These days, it is already a truism that the hegemony of the US is based on the Federal Reserve System’s (FRS) printing press. It is also more or less clear that the shareholders of the FRS are major international banks. These include not just US (Wall Street) banks, but also European banks (London City banks and several in continental Europe).
During the 2007-2009 global financial crisis, the FRS quietly gave out more than $16 trillion worth of credit (virtually interest free) to various banks. The owners of the money gave out the credit to themselves, that is to the main shareholder banks of the Federal Reserve. Under strong pressure from US Congress, a partial audit of the FRS was carried out at the beginning of this decade and the results were published in the summer of 2011. The list of credit recipients is also a list of the FRS’ main shareholders. They are as follows (the amount of credit received is shown in brackets in billions of dollars): Citigroup (2,500); Morgan Staley (2,004); Merrill Lynch (1,949); Bank of America (1,344); Barclays PLC (868); Bear Sterns (853); Goldman Sachs (814); Royal Bank of Scotland (541); JP Morgan (391); Deutsche Bank (354); Credit Swiss (262); UBS (287); Leman Brothers (183); Bank of Scotland (181); and BNP Paribas (175). It is interesting that a number of the recipients of FRS credit are not American, but foreign banks: British (Barclays PLC, Royal Bank of Scotland, Bank of Scotland); Swiss (Credit Swiss, UBS); the German Deutche Bank; and the French BNP Paribas. These banks received nearly $2.5 trillion from the Federal Reserve. We would not be mistaken in assuming that these are the Federal Reserve’s foreign shareholders.
While the makeup of the Federal Reserve’s main shareholders is more or less clear, however, the same cannot be said of the shareholders of those banks who essentially own the FRS’ printing press. Who exactly are the shareholders of the Federal Reserve’s shareholders?
To begin with, let us take a good look at the leading US banks. Six banks currently represent the core of the US banking system. The ‘big six’ includes Bank of America, JP Morgan Chase, Morgan Stanley, Goldman Sachs, Wells Fargo, and Citigroup. They occupy the top spots in US bank ratings in terms of indices such as amount of capital, controlled assets, deposits attracted, capitalisation and profit. If we were to rank the banks in terms of assets, then JP Morgan Chase would be in first place ($2,075 billion at the end of 2014), while Wells Fargo is in the lead in terms of capitalisation ($261.7 billion in the autumn of 2014). In terms of this index, incidentally, Wells Fargo came out on top not only in America, but in the world (although in terms of assets, the bank is only fourth in America and does not even figure in the world’s top twenty).
There is some shareholder information on the official websites of these banks. The bulk of the big six US banks’ capital is in the hands of so-called institutional shareholders – various financial companies. These include banks, which means there is cross shareholding.
At the beginning of 2015, the number of institutional shareholders of each bank were: Bank of America – 1,410; JP Morgan Chase – 1,795; Morgan Stanley – 826; Goldman Sachs – 1,018; Wells Fargo – 1,729; and Citigroup – 1,247. Each of these banks also has a fairly clear group of major investors (shareholders). These are investors (shareholders) with more than one per cent of capital each and there are usually between 10 and 20 such shareholders. It is striking that exactly the same companies and organisations appear in the group of major investors for every bank. Table 1 lists the major institutional investors (shareholders).
Major institutional shareholders of US banks and their percentage of the share capital of each bank (as of 31 December 2014)
|Leading institutional shareholders||Main US banks|
|Bank of America||JP Morgan||Citigroup||Wells Fargo||Goldman Sachs||Morgan Stanley|
|State Street Corporation||4.55||4.71||4.61||4.23||5.60||7.50|
|JP Morgan Chase||1.71||–||1.56||1.99||–||2.96|
As well as the institutional investors identified in Table 1, the list of shareholders of the leading US banks also includes the following organisations: Capital World Investors, Massachusetts Financial Services, Price (T. Rowe) Associates Inc., Mitsubishi UFJ Financial Group, Inc., Berkshire Hathaway Inc., Dodge & Cox Inc., Invesco Ltd., Franklin Resources, Inc., The Bank of New York Mellon Corporation and several others. I have only named those organisations that appear as shareholders of at least two of the six leading US banks.
