Author Archives: mronan

Big banks winning larger share of deposits

The FDIC recently published U.S. deposit data for the period ended June 30, 2010. Two quick takeaways:

  1. Deposit growth slowed significantly over the past year.  Following the financial crisis in the second half of 2008, U.S. consumers ramped up their savings rates, and banks competed aggressively for these deposits.  As a result, U.S. deposits grew 7.6% between end-June 2008 and end-June 2009.  Over the past year, competition for deposits has declined, as many banks’ loan-to-deposit ratios fell below 100%, and banks’ need to grow deposits as a funding source abated.  The growth rate for deposits in the year to end-June 2010 was 1.5%.
  2. Due to bank consolidation, a flight to safety, and a re-emphasis on relationship banking, larger banks have grown deposits at a stronger rate than the industry average.  The top 50 U.S. banks increassed deposits  by 4.4% in the year to end-June 2010, compared to 1.5% for all banks.  The top 50 banks’ share of total deposits rose from 57% in 2007 to 63% in 2010.

New FDIC data shows reduction in banks, branch numbers

FDIC has published comprehensive U.S. bank data for the period ended June 30, 2010. It reported that the number of bank branches fell 1.0% year-over-year, to 98,514. The total number of banks (comprised of commercial banks and savings institutions) fell by a larger percentage, 4.4%, to 7,820.

It is worth noting that, at the height of the financial crisis, some industry commentators believed that the number of banks in the U.S. would fall by 50%.  At the current rate of attrition, this is very unlikely.  However, bank consolidation should continue, with banks that have weathered the financial crisis well picking up failed or vulnerable banks in order to expand their retail footprint.  This may involve some branch reduction, as overlapping branches are eliminated.  However, branch numbers should continue to decline at a lower rate than banks.

From a marketing and sales support perspective, bank mergers and acquisitions create both opportunities (expanded retail footprint; access to new products, services and technologies; potential entry into new customer segments) and challenges (rebranding acquired banks and branches; implementing consistent marketing and sales support processes; minimizing churn from acquired bank customers, etc.).

Signs of life in small business banking

Over the past year, the main issue in the business banking sector has been the decline in loans to small businesses.  Many business owners claim that the available of working capital for their businesses has dried up, while banks claim that there has been a significant fallout small business loan demand.  At the same time, we are seeing mixed news from surveys on small business optimism.

However, we are now seeing some signs that banks are beginning to turn their attention to the small business market.   This refocusing on the small business market is in part driven by a perception that small business credit woes have bottomed out: Bank of America reported in its 2Q10 financials that the charge-off rate for its small business commercial-domestic loan portfolio had declined for the third consecutive quarter, from a high of 17.45% in 3Q09 to 12.94% in 2Q10.

Although data on small business lending banks can be spotty, there are signs that banks are starting to increase lending to this segment.  In August, the Federal Reserve’s survey of bank lending practices found an easing of lending standards for small businesses.  Chase reported in its 2Q10 financials that business banking origination of $1.2 billion in 2Q10 was twice the level of 2Q09.

Some recent business banking initiatives by banks:

  • Provision of new online services.  In August, First Tennessee Bank introduced the Business Resource Center, featuring a series of tips and resources for businesses, covering banking and non-financial topics.  In the same month, BB&Tlaunched a new series of small business webinars.  In September, U.S. Bank introduced Scorecard, an online reporting too that enables small businesses to track their own spending
  • Advertising: American Express OPEN launched its “Start Booming” advertising campaign in July.
  • Hiring of dedicated small business personnel: In June , Sovereign  Bank accounted that it was adding more than 200 Small Business Specialists.  In August, Huntington Bank reported that it has exceeded the commitment made earlier in 2010 to hire an additional 150 small business bankers.
  • New products and offers: In June, Chase launched an innovative new small business loan program, Chase Loan for Hire, featuring a reduction in the interest rate for every new hire made by the small business customer.  In September, Comerica launched the ‘Office Perks’ campaign, featuring a series of offers, including $200 for opening a business checking account.  The same month, Citibank offered a $250 prepaid card for opening a qualified business checking account and signing up for at least one cash management service

The small business segment has traditionally been very profitable for banks.  So, as small businesses emerge from the recession, bank will want to be sure that they have the elements in place to once again build their small business franchises.