Big Four Dominate: U.S. Banking Titans Tighten Grip on Industry Profits
AInvestTuesday, Dec 24, 2024 3:00 pm ET
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Recent data reveals that the four largest U.S. banks are poised to capture their largest share of industry profits in nearly a decade, highlighting their strengthening grip on the market. According to industry tracking data, JPMorgan Chase, Bank of America, Citigroup, and Wells Fargo have generated approximately $88 billion in profits over the first nine months of 2024. This amounts to 44% of the industry's total profits, marking the highest share since 2015.

With over 4,000 banks operating in the U.S., the concentration of profits among these top four institutions is notable. When expanding the scope to include the top seven banks by deposit size, including US Bank, PNC, and Truist, the profit share hits 56%, a significant increase from 48% in the previous year.

The data, sourced from reports submitted to the Federal Deposit Insurance Corporation (FDIC), focuses exclusively on domestic banking profits. It's important to note that larger banks report additional income from investment banking and trading activities, areas where many smaller banks do not compete, thereby widening the profit gap.

The increasing importance of scale is one reason behind the large banks' dominance. As regulatory, technological, marketing, and operational costs rise, these major institutions can spread these expenses over a larger client base, securing competitive advantage. Meanwhile, smaller banks struggle under these costs.

Also noticeable is the emergence of non-bank competitors, which has introduced new challenges to traditional banks. Entities like Apollo, Affirm, and Rocket Mortgage have become influential in lending to businesses, homebuyers, and consumers, although these loans are often funded by banks. Non-bank lenders now manage over half of U.S. home loans, a stark contrast to just 11% in 2011.

The call for consolidation within the banking sector is growing as market dynamics continue to shift. Historically fragmented due to interstate banking restrictions only lifted in the 1980s, the U.S. banking landscape features numerous small banks with limited competitiveness. This pressure on smaller banks to merge is set against a backdrop of potentially favorable regulatory changes, fueling expectations of accelerated mergers in the near future.

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