The institutional shareholders listed in the financial statements of leading American banks are various financial companies and banks. Separate records are maintained with regard to shareholders such as individuals and mutual funds. In a number of Wall Street banks, a substantial proportion of the shares are owned by the employees of these banks. Obviously these are top managers rather than ordinary employees (although ordinary bank workers may also have a symbolic amount of shares). With regard to mutual funds1, many of these fall within the sphere of influence of exactly the same institutional shareholders listed above.
A list of the largest shareholders of the US bank Goldman Sachs that qualify as mutual funds may be given by way of example (Table 2).
Largest mutual fund shareholders of Goldman Sachs (as of 31 December 2014)
|Name of mutual fund||Percentage of share capital|
|Dodge & Cox Stock Fund||1.73|
|Vanguard Total Stock Market Index Fund||1.61|
|SPDR Dow Jones Industrial Average ETF||1.03|
|Vanguard 500 Index Fund||1.02|
|Vanguard Institutional Index Fund-Institutional Index Fund||0.96|
|SPDR S&P 500 ETF Trust||0.94|
|Growth Fund Of America Inc||0.91|
|MFS Series Trust I-MFS Value Fund||0.83|
|Select Sector SPDR Fund-Financial||0.57|
|Fundamental Investors Inc||0.56|
At least three of the funds listed in Table 2 fall within the sphere of influence of the financial corporation Vanguard Group. These are Vanguard Total Stock Market Index Fund, Vanguard 500 Index Fund, and Vanguard Institutional Index Fund-Institutional Index Fund. The Vanguard Group holds 4.9 per cent of the share capital in Goldman Sachs, but the three mutual funds that are part of this financial holding company provide an additional 3.59 per cent. The Vanguard Group’s actual position in Goldman Sachs is therefore determined by a share of 8.49 per cent rather than 4.9 per cent.
A number of Wall Street banks also have an individual shareholder category. These are usually the banks’ senior executives, both active and retired. The table below contains information on the individual shareholders of Goldman Sachs (Table 3).
Largest individual shareholders of Goldman Sachs (as of 27 February 2015)
|Shareholders||Number of shares|
|BLANKFEIN LLOYD C||1,893,354|
|WEINBERG JOHN S||1,020,051|
|PALM GREGORY K||908,494|
|VINIAR DAVID A||751,558|
Altogether, the five individuals listed in Table 3 hold more than 5.5 million shares in Goldman Sachs, which amounts to approximately 1.3 per cent of the bank’s total share capital. This is the same amount of shares as an institutional shareholder like Northern Trust. Who are these people? They are senior managers at Goldman Sachs. Lloyd Blankfein, for example, has been the chairman and CEO of Goldman Sachs since 31 May 2006. John S Weinberg has been a vice chairman of Goldman Sachs since around the same time. He is also a member of the management committee and was co-head of the investment banking division (he left the latter post in December 2014). The three other individual shareholders also fall into the category of Goldman Sachs senior management, and they are all current employees of the bank.
(1) A mutual fund (MF) is a portfolio of shares acquired by professional financiers through investments by many thousands of small investors. By the beginning of the 21st century, there were several thousand mutual funds in operation in the US. By 2000, 164.1 million accounts had been opened under the framework of mutual funds, which is to say nearly two per family.
Is just a few per cent of share capital enough to effectively manage a bank? At this point there are at least three things that should be taken into account.
