Small Banks Welcome Big Competition
In Santa Cruz, standing up to the big guys isn't impossible.
With federal assistance and arranged mergers with weaker foes, the surviving banks hold greater control over consumer lending and face little competition.
In many regions, the playing field has been stacked in favor of those banks once on the precipice, and small banks -- many of which avoided the stumbles of the majors -- have been forced into difficult situations.
Santa Cruz, California, is the epicenter for this new banking oligopoly, in which the biggest banks have consolidated and a few small ones fill in the gaps. Wells Fargo (WFC), Bank of America (BAC), and JPMorgan Chase (JPM) -- after being given billions of dollars to acquire smaller competitors -- hold nearly three-quarters of the deposit market there.
According to a recent Washington Post article, JPMorgan Chase, which acquired Washington Mutual, now holds more than $1 of every $10 on deposit in this country. So does Bank of America, following its acquisition of Merrill Lynch, and Wells Fargo, the biggest West Coast bank, after it picked up Wachovia.
Those three banks, plus government-owned Citigroup (C), currently issue one of every two mortgages, and about two of every three credit cards.
In several metropolitan regions, of which Santa Cruz is the prime example, "these banks were permitted to take market share beyond what the Department of Justice's antitrust guidelines typically allow," according to the Post. Nationwide, these three banks were allowed to hold more than 10% of the nation's deposits, despite longstanding regulations against such control.
In Santa Cruz County, with a population of about 250,000, Wells Fargo -- following its acquisition of Wachovia, which held 20% of deposits there -- now controls 35% of the market. The big bank also has a history in the area, acquiring numerous community banks over the years.
David Heald, the president and chief executive of Santa Cruz County Bank, one of a handful of community banks left in the area, said he welcomes the challenge of facing the big banks, in particular a familiar rival like Wells Fargo.
"We feel confident competing against Wells Fargo," he said last week.
Heald said the major banks in the area have raised their fees and service charges, whereas his bank hasn't. Nationally, this trend bears out: In the last quarter, the top four banks raised deposit fees by an average of 8%. To remain competitive, smaller banks lowered their fees by an average of 12%.
As a result, Heald expects some customers to switch to Santa Cruz County Bank. In fact, he said he's seen an uptick in new customers who once used Washington Mutual and Wachovia -- and these customers are now the largest contributors to the deposit base.
The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.
Copyright 2011 Minyanville Media, Inc. All Rights Reserved.
Daily Recap Newsletter