargo is also the nation’s most active SBA lender and had the highest volume of small business loans.

Best Bank for Big Business: JPMorgan Chase & Co.

Big banks serve big businesses well, and finding qualitative differences among the biggest players in this category—Chase, Bank of America and Citigroup—is difficult. But Chase takes the category due to its high level of deposit share, loan volume and market penetration.

Best Wealth Management Program: Bank of America Corp.

With Merrill Lynch fueling its wealth management division, Bank of America topped the category by scoring highly in a variety of metrics, including number of advisors (more than 18,000 at last count) and net revenue for wealth and asset management, as well as earning high marks for market perception and from Bank Director’s panel of experts.

FWIW…

The 10 largest U.S. retail banks play an enormously important role in the nation’s economy and the lives of everyday Americans. For example, at the end of 2016, the top 10 banks accounted for over 53 percent of total industry assets, and 57 percent of total domestic deposits, according to the Federal Deposit Insurance Corp. The top four credit card issuers in 2016—JPMorgan Chase & Co., Bank of America Corp., Citigroup and Capital One Financial Corp.—put more than 303 million pieces of plastic in the hands of eager U.S. consumers, according to The Nilson Report.

The #1 Reason That Potential Buyers and Sellers Walk Away From a Bank M&A Deal

According to Bank Director’s 2017 M&A Survey, price is the top reason that potential buyers and sellers have walked away from a deal in the past three years.

With the final days of November upon us, we are a mere 61 days away from hosting Bank Director’s annual Acquire or Be Acquired Conference.  This three-day event explores the various financial growth options available to a bank’s CEO, executives and board members; accordingly, I thought to share some highlights from our just-released Bank M&A Survey that resonate with this audience.

This research project — sponsored by Crowe Horwath LLP and led by our talented Emily McCormick — reflects the opinions of 200+ CEOs, CFOs, Chairmen and directors of U.S. banks.  As Rick Childs, a partner at Crowe, and someone I respect for his opinions and experiences shares, “good markets and good lending teams are the keys for many acquirers, and are the starting point for their analysis of potential bank partners.”  While we cover a lot of ground with this survey, below are five points that stood out to me:

  • An increasing number of respondents feel that the current environment for bank M&A is stagnant or less active: 45% indicate that the environment is more favorable for deals, down 17 points from last year’s survey.
  • 46% indicate that their institution is likely or very likely to purchase another bank by the end of 2017.
  • 25% report that they’re open to selling the bank, considering a sale or actively seeking an acquirer. Of these potential sellers, 54% cite regulatory costs as the reason they would sell the bank, followed by shareholder demand for liquidity (48%) and limited growth opportunities (39%).
  • Price, at 38%, followed by cultural compatibility, at 26%, remain the two greatest challenges faced by boards as they consider potential acquisitions. Price is identified as the top reason that potential buyers and sellers have walked away from a deal in the past three years.
  • 45% report that they are seeing a deterioration in loan underwriting standards within the industry, leading to possible credit quality issues in the future.

Driven by shareholder pressures in a low-growth and highly regulated environment, some community banks could be seeking an exit in the near future. But which banks are positioned to get the best price in today’s market?  This survey provides potential answers to that question — foreshadowing certain conversations I’m sure will occur in January during our 23rd annual Acquire or Be Acquired conference.

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My thanks to Rick and his colleagues at Crowe for their continued support of this research project.  To see past year’s results — and other board-level research reports we’ve shared — I invite you to take a look at the free-to-access research section on BankDirector.com

5 Cybersecurity Companies Bank Execs & Board Members Need to Know

When it comes to cybersecurity, the best defense might just be a great offense.  Whereas cybersecurity once focused on how banks could avoid losing money, my team and I are working on a program for 2017 to help officers and directors address potential scenarios (and develop realistic response plans) should a hack, breech or attack occur.  Indeed, protecting the bank against a cyber attack is a core responsibility of every member of a bank’s board and executive team.