Firstly, large shareholders of leading US banks are long gone. Officially, there is not a single shareholder of these banks with more than a 10 per cent stake. The overall number of institutional shareholders (investors) of US banks is around one thousand. It works out that an average of one institutional shareholder accounts for approximately 0.1 per cent of capital. In reality it is less, since there are also mutual funds (accounted for separately) and many thousands of individuals. In a number of banks, shares are owned by employees. In the case of Goldman Sachs, nearly 7 per cent of the share capital is held by individuals. Finally, some of the shares are floated on the stock market. In view of the fact that share capital is dispersed among tens of thousands of security holders, owning just one per cent of the shares in a Wall Street bank is a very powerful position.
Secondly, one and the same owner – the ultimate beneficiary – could be behind a few (or many) officially independent shareholders. Let us say that the owners of the financial holding company Vanguard Group hold shares in Goldman Sachs both directly and through mutual funds that fall within the holding company’s sphere of influence. Chances are that the share of the Vanguard Group in the capital of Goldman Sachs is more than 4.9 per cent (the percentage of the parent company) and more than 8.49 per cent (the percentage in view of the three mutual funds under its control). Neither should one disregard the individual shareholders, whose specific weight is far greater than their percentage of the share capital since they are senior managers who were put into management positions by the ‘ultimate beneficiaries’.
Thirdly, there are shareholders whose influence on the bank’s policies is greater than their percentage of the share capital because they own so-called voting shares, while other shareholders own so-called privileged shares. The latter give their holders privileges like receiving a fixed dividend, but deprive them of the right to vote at shareholder meetings. By way of example, a shareholder may hold shares in the capital of the bank equal to 5 per cent, but his share of the total number of votes could be 10, 20 or even 50 per cent. The privilege of a casting vote for Wall Street banks could be of much greater value than the privilege of receiving a guaranteed income.
Let us look back at Table 1 in the first part of this article. It shows that the main shareholders of almost all the US banks are financial holding companies. Moreover, while the names of the leading Wall Street banks are today familiar to all of us, the names of the financial holding companies that own large stakes in these banks only mean something to a very small circle of financiers. But they are the ones who ultimately control the US banking system and the Federal Reserve System. For example, the investment fund Franklin Templeton Investments, which bought up Ukrainian debt securities for $7-8 billion and is taking an active part in the country’s economic strangulation, has been mentioned rather a lot of late. This fund is a subsidiary of the financial holding company Franklin Resources Inc., which is a shareholder of Citigroup (with a share of 1.24 per cent) and Morgan Stanley (1.4 per cent).
Financial holding companies like the Vanguard Group, State Street Corporation, FMR (Fidelity), BlackRock, Northern Trust, Capital World Investors, Massachusetts Financial Services, Price (T. Rowe) Associates Inc., Dodge & Cox Inc., Invesco Ltd., Franklin Resources, Inc., АХА, Capital Group Companies, Pacific Investment Management Co. (PIMCO) and several others do not just own shares in American banks, they own mainly voting shares. It these financial companies that exercise the real control over the US banking system.
Some analysts believe that just four financial companies make up the main body of shareholders of Wall Street banks. The other shareholder companies either do not fall into the key shareholder category, or they are controlled by the same ‘big four’ either directly or through a chain of intermediaries. Table 4 provides a summary of the main shareholders of the leading US banks.
Leading institutional shareholders of the main US banks
|Name of shareholder company||Controlled assets, evaluation (trillions of dollars; date of evaluation in brackets)||Number of employees|
|Vanguard Group||3 (autumn 2014)||12,000|
|State Street Corporation||2.35 (mid-2013)||29,500|
|FMR (Fidelity)||4.9 (April 2014)||41,000|
|Black Rock||4.57 (end of 2013)||11,400|
Evaluations of the amount of assets under the control of financial companies that are shareholders of the main US banks are rather arbitrary and are revised periodically. In some cases, the evaluations only include the companies’ main assets, while in others they also include assets that have been transferred over to the companies’ control. In any event, the size of their controlled assets is impressive. In the autumn of 2013, the Industrial and Commercial Bank of China (ICBC) was at the top of the list of the world’s banks ranked by asset size with assets totalling $3.1 trillion. At that point in time, the Bank of America had the most assets in the US banking system ($2.1 trillion). Just behind were US banks like Citigroup ($1.9 trillion) and Wells Fargo ($1.5 trillion).
