For Evidence of Bank Health, Follow the Deposits
For tea-leaf reading on the health of banks, consider depositor behavior.
Troubled Citigroup, which is splitting itself into two units, has seen foreign depositors head for the exists. Citi’s fourth quarter deposits of $774 billion were down 6 percent from the year earlier, American Banker reported.
Most of the money flight involved depositors in Latin America, Europe, the Middle East and Africa dumping Citi because of fears of its viability. Interest-bearing foreign deposits fell a 14 percent from the fourth quarter in 2007 and 2 percent from 2008’s third quarter. Of the regions, Europe-Middle East seemed most sour with a 28 percent drop in deposits for the quarter.
Unfortunately, the trend pours cold water on the conceit of many large financial institutions like Citi which boast of their global nature as being a big hedge against downturns. Not the case this time around.
A lot of this has to do with perception. Viewed as especially weak, Citi is being perceived as ping-ponging from one panacea to another. CEO Vikram Pandit’s flip-flops aren’t helping and depositors, especially foreigners, are voting with their feet.
Yet some U.S. banks have won more depositors through the flurry of acquisitions last fall when the crisis was reaching a full roar. They are viewed as being more secure through either good management or federal bailouts. JP Morgan Chase & Co. and Bank of America saw deposits ratchet up, according to the American Banker. JP Morgan Chase’s went up a whopping 36 percent due ot its buy of troubled Washington Mutual and B of A, which reported a loss Friday, boosted deposits by swallowing up subprime lender Countrywide Financial. Wells Fargo is seeing its deposists doubling by picking up Wachovia.
How long this will last is anyone’s guess. The latest news of BoA woes, including big questions about the wisdom of racing to take over Merrill Lynch, could mean that the bank starts displaying Citi-like ills.
In another arena. U.S. securities seem to be doing well thanks to foreign investors who like the aggressive, if confused, pro-active approach of the Fed and U.S. Treasury. They are understandably shunning sinking government supported entities like Fannie Mae and Freddie Mac.
Perceptions, however accurate or not, seem to be the guiding lights during the fog of the current crisis. With the crisis so topsey-turvey and no safe havens anywhere, anything goes.
Peter Galuszka is a Virginia-based journalist with more than three decades of experience, including 15 years at BusinessWeek, during which he was twice Moscow Bureau Chief and International News Editor in New York.
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