Top 1000 world Banks cover story While European banks count the cost of the eurozone sovereign debt crisis, China is leading the emerging markets into a new era of banking dominance. But the established markets of the US and Japan should not be forgotten. Philip Alexander reports. 114 | The Banker | July 2012 Top 1000 world Banks cover story t will come as no surprise that 2011 was the year ABN Amro and WestLB. The latter will exit our table when the eurozone crisis dragged the global next year as an EU-mandated break-up plan is com- banking sector backwards. Assets and Tier 1 pleted, with the remaining core of the bank renamed capital in The Banker’s Top 1000 World Banks Portigon Financial Services. ranking continue to grow, although at a much The UK is by no means immune from the woes of Ireduced rate to last year’s ranking. But aggregate profits, the eurozone, and UK banks are hardly in better shape which had staged two years of recovery since the finan- overall. Total Tier 1 capital in the country actually cial crisis, reversed by 1%, to stay only just above the shrank in 2011, with Royal Bank of Scotland dropping $700bn mark. out of the top 10 banks worldwide. While total pre-tax The process of capital build-up demanded by regu- profits slipped far less than in the eurozone, by about lators in the wake of the crisis also appears to be 8.2%, Brazil has now overtaken the UK in terms of prof- approaching completion, as the aggregate capital-to- its earned, despite having an asset base that is less than assets ratio this year is almost exactly constant on last one-fifth the size of that in the UK. year, at 5.36%. The heaviest capital increases in previ- But the UK banking sector is itself a divided story. ous years had been among the top 25 banks, whereas the While Lloyds crashed back into losses due to its provi- change in the capital-to-assets ratio for those largest sioning for payment protection insurance compensa- banks this year is in line with the Top 1000 as a whole, tion claims, two UK banks, HSBC and Barclays, were gaining just 0.1%. among the top 20 largest profits in the 2012 rankings. Last year, we asked the question about whether the Of course, both earn a significant part of their income performance of banks in the largest markets was sus- outside the UK, including HSBC’s universal banking tainable. In Europe at least, the answer this year is an operations across emerging markets, and Barclays’ US emphatic no. In total, 49 banks reversed from a profit in investment banking operations built up from its pur- 2010 to a loss in 2011, of which all but 13 are based in EU chase of the US arm of Lehman Brothers in 2008. countries. By contrast, only 14 banks worldwide fell from a profit to a loss in 2010. Of the 25 largest losses at Greek shockwave previously profitable banks, only one (Hudson City Ban- The cause of Europe’s troubles is well known. Greek corp in the US) comes from outside the EU. The scale of banks, together with the Cypriot banks whose Greek the damage is so severe that aggregate pre-tax profits in operations are larger than those in their home market, the eurozone were just $2.1bn, compared with $85.5bn feature prominently among the largest losses this year. in last year’s ranking. No less serious has been the gradual acknowledgement On a more positive note, 34 banks returned to profit of the damage caused to Spain’s cajas (savings banks) by after losing money in the previous ranking – compared the collapse of a domestic real estate bubble. with 105 banks in 2010. The US is the major success An EU bail-out package for Spanish banks was story, accounting for half the banks that have re-entered under negotiation at the time of going to press, and the profit as the clean-up from subprime makes progress. need for it is clear. The bank mergers driven through by But there are also some banks in western Europe that the authorities in 2011 cannot overcome the scale of the were synonymous with the first round of the financial losses. Bankia, Catalunya Caixa and Grupo Unnim all crisis but are now on the road to recovery, including disclosed losses equivalent to more than half their entire capital base, while Banco CAM, whose attempted merger with Liberbank failed last year, will need totally recapitalising. Simply plugging the holes left by loan Tier 1 capital-to-assets ratio losses will not be enough – any rescue plan will need to % by ranking year think hard about which banks have sufficient potential business to return to viability. Interestingly, while 5.4 5.35 Bankia’s operating income collapsed by more than 60% 5.36 in 2011, Catalunya Caixa actually increased its underly- ing revenues by almost 70%. 