Charlotte regains its place as No. 2 U.S. banking center. Will it keep it? | Charlotte Observer

Charlotte has reclaimed its coveted title as the nation’s second-largest banking center, as a regulator’s restriction on growth at San Francisco-based Wells Fargo has caused that city to slip to No. 3.

But economic developers might not want to pop the champagne just yet.

The rankings, which are based on the value of loans and other assets held by the banks headquartered in each city, show the race between Charlotte and San Francisco as very close. Charlotte banks had $2.29 trillion in assets as of the end of June, versus San Francisco’s $2.25 trillion, according to an analysis for the Observer by S&P Global Market Intelligence.

That puts Charlotte ahead by about $35 billion, or less than 2 percent.

“That’s really tight,” said Kyle Sanders, a bank analyst at Edward Jones. “When you’re talking in trillions, that’s a ... rounding error almost.”

Last year, the Observer reported that Charlotte had lost its second-place bragging rights to San Francisco based on a similar analysis by S&P Global. That drop to third place stripped Charlotte of an image that local boosters had used to promote the region since the 1990s, when Charlotte surpassed San Francisco.

Starting this past March 31, Charlotte had once again overtaken San Francisco, according to S&P Global. New York, home to financial giants JPMorgan Chase and Citigroup, retains a firm grip on its No. 1 spot with $8.58 trillion in assets.

Charlotte’s recouping of its second-place crown comes as Bank of America, the nation’s second-largest bank by assets, has been increasing its assets while scandal-plagued Wells Fargo’s asset growth is limited by a Federal Reserve cap. Bank of America is headquartered in Charlotte.

In an unprecedented move, the Fed in February said Wells Fargo cannot exceed the roughly $1.95 trillion in assets it had as of the end of 2017 until it sufficiently improves its governance and controls. The regulator cited “widespread consumer abuses” at the bank, which has been rocked by 2016 revelations that it opened accounts without customer permission as well as more recent disclosures of customer harm.

Just last week, Wells said an internal error that affected struggling customers seeking mortgage modifications to remain in their homes impacted hundreds more people than the bank initially thought.

As of the end of September, Wells Fargo’s assets fell more than 3 percent, to $1.87 trillion, from the same time last year. Over the same period, Bank of America’s assets have increased more than 2 percent, to $2.34 trillion.

Wells Fargo declined to comment. But last month, it disclosed to investors that its average deposits were down in the third quarter of this year over the same period last year. The drop reflected actions Wells took this year to comply with the Fed’s cap, the bank said.

Wells Fargo told the Observer the decline in its assets is not entirely due to the asset cap. In one example, it pointed to a disclosure it made last month in which it said it has sold, or set aside to sell, $6.8 billion in certain mortgage loans over the past 12 months.

Sanders said Wells Fargo’s assets have also been falling in part because of the slump in its reputation since the 2017 scandal.

“They are having a hard time growing loans, and their loans are actually declining modestly,” he said. As some customers pay off loans, the bank isn’t adding enough new loans to offset that, he said.

“I think it’s kind of still trying to work their way back and restore confidence and trust with consumers,” he said.

Charlotte Chamber President Bob Morgan did not comment specifically on Charlotte’s return to No. 2. But in a statement to the Observer he spoke positively on Charlotte’s financial services industry.

“The number of banking and finance jobs in the Charlotte region has grown 16.2 percent over the last 10 years, increasing from 62,993 in 2008 to 73,174 currently,” Morgan said. “Banking continues to bring more wealth into our economy than any other sector.”

How long Charlotte will remain No. 2 is anyone’s guess.

Charlotte’s second place status is by virtue of Bank of America, by far the largest bank by assets in the metro area. For perspective, the second-largest is Rowan County’s Farmers & Merchants Bank, which has about $620 million in assets, according to S&P Global.

That means a drop in assets at Bank of America could affect Charlotte’s ranking.

Much will also hinge on whether Wells Fargo will bolster its assets once the Fed’s cap is lifted.

CEO Tim Sloan last month said that the bank expects to remain under the asset cap through the first part of next year.

“One quarter, you could see a leapfrog again,” Sanders, the analyst, said.