Ever since America's vast financial sector blew up the economy, demanded and took (without apology or gratitude) massive bailouts, and lobbied and fought against reforms, Americans have been hoping and praying that somebody, somewhere would downsize the bankers — downsize their ambitions, their egos and their capacity to wreak havoc.
Bankers' high level of self-regard remains unchecked. J.P. Morgan Chase CEO Jamie Dimon last week had the temerity to complain about all the complaining about inequality, and about his own tax bill. As Gary Rivlin of the Daily Beast noted, the wails came a from a guy whose stock hasn't risen in several years, and whose bank has paid billions in dollars in fines to settle a variety of alleged regulatory transgressions. In the spring, J.P. Morgan Chase paid a fine to settle suits alleging that it had improperly foreclosed on soldiers.
But there has been some progress on reducing the profile of the banking system in the U.S. In fact, it's one of the lesser-told trend stories of 2011. Thanks to the lingering effects of last decade's debt crisis, changes in the markets, this decade's debt crisis, and some elements of regulation and legislation, the footprint banks occupy in the economy, in the markets, in politics, and in the culture — while still wildly disproportionate — has fallen over the course of the year.
Banks are definitely a smaller presence in the investing world than they were a year ago. The Keefe Bruyette & Woods large bank index, which tracks the stocks of large banks, and KBW's capital market index, which tracks the performance of investment banks, are off about 28 percent for the year.
Some of America's largest U.S. banks continue to downsize as they recover from the self-inflicted wounds of the credit bubble. Bank of America, which is still choking on the ill-timed acquisition of Countrywide Financial, has seen its stock fall toward the dreaded Abraham Lincoln line. To raise capital and protect against further losses, it has sold off credit card assets outside the U.S. and shares it owns in China Construction Bank. With its stock in the five dollar range, Bank of America has a market capitalization of about $54 billion. Citi, the bank formerly known as Citigroup, was the largest U.S. bank by assets in the pre-crisis era. But the bank has been holding a years-long garage sale of hundreds of billions of dollars of assets it places in its Citi Holdings unit. Between the third quarter of 2010 and the third quarter of 2011, Citi Holdings' assets fell 31 percent. Citi has recently sold off non-core assets like the record company EMI.
The big, universal investment banks such as Goldman Sachs and Morgan Stanley are also feeling the pain from a variety of sources: the carnage in Europe, high-frequency trading, new regulations, a general societal disgust with their way of doing business. Even with access to free money from the Fed and very low interest rates, it's difficult for very large investment banks to make money — or at least the kind of money that sets managing directors' hearts aflutter. And so they're slimming down. Morgan Stanley this week announced it is going to get rid of 1,600 jobs in the upcoming quarter. Goldman Sachs, which has been on a cost-cutting crusade, is getting rid of an unusually large number of partners this year, as Susanne Craig of the New York Times reported. Yahoo! Finance reported on Tuesday that bank analyst Richard Bove has slashed his estimate of Goldman's fourth quarter earnings by 66 percent. European banks, burned by the crisis at home, are getting rid of employees around the world, including in the U.S. France's Credit Agricole on Thursday said it would cut jobs in the U.S., and around the world, following in the footsteps of fellow citoyenne Societe Generale.
While bank branches may seem ubiquitous, the number of small banks has also fallen. We've noted that the pace of bank failures has been subsiding. (Here's the complete failed bank list.) As the FDIC's quarterly profile shows, "through the first nine months of 2011, there were 74 insured institution failures, compared to 127 failures in the same period of 2010." But four straight years of failures, mergers, and a lack of interest in opening new banks has led to a significant decline in the number of banks the FDIC insures: from 8,564 at the end of 2007 to 7,436 in the third quarter.
So, to sum up: In 2011, we've got fewer banks, more very large banks with smaller asset bases, and lower stock-market values for the biggest players. Banking executives would consider 2011 a year to remember. I call it a start.
Daniel Gross is economics editor at Yahoo! Finance.
Follow him on Twitter @grossdm; email him at firstname.lastname@example.org.
- Finance/Banking & Budgeting
- Bank of America
- Goldman Sachs