Trying to work out which banks are the world’s best is a bit like awarding the prize for prettiest war-torn village. It is a title that carries little kudos. It is also likely to prompt further shelling. Winners of industry awards in the past three years include Ken Lewis, the chief executive of Bank of America, for banker of the year (2008); Société Générale for its risk management; and Angelo Mozilo of Countrywide, a failed mortgage lender, for a “lifetime of achievement.”
Still, the question is becoming more pertinent. After months of indiscriminate fear, widespread losses, and government hand-holding, the banking industry is gradually stabilizing. Money markets are steadily calming. American banks that got a clean bill of health in this month’s stress tests are queuing up to repay government money. A first wave of escapees is likely to include Goldman Sachs, Morgan Stanley, and JPMorgan Chase. Those banks that emerge from this crisis with reputations and franchises strengthened will find it increasingly easy to raise funds, win clients, attract employees, and buy assets.
Plenty of institutions have come through the crisis relatively unscathed. The Chinese banks now dominate rankings by market capitalization. Standard Chartered, an emerging-markets lender, seems to be steering a deft course through the downturn in the developing world. Rabobank, a wonderfully dull co-operative bank in the Netherlands, is the only bank that can still boast a AAA rating from Standard & Poor’s. Bank of New York Mellon, a large custodian, has won lots of new business from belatedly risk-averse clients. But to win the shiniest medals, you need to have come under fire. In the heat of battle, which banks have come off best?
Working out the answer is trickier than it looks. Independence from the government is one marker of success, yet America’s largest banks were given little choice but to take government capital in October. In Europe some avoided state cash by treating existing shareholders badly: witness the money that Barclays hurriedly raised from Middle Eastern investors last year. And lowish credit-default-swap spreads on banks such as Deutsche Bank and Credit Suisse partly reflect the assurance of government help if needed.
Share prices offer another perspective. Every bank investor has been hammered in the past two years, of course, but some have done much better than others. Investors in Citigroup and Royal Bank of Scotland have been all but wiped out. Even the best performing big banks have lost a third of their value in that period. Over a longer time frame, from the start of the bubble to the present, only a handful of the big firms have delivered capital gains for their investors. They include Goldman Sachs, Credit Suisse, BNP Paribas of France, and Banco Santander of Spain.
But share prices are also imperfect gauges of bank performance. During the boom investors rewarded growth, whether it was sustainable or not. Banks that avoided the stampede into credit in the go-go years grumble, with some justice, that they were punished for their conservatism. Continuing volatility in share prices partly reflects deep uncertainty over banks’ future earnings power.