The top three banks in the United States, Bank of America (NYSE: BAC), J.P. Morgan Chase (NYSE: JPM) and Citigroup (NYSE: C) collectively manage over $5 trillion in assets. They are competing quite literally toe to toe in what has become a semi-commoditized business, not only with other each other and commercial banks but also with the biggest and bluest investment banks. Where do they go from here?

As Big as it Can Get
Bank of America supports over $1.4 trillion in assets with a market capitalization of $228.4 billion. It has 55 million customers spread out over 5,700 branches in 30 states. Its deposit base, representing 9.3% of U.S. domestic deposits, is so large it cannot from a regulatory perspective, take on any more.

Roughly half of BAC's profits come from the retail side of the bank; small business loans, mortgages and home equity loans and credit cards. The other half stems from the corporate and investment banks. BAC does a huge business in syndicated commercial loans and is often the lead underwriter on these deals.

What does BAC have to do to grow or otherwise improve on what they have? BAC's wealth management group, managing some $500 million in assets, is only covering about 10% of the banks affluent customers. The bank has recently beefed up its investment banking unit but that business can be particularly volatile. Their zero-fee products, such as no commission stock trades could very well end up costing them more than they will make.

The Oldest and Bluest
J.P. Morgan Chase is synonymous with banking. It roots go back so far, it predated Glass-Steagall and so for years was the only commercial bank allowed to do investment banking business. Its $1.35 trillion in assets is supported by a market cap of just over $171 billion and has the second largest deposit base in the U.S. JPM is one of the largest asset managers in the world and is the largest bank in commercial loan syndication.

Post Glass-Steagall, JPM has plenty of competition for its large corporate and investment banking operations. The bank has to improve the not only the profits but the risk profile from its trading operations. In addition, JPM has a very large and profitable derivatives book, it is non-transparent so risk evaluation is an unknown.

JPM has come a long way since the old days. It's merger with Chase and the acquisitions of Bank One and Bank of New York while are good deals, have also left the bank with an impressive amount of goodwill that hurts the banks bottom line.

An International Giant
Citigroup's assets of almost $1.9 trillion and market cap of $256.8 billion are matched only by its lack of imagination. Although Citigroup is truly an international bank, operating in over one-hundred countries, apparently the only way they can see additional profits are by throwing 17,000 people out of a job.

Citigroup generates about a little less than half of its profits from outside the United States, seeking out higher margin loans in those countries that other banks look upon with envy. It has a distribution network that is second to none and its over-riding goal is to be the world's financial supermarket. To accomplish that, the bank has to focus on retail banking and growing its weak base of non-interest bearing deposits.

There is no denying Citigroup's growth and accomplishments. The bank has been one the most consistently profitable businesses in the world. This massive layoff of staff is disturbing as it indicates an easy answer and lack of vision.

The Common Denominator(s)
Each of these money center banks suffers from some common elements to one degree or another: Spreads on their cost of funds and assets have narrowed as well as spreads on mortgage related products. Lower merger and acquisition fees have been offset somewhat by higher fees on equity and debt offerings and secondary market trading may have to be better risk adjusted. The common driver that would benefit all of these banks would be a return to a positively sloped yield curve as their net interest margins are all suffering from the current flat/slightly inverted yield curve. A positive yield curve can forgive a great deal.

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