The October acquisition of Wachovia by Wells Fargo marked a new round of consolidation in a US corporate banking market that was already highly concentrated before the start of the current banking crisis. However, the combination that was ultimately set in motion by the near-failure of Wachovia could also create a fourth option for companies in search of a major credit provider and a source of nationwide banking capabilities.
Two banks dominate the US corporate banking market. A new report from Greenwich Associates reveals that prior to the market upheavals of fall 2008, almost 80% of large US companies used Bank of America as one of their important corporate banks and 71% used JPMorgan. Citi, which was considered an important banking relationship by 60% of large US companies, ranked a solid third.
Wachovia and Wells Fargo represented the number four and five US corporate banks as of July 2008, when Greenwich Associates completed the research for its 2008 US Corporate Banking Study. Just over 40% of companies said they use Wachovia as one of their important banks and just under 30% said they use Wells Fargo.
Recognizing client overlap and the challenges of integration, the aggregation of these two banks could join Citi as challengers to what are now the largest US corporate banks, says John Colon, Greenwich Associates consultant.
The merger of the two banks could create an overnight challenger to Bank of America and JPMorgan when it comes to the banking business of companies at the smaller end of the large corporate category those with annual sales of $500 million to $2 billion. Among these companies, the position of the market leaders is still commanding, but less dominant. In this market segment, about 60% of companies use Bank of America as an important bank and roughly 45% use JPMorgan. Wachovia and Wells Fargo together make up the second tier of this market segment, each claiming important banking relationships with approximately 30% of these companies.
For companies of this size, the merger of the Wells Fargo and Wachovia franchises could turn the Big Two into the Big Three, says David Fox, Greenwich Associates consultant.
D.C.