Category Archives: Retail Banking

BMO completed the acquisition of M&I Bank, commits $5 billion in small business lending

The Minneapolis / St. Paul Business Journal reported that BMO (whose U.S. bank arm, Harris Bank was the 34th largest U.S. bank by deposits at the end of 2010) had completed its acquisition of M&I Bank (32nd largest), and immediately made a commitment to lend $5 billion to businesses.

This acquisition comes as large bank M&A deals and rumors have been on the increase:

  • PNC Bank (5th largest U.S. bank by deposits) announced the acquisition of RBC Bank (44th largest)
  • Capital One (10th largest) announced the acquisition of ING Direct (17th largest)
  • HSBC (11th largest) has put its upstate New York branch network up for sales
  • BB&T (12th largest) has made no secret of the fact that it is looking bank acquisitions
  • BNP Paribas is considering selling off Bank of the West (24th largest)

There is the expectation that this bank M&A activity will  continue, as some banks have emerged from the financial crisis much stronger than others.  More insights into banks’ relative performance will be seen in the coming weeks, as they publish quarterly financials.  In addition, some banks will use the 2Q financials conference call to clarify their position regarding acquisitions or sales.   In addition, there is the sense that, given the 8,000 banks in the U.S., significant consolidation is necessary in order to create a more efficient industry.

From a marketing perspective, these acquisitions create great opportunities for the combined bank, in leveraging the relative strengths of both banks.  They also, of course, create some significant challenges, in such areas as:

  • Branding (including decision on whether to retain one or more brands, or to create an entirely new brand, logo, tagline and positioning for the newly-combined company.  In addition, any decisions of rebranding have significant cost implications for branch signage, collateral, etc.)
  • Products and pricing
  • PR (in particular as these acquisitions typically result in branch closures and headcount reductions)
  • Customer retention (as customers are susceptible to competitive approaches during the transition process)
  • Sales and service channel and systems integration

Emergence of fixed-rate student loans

As we enter the main student lending season, two leading banks–U.S. Bank and Wells Fargo–have launched fixed-rate pricing on student loans.  The rate on the U.S. Bank Fixed Rate Student Loan is 7.99%.  Wells Fargo has fixed-rate pricing on four of its student loans, with rates as low as 7.75%.  With this new pricing, the two banks are aiming to differentiate themselves from student lending competitors.  They are also playing on a growing expectation that U.S. interest rates will rise in the coming months.

As these banks have a high profile in the student market, other leading private student lenders will be tempted to follow suit with their own fixed-rate offers.  And the second quarter financials of these banks will be scrutinized in the coming weeks for any indications of a rise in student loan originations.

Is the Fed’s new debit card interchange rate a good deal for banks?

Yesterday, the Federal Reserve published a new proposed debit card interchange rate of at least 21 cents (would be 24 cents on an average $38 transaction), with this rate to come into effect from October.  Is this a good for banks? This depends on where the banks are starting from? They now enjoy an average debit card transaction fee of 44 cents, so this is a significant decline.  On the other hand, the Fed had previously proposed cutting the fee to 12 cents, so this new proposed fee structure is nearly double that.

Eeven with the latest rate proposal, banks will lose significant interchange income.  Some banks have already reacted by ending free checking and debit rewards.  We believe that there could be a re-emergence of debit rewards programs, albeit with different structures and pricing.  So what we may see are:

  • Debit rewards programs that carry program fees, but with waivers for “high-value” customers
  • Inclusion of debit spend in relationship rewards programs
  • Continued focus on developing new rewards programs that are at least partially funded by merchants