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RepoWatch roundup of too-big-to-fail institutions

RepoWatch’s quarterly roundup of too-big-to-fail financial institutions shows who are the biggest and who are the riskiest.

RepoWatch tracks these banking giants because repo is a major way they finance their growth, and when there’s a run on repo it’s the giants that pose the greatest systemic threat to financial markets, as they did in 2007 and 2008.

FEDERAL FINANCIAL INSTITUTIONS EXAMINATION COUNCIL

(1) Top 10 U.S. bank holding companies on the FFIEC’s most recent listing of the Top 50, ranked by December 31, 2010, assets in billions:

1 Bank of America Corp. $2,268.3 billion
 –2000: $679.5 billion
2  J.P. Morgan Chase & Co. $2,117.6 billion
 –2000: $396.0 billion
3 Citigroup Inc. $1,913.9 billion
 –2000: $791.3 billion
4 Wells Fargo & Co. $1,258.1 billion
 –2000: $234.2 billion
5 Goldman Sachs Group, Inc. $911.3 billion
 –2000: $278.3 billion
6 Morgan Stanley $807.7 billion
 –2000: $417.6 billion
7 MetLife Inc. $730.9 billion
8 Taunus Corp. $372.6 billion
9 HSBC North America Holdings Inc. $343.7 billion
10 U.S. Bancorp $307.8 billion

The biggest workout the FDIC has ever handled was the 2008 failure of Seattle-based Washington Mutual Bank,  with $310 billion in assets the largest failure of an FDIC-insured bank in history.

NEW YORK UNIVERSITY STERN SCHOOL OF BUSINESS

(2) Financial institutions that pose the biggest systemic risk to the U.S. economy, March 5, in declining order of risk:

Bank Of America, 19.7%
Citigroup, 14.2%
JP Morgan Chase, 13.4%
MetLife, 8.1%
Morgan Stanley, 7.3%
Prudential Financial, 5.0%
Wells Fargo, 4.8%
Goldman Sachs, 4.4%
American Internation Group, 3.9%
Hartford Financial Services, 3.4%

The Stern School program gauges systemic risk by calculating the expected capital shortage faced by a firm in a potential future financial crisis. Stern uses this measure because “firms with a high percentage of capital shortfall in a crisis are not only the biggest losers in a crisis but also are the firms that create or extend the crisis,” according to the report.

MORNINGSTAR

(3) Return on equity, largest bank holding companies, most recent 12 months:

Bank of America
Most recent high, 2003: 22.01%
Most recent low, 2010: (1.77)

J.P. Morgan Chase
Most recent high, 2003: 15.43%
Most recent low, 2008: 4.34%
Most recent past, 2009: 6.01%
Most current, 2010: 9.69%

Citigroup
Most recent high, 2005: 22.33%
Most recent low, 2008 (31.88%)
Most recent past, 2009:
Most current, 2010: 6.72%

Wells Fargo & Co.
Most recent high, 2006: 19.77%
Most recent low, 2008: 4.12%
Most recent past, 2009: 9.34%
Most current, 2010: 10.53%

Goldman Sachs
Most recent high, 2006: 31.89%
Most recent low, 2008: 4.66%
Most current, 2010: 10.96%

Nation’s largest five bank holding companies, average return on equity
2003: 18.19%
2004: 16.12%
2005: 17.65%
2006: 20.27%
2007: 15.12%
2008: (3.39%)
2009: 3.15%
2010: 7.23%

Some analysts believe the best way to track leverage and spot financial bubbles is to watch industry-wide return on equity. The higher it goes, the more leveraged the industry probably is, they say.

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