In recent posts, I’ve highlighted various fintechs that I find compelling given their relationships with financial institutions.  In terms of cybersecurity, I’ve had the chance to learn more about companies like DefenseStorm (given their support of companies like nCino and LiveOak Bank) that I greatly respect.  Below are five more companies that I think bank leadership teams need to know:

Cognizant

A global cybersecurity solution and service provider, Cognizant supports multiple industry verticals and information security service lines.  I encourage you to take a look at their thoughts on what traditional banks can do to rebuild trust in the digital era.

Centrify

California-based Centrify offers identity & access management solutions to help secure enterprise identities against cyberthreats that target today’s IT environment of cloud computing.  Banking customers include such recognizable names as BB&T, SunTrust, Citi and RBS.

Lookout

Lookout has taken a mobile-first approach to security.  Indeed, one of the world’s largest investment management firms chose Lookout to provide threat and data leakage protection to over 10,000 managed iOS and Android devices.

Feedzai

Founded by data scientists and aerospace engineers, Feedzai’s mission is to “make commerce safe for business customers and create a better experience for their consumers through artificially intelligent machine learning.”

Brighterion

Since the founding of Brighterion, its core technology has been adapted and improved for real-time applications in the fields of payment, healthcare, marketing and homeland security.  For instance, its analysis of payments provides “unprecedented behavioral insights,” from the spending behavior of customers to the constantly evolving techniques of fraudsters.

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As a complement to these five businesses, let me wrap up by sharing a recent FinXTech article:Emerging Technologies Combat Cybercrime.  As you will read, banks are doing everything they can to reassure customers that their digital information is safe and secure.

Evaluating Board Performance

New regulations, technological innovations and a highly competitive environment that leaves little room for error have placed unprecedented demands on the time and talents of bank boards and their individual directors.  As many who support the banking space can attest, a strong board begins with a set of enlightened governance policies and procedures that center on honesty, personal integrity and accountability.

At Bank Director, we coined the phrase “strong board, strong bank” in response to the mounting pressures placed on the banking community.  Over the years, we have introduced new research projects, conferences and magazine issues to provide exceptionally timely and relevant information to a hugely influential audience.

As I prepare to head down to Florida (and the Ritz-Carlton, Amelia Island) this weekend for our annual Bank Executive & Board Compensation conference, I am anticipating conversations about potential regulatory changes and current strategic challenges related to a bank’s growth and profitability.  Alongside my colleagues Michelle King and Amanda Wages, I also expect to field questions from the audience (depicted in the image above) about how high performing corporate boards employ evaluation tools that match the talents & experiences of their board members to an organization’s strategic goals.  FWIW, I anticipate such inquiries as many consultants and attorneys encourage such assessments — and the board performance self-evaluation tool we designed & offer to banks has earned a strong reputation for providing an independent review of a board’s effectiveness.

To be sure, the banking industry seems to be doing well based on a variety of measures — profitability is high, credit quality is much improved and tangible capital ratios are stronger than ever. However, such financial measures don’t necessarily reflect the challenges facing many banks and their boards.  So in advance of our annual event, I asked our research team to roll up the results from twenty-two bank boards — all randomly selected — that completed a performance survey this year.

While tempting to look at individual board results and draw conclusions, anonymously lumping this group together allows some interesting patterns to emerge given more then 200 individual responses:

  • 50% recognize a need for more diversity on the board;
  • 55% say they need more expertise/knowledge in technology on the board, and 44% indicate a need for more training on IT issues;
  • 51% are dissatisfied with some aspect of the bank’s succession plan, for the CEO and/or the board; and
  • 56% are certain they have the M&A experience to meet the bank’s growth goals (44% say no or are unsure).

While these four points caught my eye, I asked our Director of Research, Emily McCormick, what stands out to her. In her words:

“Many boards lack a consensus on their succession plan, meaning that they’re often not on the same page regarding the depth of that plan. That, to me, is a red flag.”

Anecdotally, many bank CEOs — and board members — that I’ve talked with in person know they need new skills, particularly in technology, and recognize a need for diversity. But as we find, few want to add additional board members.  A fact to keep in mind next week as we explore how to build and support the best teams based on the strategies and tactics being used by successful companies today.

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We designed our Bank Service offerings to help board members and senior executives develop strategies to help their bank grow, while demonstrating excellence in corporate governance that shareholders and customers deserve and today’s regulators demand.  To learn more, click here.

