Bank of America's Deposits Shrink, Bucking Big Bank Growth Trend

NEW YORK ( TheStreet) -- Yes, the big banks are getting bigger. But there's more to it than that, especially for investors.

The Federal Deposit Insurance Corp.'s annual deposit market share data for U.S. banks and bank holding companies is now available. The "big four" bank holding companies, including Bank of America ( BAC), JPMorgan Chase ( JPM), Wells Fargo ( WFC) and Citigroup ( C) have continued to see their share of the nation's bank deposits increase. This will lead to the usual knee-jerk headlines whining about "too big to fail" banks and how the big keep getting bigger despite the best efforts of regulators and politicians.

Looking past the noise, there are some interesting items contained in the data that underline the success of the big four in pursuing their post-crisis strategies.

The big four had a combined U.S. deposit market share of 37.29% as of June 30, according to the FDIC data. This share grew from 36.68% in June 2012 and 34.51% in June 2008.

All four of the nation's largest banks saw their deposit market shares grow over the past five years, and all but one saw its share grow over the past year. But three of the big four lowered their U.S. branch count over the past five years -- two of them by very significant amounts, underlining the industry's emphasis on cost-control.

That June 2008 figure includes some back-filling of data, to include the two Merrill Lynch bank subsidiaries that Bank of America acquired along with the nation's largest brokerage firm in January 2009. The back-filling also includes the two bank subsidiaries purchased by JPMorgan Chase from the FDIC in September 2008, after Washington Mutual became the nation's largest bank ever to fail. The 2008 deposit market share for Wells Fargo is combined with Wachovia's deposits. Wells Fargo acquired Wachovia at the end of 2008.

Here's a quick summary of how the big four stacked up as of June 30:

Bank of America

Bank of America's share of U.S. deposits declined to 12.16% as of June 30 from 12.62% a year earlier. The company is still, by far, the market share leader, but it is also the only one of the big four to see its market share decline over the past year. This is in part by design, as the bank under the leadership of CEO Brian Moynihan continues to focus on right-sizing its balance sheet and cutting costs. The market share was up from 10.76% in June 2008, in part because of the Merrill Lynch acquisition.

The company's total number of branches (including acquired Merrill Lynch branches) declined to 5,401 as of June 30 from 5,660 in June 2012 and 6,202 in June 2008. That is a very significant decline in branch count, perfectly illustrating the effect of the cost-cutting program.

BAC's total deposits declined by 1.6% over the 12-month period ended June 30 to $1.147 trillion. That's still a huge number, increasing 48% from five years earlier. That growth in part reflects movement of brokerage clients' cash to insured deposits, and also the incredibly high level of overall liquidity brought about by Federal Reserve policy.

Most of the recent headlines on monetary stimulus policy have focused on the Fed's monthly bond purchases of $85 billion, and the eventual "tapering" of the purchases, which have been meant to hold-down long-term interest rates. But the central bank's main policy tool is the short-term federal funds rate, which has been held in a range of zero to 0.25% since late 2008. With money market funds paying next to nothing, customers have little incentive to park their cash outside of banks.

Bank of America is continuing its long, slow climb to a decent level of profitability, and the continued recovery in home prices, together with the "Project New BAC" have the company finding favor with investors.

Bank of America's shares closed at $14 Thursday and traded for 10.3 times the consensus 2014 earnings estimate of $1.36, among analysts polled by Thomson Reuters. That's the same forward P/E as Wells Fargo, which has been the most profitable among the big four over the past five years.

Wells Fargo

Wells Fargo was in second place with a 10.3% U.S. deposit market share as of June 30, increasing from 9.96% in June 2012 and 10.19% in June 2008 (which includes Wachovia's deposits). The company's total deposits of $971.940 billion as of June 30 were up 9% from a year earlier and 36% from June 2008 (again, including Wachovia).

Meanwhile, Wells Fargo lowered its branch count to 6,297 as of June 30, from 6,316 in June 2012, and a total of 6,741 Wells Fargo and Wachovia Branches, in June 2008.

