Biggest U.S. Banks Shrink Loans

Regional lenders step up to fill the gap as big banks trim assets to comply with capital rules.

The biggest U.S. banks are extending less credit amid a faltering economic recovery as regional lenders step in to fill the gap.

Total loans at the four largest U.S. banks -- JPMorgan Chase & Co., Bank of America Corp., Citigroup Inc. and Wells Fargo & Co. -- fell 4.9 percent to $3.04 trillion in the first quarter from the same period in 2010, according to data compiled by Bloomberg. Lending by the 17 smallest of the 24 firms in the KBW Bank Index increased 9.8 percent to $1.27 trillion.

Dimon, Bernanke

Considered global systemically important financial institutions, the four firms are facing a surcharge on top of capital requirements adopted last year by the Basel Committee on Banking Supervision that will be phased in by 2019. The need to hold more capital is leading some banks to reduce loans.

Citigroup Cuts

Citigroup, led by CEO Vikram Pandit, 55, has sold more than 60 businesses and reduced assets by at least $600 billion since 2008. It posted a 10 percent decline in credit-card lending in North America and reduced loans in Citi Holdings, a division Pandit created for unwanted assets including toxic mortgages, by more than half, according to company filings.

Kitchen Cabinets

Moving from a big bank to a smaller one wasn’t difficult for borrowers such as Patrick Foley, who owns six manufacturing companies that produce items including kitchen cabinets and decorative knobs. He said he switched to Minneapolis-based U.S. Bancorp after Bank of America, his lender for 30 years, didn’t increase a $4 million line of credit for two of his firms, Continental Hardware Corp. and Continental Home Hardware, both based in Portland, Oregon.

Banking Bifurcation

“We’re finding some larger institutions less focused on that particular work, because to compete they have do it on price,” Dunlap said in an interview. “It takes the same amount of effort if it’s a $20 million loan or a $200 million loan. That’s why you’re seeing the bifurcation now. They need a much higher return on effort.”

Book Value

Investors are valuing regional lenders more than the four biggest banks. The 17 smallest KBW Bank Index lenders had an average price-to-tangible-book value of 1.5 at the end of the first quarter, compared with a 1.2 average for JPMorgan, Bank of America, Wells Fargo and Citigroup, according to data compiled by Bloomberg.

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