Banking asset indicators: What they tell you and what they don’t (Part 13 of 14)
Difference in trading assets is a good indicator
The trend in earning assets in respect to bank size largely holds true across banks. However, within each class of bank size there are significant differences. This difference is generally an indicator of a bank’s focus. Investment banks have the highest percentage of trading assets. Traditional banks have the lowest percentage of trading assets. Full-service banks have a number somewhere in between that of investment banks and traditional banks.
JP Morgan and Citibank have the highest trading assets
First let’s look at the banks that have more than $1 trillion in their asset book. JP Morgan (JPM) had 12.12% of trading assets in its asset book at the end of 2014. Citibank had 12.43% of trading assets in its asset book. These two banks focus the most on investment banking among the big four banks.
Bank of America (BAC) and Wells Fargo (WFC) had 5.24% and 2.97% of trading assets. Bank of America has gained trading assets since its merger with Merrill Lynch. Wells Fargo, as we noted earlier, focuses the most on trading assets. US Bank (USB) among other banks outside the big four also has a very low percent of trading assets.
Few other mid-sized banks perform well in earning assets
Bank of New York Mellon and State Street focus on custody banking and asset management, respectively. These banks also have a higher percentage of trading assets, generally due to the excess cash from asset management. Both these banks are a part of the Financial Select Sector SPDR (XLF). These two banks account for 2.51% of XLF’s portfolio. At the other extreme of the scale is Toronto Dominion Bank, which doesn’t have any trading assets, and focuses exclusively on loans.
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