WSJ Graphic Highlights 3 Eras Of The Modern Megabank

The Wall Street Journal created the graphic below to highlight the aspirations of the modern megabank and the challenges these banks face as they grow. The graphic focuses on Citigroup Inc C, and the WSJ divides the history of the bank into three critical periods.



First, from 1990 to 1998, Citi operated mostly as a traditional bank, and the majority of the company’s profits came from lending, fees and interest. However, when the bank acquired financial services conglomerate Travelers Group Inc. in 1998, the era of the Big Bank was born. In fact, J.P. Morgan acquired Chase just two years later to become JPMorgan Chase & Co JPM.

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From 1999 to 2008, the housing market fueled explosive growth at Citi. Not only did banks construct and sell mortgage bonds, they also traded heavily in other mortgage derivatives and funded levered buyouts. During this period, trading revenues, investment banking fees and securitization income surged.

Of course, when the housing bubble collapsed, the big banks came crashing down. Securitization income and investment banking fees plummeted. Under the weight of a new wave of regulations, size went from becoming associated with stability and profitability to being considered a risk and a potential thorn in the side of investors. Citi was the biggest seller of assets of any of the Big Four U.S. banks following the Financial Crisis.



Since the beginning of 2008, Citi’s total assets are down 10.7 percent. In that same time, the total assets of Wells Fargo & Co WFC, J.P. Morgan and Bank of America Corp BAC are up 36.5 percent, 17.9 percent and 8.1 percent, respectively.

Disclosure: the author is long BAC.