It is interesting that the ‘big four’ financial holding companies control trillions of dollars worth of assets with a rather modest number of employees. With total assets of around $15 trillion, the ‘big four’ has less than 100,000 employees. For comparison: Citigroup alone has nearly 250,000 employees, while Wells Fargo has 280,000. Wall Street banks seem like workhorses in comparison with the financial holding companies of the ‘big four’.
In terms of controlled assets, the ‘big four’ financial companies are in a heavier weight category than the ‘big six’ US banks. The tentacles of the ‘big four’ financial holding companies do not just extend to the US banking system, but to companies in other sectors of the economy in both the US and overseas. Here we can recall a study by specialists from the Zurich Institute of Technology in Switzerland, the aim of which was to reveal the controlling core of the global economic and financial system. In 2011, the Swiss specialists calculated that there were 1,128 companies and banks at the core of global finance at the beginning of the financial crisis (2007). An even denser core of 147 companies was revealed within this conglomerate. The authors of the study estimated that this smaller core controlled 40 per cent of all corporate assets in the world. The Swiss researchers ranked this core group of companies. Here is the top ten:
1. Barclays plc
2. Capital Group Companies Inc
3. FMR Corporation
5. State Street Corporation
6. JP Morgan Chase & Co
7. Legal & General Group plc
8. Vanguard Group Inc
9. UBS AG
10. Merrill Lynch & Co Inc.
An important fact is that all ten places in the Swiss list are occupied by financial sector organisations. Of these, four are banks whose names everyone is familiar with (one of them, Merrill Lynch, no longer exists). I will make particular mention of the US bank JP Morgan Chase & Co. This is not just a bank; it is a bank holding company that holds shares in many other US banks. As can be seen from Table 1, JP Morgan Chase holds shares in every ‘big six’ bank with the exception of Goldman Sachs. There is another remarkable bank in the US banking world that is not officially one of the ‘big six’, but which has invisible control over some of the ‘big six’ banks. I am referring to The Bank of New York Mellon Corporation. This bank holds shares in Citigroup (1.24 per cent), JP Morgan Chase (1.48 per cent) and Bank of America (1.25 per cent).
But six of the places in the Swiss list belong to financial companies rarely mentioned in the press. These are financial holding companies that specialise in acquiring shareholdings in companies in various sectors of the economy around the world. Many of them set up various investment funds, including mutual funds, and manage their clients’ assets on the basis of trust agreements etc. The list includes three of the ‘big four’ financial companies in Table 4: Vanguard Group Inc, FMR Corporation (Fidelity), and State Street Corporation. These financial holding companies, along with the company BlackRock (which has strengthened its position considerably since 2007) also make up the core of the US banking system.
It is interesting that the ‘big six’ are also well represented in the bank holding company JP Morgan Chase: Vanguard Group – 5.46 per cent; State Street Corporation – 4.71 per cent; FMR Corporation (Fidelity) – 3.48 per cent; and BlackRock – 2.75 per cent. Another of the bank holding companies mentioned above, The Bank of New York Mellon Corporation, is controlled by three of the ‘big four’ financial companies: Vanguard Group – 5.15 per cent; State Street Corporation – 4.72 per cent; and FMR Corporation (Fidelity) BlackRock – 2.62 per cent.
After revealing the controlling core of the US banking system made up of a small number of financial holding companies, a number of new questions arise. Who are the owners and ultimate beneficiaries of these financial holding companies? How far does the influence of these financial holding companies extend sectorally and geographically? And can we say that the approach to explaining what goes on in the sphere of global finance based on the concept of the struggle between the Rothschild and Rockefeller clans’ has now become obsolete?
However, these are subjects for another discussion.