5.2 5.14 Italy and Portugal are also heavy losers. But the damage at Italy’s two largest banks looks temporary – 5.0 4.8 4.62 Top 1000 AggreGaTes ($Bn) 4.6 4.54 4.53 4.53 2011 2010 Change (previous year) 4.5 Tier 1 capital 5,746 5,434 5.7% (10.6%) 4.4 4.45 4.43 Total assets 107,233 101641 5.5% (6.4%) Pre-tax profits 702 709 -1.0% (77%) 4.32 Profits/Tier 1 12.23% 13.1% 4.2 Return on assets 0.66% 0.69% 02 03 04 05 06 07 08 09 10 11 12 Source: www.thebankerdatabase.com Source: www.thebankerdatabase.com July 2012 | The Banker | 115 Top 1000 world Banks cover story provided the EU is able to prevent Italy descending into reGIons By ToTal TIer 1/ToTal a full-blown sovereign debt crisis. The losses come asseTs/ToTal pre-Tax profITs 2011 mostly from one-off items, in particular extremely con- Country Tier 1 Assets Pre-tax profits servative goodwill write-offs on the value of past acqui- ($bn) ($bn) ($bn) sitions at home and to a lesser extent in central and US 1051.9 13,341.0 131.5 eastern Europe. UniCredit has already offset much of its Eurozone 1721.6 40,895.0 2.1 loss with a rights issue staged in January 2012, while China 781.5 13,533.2 206.3 Intesa Sanpaolo raised capital in 2011. Japan 600.9 13,075.5 60.0 Further afield, Dexia’s rescue and dismemberment UK 440.8 9999.5 32.9 by the French and Belgian governments was triggered Brazil 123.8 1729.2 33.1 by its exposure to the eurozone periphery, while Erste Source: www.thebankerdatabase.com Group Bank suffered a much smaller loss after winding up a portfolio of credit default swaps written on euro- zone sovereigns. Its smaller peer Volksbank took a hit of E160m from its exposure to the Greek private sector asseT qualITy early warnInGs involvement (PSI) restructuring, and a far larger loss on With the collection of impairment data improving, the its operations in Romania and Hungary. The latter were Top 1000 should provide an increasingly valuable early- part of its Volksbank International subsidiary sold to warning indicator for any deteriorations in asset quality. Russia’s Sberbank. Of course, impairment has a certain degree of discretion One of the largest losses caused by Greece is entirely – banks do not always provision fully for non-perform- hidden in our ranking. Hypo Real Estate (HRE) in Ger- ing assets, and also choose whether to impair at-risk many returns to profit this year, for the first time since it assets. The long delays in disclosing the true level of was nationalised by the German government in 2009 on non-performing loans (NPLs) at Spanish banks are a account of catastrophic losses on US securitisation reminder that impairment figures may not always reveal assets. But Germany’s state financial support fund all that they should. But regulators worldwide are taking SoFFIN took a hit of E8.9bn on Greek government debt an increasingly tough line, giving banks less leeway to that was previously on HRE’s own balance sheet, which massage the true state of their portfolios. was transferred to its ‘bad bank’ vehicle FMS Wertman- We have tracked impairments as a percentage of agement for winding down in 2010. It is perhaps not total operating income, to give an indication of banks’ widely realised that the German taxpayer effectively ability to absorb the pain of impaired assets through participated in the restructuring of Greece’s debts to the their underlying revenues. Unsurprisingly, Greek, Cyp- private sector in March 2012. riot, Irish and Spanish banks all feature prominently. 25 larGesT losses from prevIously 25 larGesT profITs from prevIously profITaBle Banks loss-makInG Banks Rank T1000 Bank Country Latest Rank T1000 Bank Country Latest rank profit ($m) rank profit ($m) 1 160 National Bank of Greece Greece -17,364 1 63 ABN Amro Group Netherlands 872.09 2 126 Dexia Belgium -15,127 2 144 Zions Bancorporation US 522.39 3 28 Intesa Sanpaolo Italy -12,428 3 231 77 Bank Japan 338.66 4 21 UniCredit Italy -9,998 4 128 Hypo Real Estate Holding Germany 332.53 5 239 Piraeus Bank Group Greece -9,674 5 361 Associated Banc Corp US 183.43 6 109 Banco Financiero y de Ahorros Group Spain -6,373 6 489 Cathay Bank US 151.41 7 187 Alpha Bank Greece -6,123 7 68 Landesbank Baden Wurttemberg Germany 151.39 8 77 Banca Monte dei Paschi di Siena Italy -6,092 8 353 Hypo Alpe Adria Bank Austria 109.46 9 18 Lloyds Banking Group UK -5,476 9 774 Pacwest Bancorp US 87.50 10 243 Cyprus Popular Bank Cyprus -5,306 10 247 SNS Bank Netherlands 76.34 11 119 Dexia Bank Belgium (Belfius) Belgium -2,776 11 794 Boston Private Financial Holdings US 57.87 12 102 UBI Banca Italy -2,761 12 729 Western Alliance Bancorporation US 48.34 13 183 Catalunya Banc (CatalunyaCaixa) Spain -2,590 13 169 WestLB Germany 47.87 14 302 Bank of Cyprus Cyprus -1,749 14 682 BBCN Bancorp US 42.78 15 153 Millennium bcp Portugal -1,581 15 676 First Midwest Bancorp US 41.07 16 212 Hudson City Bancorp US -1,255