The banking industry has plenty of troubles, but in Arizona, the least of its problems is the aftermath of recent mergers. Bankers and industry observers say the state’s financial-services landscape hasn’t significantly changed because of the consolidations. Other than the usual branch closings and potential employee layoffs, they don’t see a big shakeup looming. One expert, however, wonders if continuing mergers nationally will lead to a banking system dominated by giant institutions that no one can afford to have fail.
There have been five bank mergers in Arizona since last summer. JPMorgan Chase & Co. acquired Washington Mutual, Wells Fargo & Company acquired Wachovia Bank and National Bank of Arizona absorbed Silver State Bank branches in Arizona. Mutual of Omaha entered the local market with its acquisition of First National Bank of Arizona, and US Bank acquired Downey Savings & Loan branches in Arizona.
“If you take a look at Phoenix and compare it to other communities, we have a large number of financial institutions,” says Lynne Herndon, Phoenix city president of BBVA Compass, formerly Compass Bank. “If you paint it with a broad brush, while there have been a significant number of mergers, this does not necessarily have the impact one might think.”
The impact would have been much greater in a smaller market, where the number of financial institutions dropped precipitously, Herndon says. But the mergers have generated a few ripples.
Herndon and Doug Hile, chairman and CEO of Meridian Bank, note that the elimination of a handful of players perpetuates the return to more traditional lending standards recently prompted by Arizona’s real estate meltdown and the ensuing recession. Hile also sees a higher concentration of retail deposits flowing into larger banks and shrinking market share for smaller banks.
“Most of the smaller banks are not in a position, or even have an opportunity, to acquire those deposits,” Hile says.
Dwindling market share is somewhat detrimental to community banks because it means Arizona’s large banks are just getting bigger, he notes.
While large banks rule the retail banking realm, community banks are the backbone of commercial banking and likely will remain so, Hile says.
“Business customers often want to have contact with the decision makers at their bank and that’s how small banks operate,” Hile says. “In that regard, the (small) banks that are healthy will have an opportunity to acquire new commercial customers.”
Alex Wilson, senior lecturer at the Eller College of Management at the University of Arizona, has a different point of view. “Your number of choices in commercial banking is disappearing,” Wilson says. “And creativity is lost as it becomes more corporatized.”
Wilson laments two potential outcomes of bank mergers — the weakening of a sense of community and the loss of institutional knowledge when middle and senior management are laid off. “
Well-run big banks know enough to try to reinstate that as quickly as they can,” Wilson says. “Badly run big banks lose that.”
Customers more concerned about fees, interest rates and having a variety of banking products to choose from are assured that competition is alive and well despite the mergers.
“There are still plenty of banks in Arizona and there is still plenty of competition,” says Marshall Vest, an economist at the Eller College of Management. “I don’t think we’re at the point where we have just one or two major players that will dictate fees and rates.”
Felecia Rotellini, superintendent of the Arizona Department of Financial Institutions, agrees: “We have a lot of competition. We always have. This is a very popular place for banking.”
Mergers probably have strengthened Arizona’s banking industry, Rotellini adds. “The banks that remain are healthy because of the merger-and-consolidation process and are a testament to our federally insured banking system,” Rotellini says. “Banks that were not healthy were acquired by healthier banks and that was done without any disruption in business.”
But as Wilson watches mergers roll out coast-to-coast, he wonders about the ultimate outcome. “
We’re probably heading for a world of three super national banks and probably a handful of little community niche banks,” Wilson says. “The good-sized regional banks are disappearing from the spectrum very quickly. As a result, (Bank of America) will be there, Wells (Fargo) apparently will be there and there will be Citi (Citigroup). I don’t know who will be left standing. The only ones left may be those little community banks.”
Citigroup, a global behemoth with multiple lines of business in financial services, is struggling and Wilson points to it as an example of the kind of risk that comes with an ever-expanding corporate waistline.
“In normal times, I would say (getting bigger) deepens the balance sheet and creates more international presence,” Wilson says. “But in the face of what is happening … I’m not sure you can make that statement. If one of these biggies falls, the ground is going to shake severely. Bigger is more efficient, but it is not necessarily better.”
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