Sunday, December 28, 1997

Banks profited in a year of mergers, but angered some customers

By PATRICIA LAMIELL / AP Business Writer

Peter Yronwode worries about the big issues raised by the stampede of bank mergers and acquisitions this past year -- for example, will the continued consolidation of the banking system make it more vulnerable to failure?

But what really irked him was something much smaller: NationsBank's removal of the time and temperature display on the outside of a Boatmen's Bank branch in Columbia, Mo.

Yronwode (pronounced "Ironwood") has never banked at Boatmen's, which NationsBank acquired last January. But he misses glancing at the clock on his way to work.

"It seems like NationsBank wanted some place to put its logo, and I guess that was the only spot," Yronwode said. "That's the only way they can demonstrate their hegemony over all of us here. It might save them a little money, but it sure cost goodwill."

It is sometimes the small things that have stood out in a year of big numbers.

There were 371 mergers of bank and thrifts with assets totaling $375 billion in 1997, according to SNL Securities, in Charlottesville, Va. That's second only to 1995, which saw 462 deals valued at $544 billion.

Bankers are crowing at the cost cuts that have resulted, and tout the wider range of services and convenience it has brought. But consumers are grumbling, saying the consolidation has resulted in higher prices and reduced service.

Customers of the former Boatmen's may have lost some amenities like clocks, but they now have the advantage of seamless banking across 16 states and Washington, D.C., points out spokeswoman Julie Westermann. "Someone from St. Louis can be vacationing in Orlando and walk into a NationsBank banking center and feel completely at home."

And some customers -- primarily those who can afford to keep minimum balances in their accounts -- have realized the cost savings that come with efficiencies of scale.

The consolidation encouraged a boomlet in branch creation, mostly at non-bank locations. But it also continued to shrink the number of banks and thrifts in the United States and reduced consumers' banking choices, said Kenneth H. Thomas, an economist and lecturer at the Wharton School of Business who has studied bank mergers in Florida. He lives in Miami and banks, unhappily, with First Union Corp., which like NationsBank is based in Charlotte, N.C.

"They say, 'take your business elsewhere,' " Thomas said, "but there's really very little you can do. They've bought up all the banks around you."

As of June 30, there were 9,895 banking institutions, down from a high of 14,496 in 1984, according to Veribanc Inc., a bank rating service in Boston. Some analysts believe the number will fall to as low as 1,000 institutions, said Veribanc analyst Warren Heller.

The consolidation also means loss of local control. After NationsBank completes its acquisition of Barnett Banks, 81 percent of Florida's consumer deposits will belong to out-of-state banks, Thomas said. In Arizona, 96 percent of deposits are with out-of-state banks.

Thomas fears this trend will lead to higher pricing, less local lending and fewer charitable contributions by the acquiring bank.

Consumer groups contend that charges at merged banks are already higher. Consumers pay an average of $30 more per year for checking accounts at big banks than at small ones, according to the U.S. Public Interest Research Group.

Many merged banks began charging for services that formerly were free, such as live- and automated-teller services, phone calls and hand-drafted deposit slips. And they increased existing fees for minor infractions, like going over a charge limit or being one day late on a payment.

Robert K. Heady, an analyst at Bank Rate Monitor, said newly merged banks often pay less on deposits and charge more for loans, a trend many customers don't even notice. "No one makes comparisons over time. When a takeover occurs, it's a silent, slow, creeping movement."

Customers do, however, quickly notice changes in service.

Customers of the former First Interstate Bancorp noticed when Wells Fargo & Co. lost millions of dollars of their deposits because of difficulties integrating the two banks' computer systems.

Officials in Union County, N.J., pulled $16 million out of First Union after it bought First Fidelity Bancorp in Newark and imported to New Jersey a company-wide policy of thumb-printing non-customers who want to cash a check. County officials said fingerprinting infringed on customers' privacy.

Mergers and acquisitions have produced record profits for banks this past year, and stockholders are very pleased. But analysts believe these consumer issues will keep surfacing as the banking industry continues to consolidate. That has opened the door for smaller community banks to pick up disgruntled merger customers, and for the growth of Internet banking and non-bank lending.

But ultimately, "there's going to be a backlash at some point," Thomas said. "You can only keep taking deposits, paying low rates and charging high fees for so long."