By Haddon Libby
Six years ago, the economies of the world and particularly the United States faced the real risk of a depression that could have been worse than the Great Depression of 1929. While the subsequent recovery has stripped our economy of large swathes of middle class jobs, the economy appears to have stabilized.
This is partially proven by the financial condition of banks worldwide. Last year, banks worldwide had $920 billion in pre-tax profits, the highest levels in history. While banks located in the Eurozone had one-third of all assets, they underperformed with only 4% of global profits. The most profitable region of the world was China with Chinese banks holding 25% of all assets and one-third of all profits. While results in China can be discounted somewhat due to less than stellar accounting practices, its rise as a banking superpower is clear and growing. Anecdotally, you will find Chinese banks lending aggressively here in California on construction projects where Chinese products are purchased and used.
Looking at the United States, we had approximately 16% of all assets and 20% of profits. Wells Fargo Bank was the most valuable and profitable bank in the United States with a $275 billion market value and $32 billion of profits. Wells Fargo represented 17% of all profits by all banks in the United States.
While African continent banks remain small in asset size, they are the most profitable in the world. The higher yield in Africa is due to a generally higher risk profile for loans in that area and a limitation on the number of banks and investors willing to invest in this region.
Are you curious where the weakest bank system in the world resides?
Slovenia. While Slovenian government debt remains investment grade by S&P, their banks are at real risk of collapse. Ireland and Cyprus are emerging from financial crises of their own and not as yet out of the woods. Other trouble spots include Portugal, Greece and Italy.
Are you curious about the financial health of banks with branches here in the Coachella Valley?
One way to assess this is by looking at a forced ranking of all banks in the United States that is done by Bankrate. Bankrate analyzes banks in a number of categories and then categorized each into one of five groups. Banks with 5 stars are the strongest banks in the United States while those with 1 star are the weakest. The vast majority of all banks receives 3 and 4 star ratings and considered “Safe & Sound” by Bankrate.
Looking at the composite ranking of all banks with branches in the Coachella Valley, we have only one 5 star bank and one 1 star bank: Opus Bank at 5 stars and El Paseo Bank at 1 star. All other banks have 3 or 4 star rankings based on year-end results. For reference, the most valuable and profitable bank in the United States, Wells Fargo Bank, has 4 stars. Given that Wells has $1.37 trillion in assets versus Opus Bank with $3.7 billion in assets, it is an academic exercise to rank Opus above Wells.
If you are looking for good CD rates, remember that the FDIC insures all deposits up to $250,000 per depositor. As such, it is unlikely that a typical depositor is at risk of losing their money. With rates so low at present, free services and other perks are typically worth more valuable than an extra 0.10%.
Worth noting, only twelve banks have failed this year with the largest California bank to fail being the Coachella Valley’s Palm Desert National Bank in 2012.