Can Banks Keep Up?

As the financial industry adapts to various digitization trends, my team continues to field inquiries from bank CEOs and their executive teams specific to emerging technology strategies and opportunities.  One way we attempt to benchmark current interests (and concerns): an annual research project.  This year, we evaluated industry attitudes toward core providers and fintech firms, including marketplace lenders like Lending Club, in our just-released Bank Director Technology Survey.  While a number of findings jumped out at me, three really caught my eye:

  • Eighty-one percent of bank chief information officers and chief technology officers responding say that their core processor is slow to respond to innovations in the marketplace, making it even more difficult for the banking industry to keep up with shifting consumer expectations regarding technology.
  • Thirty percent of bank CIOs and CTOs report that their bank has pulled back on plans to integrate a more innovative product, service or delivery channel due to the inability or unwillingness of the bank’s core processor to support that activity.
  • Banks are highly reliant on core providers for services beyond core processing, which at its most basic contains vital customer data and processes all customer transactions. Ninety-six percent of respondents say their bank uses their core provider for additional services, including mobile banking (71 percent) and bill pay (75 percent).

Our 2016 Technology Survey, sponsored by the technology solutions provider CDW, reflects the opinions of 199 board members and senior executives of U.S. banks surveyed in June and July.  The size of institutions polled fell between $250 million and $20 billion in assets.  In addition to the points shared above, we found:

  • Thirty-one percent of respondents have converted their bank’s core technology within the past five years. Forty-two percent converted their core more than 10 years ago.  Respondents report that their bank works with a median of five technology firms, including the core provider.
  • Sixty-one percent of participants see fintech firms as both competitors and partners.
    Online marketplace lenders should be more heavily regulated, say 60 percent of respondents. Forty-one percent worry that they’ll lose loans to these lenders, but 18 percent don’t think these lenders have long-term viability.
  • Opinions are mixed on the impact that blockchain—the underlying technology behind the digital currency bitcoin—will have on the banking industry. Twenty-four percent believe it will impact all banks. However, 57 percent don’t understand blockchain enough to form an opinion, or have never heard of the technology.

Finally, cybersecurity continues to loom large.  Having a strong technology infrastructure in place to protect against cyberattacks remains the top technology concern for survey participants, at 72 percent.  Seventy percent indicate that their bank could better use data to serve the needs of existing customers, or identify new customers.  Seventy percent of respondents believe that technological innovation is a priority for their board, but less than half discuss technology at every board meeting.  Thirty-four percent of respondents describe themselves as early adopters of technology.

The full survey results are available online at BankDirector.com, and will be featured in the 4th quarter 2016 issue of Bank Director magazine.

Size & Scale: The King and Queen of Bank M&A?

Earlier this week, I shared my perspectives on bank M&A with the Wall Street Journal.  What follows builds off the piece that ran in Tuesday’s print edition, highlighting key findings from Bank Director’s annual Bank M&A Survey.

By Al Dominick // @aldominick

At a time when J.P. Morgan is getting smaller, the pressure is on for smaller banks to get bigger.  As KPMG recently shared with BankDirector.com, there was a 25% increase in bank deals in the U.S. in 2014, compared to 2013, and there is a good possibility that the number of deals in 2015 will exceed that of 2014.  One reason for this: a larger institution can spread costs (such as investments and regulatory burdens) across a larger customer and revenue base.

Not surprisingly, 67% of executives and board members responding to Bank Director’s 2016 Bank M&A Survey say they see a need to gain more scale if they are going to be able to survive in a highly competitive industry going forward.  As our director of research, Emily McCormick, shared, “many of these respondents (62%) also see a more favorable climate for bank deals, hinting at a more active market for 2016 as banks seek size and scale through strategies that combine organic growth with the acquisitions of smaller banks.”

