Biggest Banks Jettison Customers, Become Investment Banks
Aug. 1, 2016 (EIRNS)—An in-depth study by Bloomberg News, published July 29, shows the effects of 20 years without Glass-Steagall and eight years of insane central bank policies, on two of the world’s biggest banks—Citigroup and HSBC. "Citibank, HSBC Jettison Customers," is the title of Bloomberg’s article describing their findings, which are that the two mega-giant banking groups have essentially spent the Obama years trying to become immense investment banks, cutting their commercial banking activity by about 40% in each case.
Citigroup, for example, brags that it has trading floors in more than 80 countries, for trading of securities, derivatives, structured products, etc. But is has retail banking operations in just 21 countries, having pulled out of 29 countries—mostly in Europe and South America—since 2006. In the United States, two-thirds of Citi’s retail bank offices across the country have disappeared since 2006, and now exist in just seven metropolitan areas on the East and West Coasts. Where investment banking accounted for 33% of its profits in 2006, it now accounts for 56%. And its retail banking operations are now primarily in Asia.
With HSBC, which once had the largest global retail banking operations in the world, all the same changes have occurred, but to an even more exaggerated degree. Investment banking now accounts for 75% of its profits.
In other words, both these giants have come to function like Deutsche Bank.
Interestingly, Citigroup "has used capital freed up from divestitures to boost its derivatives business," the nominal exposure to which has zoomed from $26.4 trillion in 2006 to $55.6 trillion now.
Both megabanks have severe problems with deferred prosecution agreements stemming from Wall Street-London crimes, which have motivated them to abandon commercial banking in some countries; most obviously, Citibank has divested its Mexico subsidiary.
Wells Fargo, by contrast, has more commercial banking customers than it did ten years ago, by virtue of buying the bankrupt Wachovia Bank. But with Wells Fargo, too, the share of its profits coming from investment banking casinos has grown, from 25% in 2006 to 34% now.