Bank of America overtakes Citi as largest bank
Bank of America surpassed Citigroup to become the world’s largest bank by market value. Based on reported shares outstanding, Bank of America’s market capitalisation totalled $243.71 billion as of Tuesday’s close, while Citigroup’s totalled $243.52 billion. Shares of Bank of America closed up 35 cents at $54.27, while Citigroup fell 33 cents to $49.56. Citigroup remains the largest US bank by assets, with $1.75 trillion as of September 30, followed by Bank of America, with $1.45 trillion.
Charlotte, North Carolina-based Bank of America has benefitted from acquisitions under chief executive Kenneth Lewis, including FleetBoston Financial in 2004 and credit card issuer MBNA in January. In contrast, Citigroup CEO Charles Prince has been busy addressing by legal and ethical problems at the bank, and has been faulted by investors like Saudi Prince Alwaleed bin Talal for not keeping costs down and failing to boost profit and revenue fast enough.
“Bank of America has been executing much better in its main business lines than Citigroup,” said Ralph Cole, who helps invest $2.5 billion at Ferguson, Wellman Capital Management in Portland, Oregon. “The wind should have been more at Citigroup’s back in several businesses, including investment banking and retail banking.” Mr Cole said his firm will keep its $29-million stake in Bank of America, and may cut its $30-million Citigroup stake.
Since Mr Prince took over in October 2003, Citigroup shares have risen 8.9%, while Bank of America shares are up 39.1%. The 24-member Philadelphia KBW Bank Index is up 27.8%, and the Standard & Poor’s 500 index is up 39.2%. “We’re gratified the market is recognising the progress we’re making at Bank of America,” spokesman Scott Silvestri said. Citigroup spokeswoman Shannon Bell declined to comment.
Most investors and the banks themselves recognise that market value is not a definitive gauge of long-term prospects, although it may offer the leader bragging rights. In August, Bank of America briefly surpassed Citigroup in market value in intraday trading, also based on reported shares, but later fell back. The banks also have different banking models.
Bank of America is the top US retail bank, while Citigroup generates more than 40% of its business internationally. Mr Prince spent much of his first two years overhauling top management, and rejected predecessor Sanford “Sandy” Weill’s financial ‘supermarket’ approach by shedding slower-growing insurance and asset management units. Citigroup also paid more than $5 billion in legal bills over such matters as its work for Enron and WorldCom, which collapsed in accounting scandals.
Bank of America shares trade at 11 times expected 2007 earnings and Citigroup’s at 10.8 times. Bank of America’s dividend yield is 4.1%, and Citigroup’s is 4%.
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