While the majority of bank executives and boards surveyed feel a need to grow, respondents don’t agree on the size banks need to be in order to compete today.  A slim majority, 32%, identified $1 billion in assets as the right size… interesting, but not surprising, when you consider that 89% of commercial banks and savings institutions are under $1 billion in assets, according to the FDIC (*personally, I’m of the opinion that $5Bn is the new $1Bn, but that’s a topic for another day).  On to the key findings from this year’s research:

  • Two-thirds report their bank intends to participate in some sort of acquisition over the next 12 months, whether it’s a healthy bank (51%), a branch (20%), a nondepository line of business (14%), a loan portfolio (6%) and/or a financial technology firm (a scant 2%).
  • Respondents indicate that credit culture, at 32%, and retaining key talent that aligns with the buyer’s culture, at 31%, are the most difficult aspects of the post-merger integration process.
  • More institutions are using social media channels to communicate with customers after the close of the deal. 55% of respondents who purchased a bank in 2014 or 2015 used social media, compared to 42% of 2011-2013 deals and just 14% of 2008-2010 deals (*FWIW, Facebook, at 26%, is the most popular channel for respondents).
  • Fifty-six percent of respondents have walked away from a deal in the past three years.  Of the respondents who indicate they declined to buy, 60% cite deal price while 46% blame the credit quality of the target institution.
  • Why do banks sell? Of the executives and board members associated with banks sold from 2012 to 2015, 55% say they sold because shareholders wanted to cash out.  Despite concerns that regulatory costs are causing banks to sell, just 27% cite this burden as a primary motivator.

The full survey results are now available online at BankDirector.com, and will be featured in the 1st quarter, 2016 issue of Bank Director magazine.  In addition, for those executives interested in connecting with many of the key decision makers driving the deals mentioned above, our annual Acquire or Be Acquired Conference will be held at the Arizona Biltmore from January 31 through February 2.

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Our 2016 Bank M&A Survey, sponsored by Crowe Horwath LLP, examines current attitudes and challenges regarding bank M&A, and what drives banks to buy and sell. The survey was completed in September 2015 by 260 chief executive officers, independent directors and senior executives of U.S. banks, and former executives and directors of banks that have been acquired from 2012-2015.

Reaching For The Summit

When you say the word summit, what do you think of?  For me, it is a book; specifically, Let My People Go Surfing by Patagonia’s founder, Yvon Chouinard. I was reminded of Yvon’s thoughts while flying home to DC from last week’s Bank Board Growth & Innovation conference in New Orleans.  While there, I had a chance to share time and ideas with some 150 bank CEOs, board members and executives. As most banks wrestle with the concept of banking a generation that doesn’t necessarily see the need for a bank, I think Yvon’s opinion that “how you climb a mountain is more important than reaching the top” is a strong reminder for bankers that the little things really do count with customers today.

By Al Dominick // @aldominick

Having been on numerous airplanes over the last few weeks, I have enjoyed the luxury of time without phone calls and sometimes emails and instant messages.  This digital solitude afforded me a chance to really dive into a number of thought-provoking white papers, analyst reports and research pieces.  Three, in particular, stand out, for looking ahead to what banking might become, not merely stating the obvious that bankers are being challenged as never before.

The World Retail Banking Report (from Capgemini Financial Services and Efma)

Abstract: Retail banking customers today have more choices than ever before in terms of where, when, and how they bank—making it critical for financial institutions to present options that appeal directly to their customers’ desires and expectations.

Growing the Digital Business / Accenture Mobility Research 2015 (from Accenture)

Abstract: The emergence and adoption of digital technologies has rapidly transformed businesses and industries around the globe. Mobile technologies have been especially impactful, as they have enabled companies to not only streamline their operations, but also engage more effectively with customers and tap into new sources of revenue.

Disrupting Banking: The FinTech Startups That Are Unbundling Wells Fargo, Citi and Bank of America (from CB Insights)

Abstract: Banks run the risk of being out-innovated and may lose their edge not because of their incumbent, large competitors, but because emerging startups inflict upon them a death by a thousand cuts.  And because a picture is worth more than 1,000 words:

source: CB Insights
source: CB Insights

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Finally, a welcome to our friends at KBW who just hopped into the Twitter pool yesterday. With so many talented men and women working there, I have no qualms suggesting a follow of their handle – @KBWfinthink (h/t to our Emily McCormick for the heads up)