Bank of America passes Citigroup in market value

Bank of America Corp. on Tuesday became the world's largest bank by market value, dethroning longtime leader Citigroup Inc.

The change reflects investor confidence in Charlotte, North Carolina-based Bank of America's aggressive expansion into a national bank, and New York-based Citigroup's comparative struggles, especially in U.S. consumer banking.

"It reflects investors' preference for a growth story," said Jim Russell, director of core equity strategy at Fifth Third Asset Management in Cincinnati, which owns both banks' shares. "Bank of America seems to be hitting on all cylinders domestically. In contrast, Citigroup has run into growth bumps that are taking longer to fix than many investors would like."

Based on reported shares outstanding, Bank of America's market capitalization in early morning trading reached $239.36 billion, topping Citigroup's $239.34 billion. The banks' rankings later seesawed.

Among publicly traded U.S. companies, the banks rank fourth and fifth in market value, behind Exxon Mobil Corp. , General Electric Co. and Microsoft Corp. .

Kenneth Lewis, Bank of America's chief executive, has emphasized growth in the United States, especially through acquisitions such as FleetBoston Financial Corp. and credit card issuer MBNA Corp., which together cost about $82 billion.

Citigroup Chief Executive Charles Prince, meanwhile, has focused on "organic" growth, especially internationally, but has struggled to keep costs down.

In the second quarter, Bank of America out-earned Citigroup for the first time, $5.48 billion to $5.27 billion.

Bank of America and Citigroup were not immediately available for comment.

Being bypassed is not a definitive gauge of Citigroup's long-term prospects, but might be a blow for a bank that prides itself on its size and reach, in more than 100 countries.

Citigroup remains the biggest U.S. bank by assets, a traditional measure of size, with $1.63 trillion compared with Bank of America's $1.45 trillion.

Britain's HSBC Holdings Plc last week said it had become the world's biggest bank by assets, with $1.74 trillion. Japan's Mitsubishi UFJ Financial Group Inc. also led Citigroup earlier this year, but has fallen back.

EXPANSION

Adding MBNA turned Bank of America into the biggest U.S. credit card issuer. The bank also operates some 5,800 U.S. branches, six times as many as Citigroup, and controls 10 percent of U.S. deposits.

Though it invests in such countries as Brazil and China, foreign operations generate less than 10 percent of Bank of America's earnings.

Prince hopes to generate half of Citigroup's business outside the United States, up from about 40 percent now. Yet his focus on organic growth bucks the reputation of his predecessor and mentor, Sanford "Sandy" Weill.

Citigroup's earnings have fallen short of analyst estimates four times in five quarters. Last month, Saudi Prince Alwaleed bin Talal, the bank's largest individual investor, said Citigroup must undertake "draconian" measures to cut costs.

Through Monday, Citigroup shares had risen just 6 percent since Prince became chief executive at the end of September 2003, while Bank of America shares were up 34 percent. The 24-member Philadelphia KBW Bank Index was up 28 percent.

At 11 a.m., Citigroup's market value was again ahead of Bank of America's. Citigroup shares were up 26 cents at $48.49, and Bank of America's were up 31 cents at $52.47.

Copyright 2006 Reuters

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