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The Institutional Risk Analyst

© 2003-2024 | Whalen Global Advisors LLC  All Rights Reserved in All Media |  ISSN 2692-1812 

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Inside the WGA Bank Top 10 Index

March 13, 2024 | Premium Service | So, how's your bank? This week we publish the 574th edition of The Institutional Risk Analyst (at least since 2017) from beautiful Tampa, FL. Tomorrow we speak at the annual event sponsored by Fay Financial, one of America's premier high-touch mortgage servicers and residential asset managers. But today we delve into our newest product, the WGA Top Bank Index, to better understand what makes the top ten banks so unique even as the whole industry is under mounting stress.



To orient the audience to just how good or bad the US banking sector is doing at present, consider the two charts below.  Things among banks as a population are not so bad based upon the measures of market performance and classical financial strength we use to triage the group. But the key issue that we wrote about in the most recent edition of The IRA Bank Book is the volatility we see emerging in credit loss metrics. We noted:


"As with last year, the key issue in credit in 2024 remains volatility. Gross charge-offs on total real estate loans doubled between Q3 and Q4 2023. Credit card and nonfarm nonresidential commercial real estate loans drove the quarterly increase in the noncurrent rate in Q4, FDIC reports. We look for continued growth in reserves for credit card and commercial real estate loans in 2024..."


First we show the WGA Top 100 Banks separated into quartiles based upon market capitalization. The distribution is not so terrible as you might expect, but the bottom quartile is growing fast as the number of troubled and unprofitable banks has grown. Most recently the share of unprofitable institutions increased to 10.9 percent, FDIC reports for Q4 2023, the highest share of institutions since the 16.6 percent share reported in fourth quarter 2017.


Source: WGA LLC


Now, small banks historically outperform their larger peers, but size does matter. Just ask JPMorgan (JPM) CEO Jamie Dimon, who thinks that the Fed should wait a couple more months to cut short-term rates. That is another way of saying that he’d like to get rid of some competition.  JPM adds over $500 billion in market cap to the top quartile, but is the only one of the top five banks in the Top 25 Bank group. Now the chart below shows the top 100 banks arrayed individually by market cap. The top ranked banks start from the left and work across to the less astute on the far right.


Source: WGA LLC


The big bump on the far left of the chart is JPM, which was 7th in the WGA Top Bank 100 in Q1 2024. Wells Fargo (WFC) and Citigroup (C) are in the middle of the distribution by virtue of scores at 50th and 56th place, respectively. U.S. Bancorp (USB) and Bank of America (BAC) are at the bottom of the third quartile of the group at 70th and 72nd, respectively. We own USB and bought it cheap.


Note that the improved operating leverage at Citi helped CEO Jane Fraser vault over BAC CEO Brian Moynihan and almost pass a slowly improving Wells Fargo. After the dismal Q1 2024 earnings, we expect the bottom quartile of banks to grow in terms of market cap through 2024. So what makes the WGA Bank Top 10 unique? Below we provide some quantitative and qualitative comments on each bank and share the Q1 2024 WGA score results for each institution. 


WGA Bank Top 10 Index

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