BankAm may soon take over No 1 slot from Citi

NEW YORK: Bank of America, a Charlotte, North Carolina-based lender which makes almost 95% of its revenue in the US, is on the brink of overtaking Citigroup as the world’s No. 1 bank by market value.

Shares of Bank of America, run by chief executive officer Kenneth Lewis, climbed 61% in the past five years, increasing the market capitalisation to $231bn. Shares of New York-based rival Citigroup, which has expanded outside the US and built up a top three investment-banking franchise, rose 1.6%, bringing its value to $233.9bn.

Citigroup shares fell 2.5% on July 17 after second-quarter earnings missed the expectations of analysts who questioned the strategy of CEO Charles Prince, whose predecessor Sanford Weill made more than 100 acquisitions. Bank of America vaulted to the No. 2 spot after agreeing to buy FleetBoston Financial for $48bn in October ’03, the same month Citigroup’s one-time general counsel Prince became CEO.

“Citigroup’s strategy is not too clear at the moment,” said Alison Sinclair, a fund manager covering US financial stocks at Glasgow-based Resolution Asset Management, which has the equivalent of about $71bn of assets. She holds Bank of America shares and no longer holds Citigroup. “Prince is taking a different path to Weill, who was looking to buy anything.”

For much of the past year, Citigroup was banned from making acquisitions by the US Federal Reserve. Prince, 56, wasn’t free to do deals until April, after tightening lax controls and cleaning up legal and regulatory missteps on three continents that cost Citigroup more than $5bn in fines and settlements. Weill, 73, retired as chairman the same month.

Citigroup was overtaken as the world’s biggest lender by assets when Japan’s Mitsubishi Tokyo Financial Group bought UFJ Holdings in September. Citigroup is still the No. 1 US bank by assets, with $1.63 trillion, compared with Bank of America, which has $1.45 trillion.

“Bank of America are in a better position at the moment,” said Simon Clinch, who helps oversee $4bn at London-based F&C Asset Management, which owns shares of both companies.“They have a better retail bank.”
Citigroup generated more than 40% of its revenue from outside the US last year and is this year’s No. 1 global debt underwriter and No. 2 mergers adviser behind JPMorgan Chase, the No. 3 US bank by market value.

Second-quarter earnings at Citigroup rose 4% to $5.27bn, falling short of analysts’ estimates for the fourth time in five quarters. Bank of America earned a record $5.48bn in the same period, boosted by its $34.2bn acquisition of credit-card issuer MBNA in January.

Of 25 analysts covering Citigroup, 15 have ‘buy’ or equivalent ratings on the stock, according to data compiled by Bloomberg. Atlantic Equities analyst Joseph Dickerson in London cut his rating for Citigroup to ‘neutral’ from ‘overweight’. Of the 32 covering Bank of America, 22 have ‘buy’ or equivalent ratings.

The Wall Street Journal reported earlier today that Bank of America’s market value was approaching that of Citigroup.