As the nation's largest mortgage lender, Wells Fargo has a particular focus on holding down costs, as the refinancing boom subsides.

The company will announce its third-quarter results next Friday, with analysts, on average, expecting the company to post EPS of 97 cents a share, declining from 98 cents the previous quarter, but increasing from 88 cents a year earlier.

Wells Fargo's shares closed at $41 Thursday and traded for 10.3 times the consensus 2014 EPS estimate of $4.00.

JPMorgan Chase

JPMorgan Chase is the nation's largest bank by total assets, but it was in third-place for deposits, with a U.S. market share of 10.09% as of June 30, increasing from 9.67% in June 2012 and 9.70% in June 2008 (including Washington Mutual). The company's total deposits were 952.249 billion as of June 30, growing 10% from a year earlier, and 39% over the previous five years (including Washington Mutual).

Meanwhile, JPMorgan has been the only one of the big four to continue adding branches. Total branches grew to 5,697 as of June 30 from 5,608 in June 2012, and a combined total of 5,434 in June 2008.

JPMorgan Chase also will announce its third-quarter results on Friday, with analysts expecting EPS of $1.28, down from $1.60 in the second quarter and $1.40 in the third quarter of 2012.

There has been a flood of media reports predicting a global settlement between JPMorgan Chase, the Justice Department, regulators and state attorneys general covering a number of criminal and civil investigations of mortgage activities, but it would appear that a broad settlement will not be included in the third-quarter numbers.

The company on Sep. 19 entered into a $920 million settlement with four regulators over the 2012 "London Whale" hedge trading debacle, and also settled for $369 million a joint investigation by the Consumer Financial Protection Bureau and the Office of the Comptroller of the Currency of "illegal credit card practices."

JPMorgan Chief Financial Officer Marianne Lake on Sept. 10 said the company's mortgage origination business was likely to post net losses for the second half of 2013.

The regulator overhang, as well as the mortgage decline, have made for a low market valuation for JPMorgan's shares, which traded for just 8.6 times the consensus 2014 EPS estimate of $6.02, when they closed Thursday at $51.94.

Citigroup

Citigroup had a fourth-place U.S. deposit market share of 4.74% as of June 30, increasing from 4.43% in June 2012 and 3.86% in June 2008. The company's total U.S. deposits were $447.604 billion as of June 30, growing 13% from a year earlier, and 65% over the previous five years.

Citigroup had also been an active cost-cutter in the wake of the financial crisis. The company trimmed its U.S. branch count to 1,042 as of June 30 from 1,070 in Jun 2012 and 1,079 in June 2008.

The company will announce its third-quarter results on Oct. 15, with analysts expecting EPS of $1.06, declining from $1.34 in the second quarter, but matching the earnings in third quarter of 2012.

KBW analyst Christopher Mutascio is ahead of the consensus, estimating Citigroup will report third-quarter EPS of $1.16, but on Wednesday he lowered his EPS estimate from $1.21. The analyst wrote in a note that "we expect trading revenues to decline 21% from 2Q13 (versus a 14% decline previously)." Lower third-quarter trading revenue is another major theme for the big banks heading into third-quarter earnings season, as some investors played it safe while waiting for the Federal Open Market Committee to decide whether or not to reduce the Federal Reserve's bond purchases.

Shares of Citigroup closed at $48.40 Thursday and traded for 8.8 times the consensus 2014 EPS estimate of $5.51.

-- Written by Philip van Doorn in Jupiter, Fla.

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Philip W. van Doorn is a member of TheStreet's banking and finance team, commenting on industry and regulatory trends. He previously served as the senior analyst for TheStreet.com Ratings, responsible for assigning financial strength ratings to banks and savings and loan institutions. Mr. van Doorn previously served as a loan operations officer at Riverside National Bank in Fort Pierce, Fla., and as a credit analyst at the Federal Home Loan Bank of New York, where he monitored banks in New York, New Jersey and Puerto Rico. Mr. van Doorn has additional experience in the mutual fund and computer software industries. He holds a bachelor of science in business administration from Long Island University.

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