In a sweeping drive for efficiency, the nation's largest bank holding companies are rapidly pruning their extra bank charters.
The top 100 companies reduced their charter count by 13% in the 12 months through June 30, to 574, an American Banker survey has found.It was the second straight year ofdouble-digit declines.
The top 50 companies were especially aggressive, slashing their total by a full 25%, the survey shows. (Complete tables begin on page 8.)
The trend, which began in 1994 as Congress cleared the way for interstate branching, reflects a belief among big banks that they can chop costs and realize important economies of scale by consolidating charters.
The move can trim staffs, eliminate redundant boards, and cut regulatory costs, experts say. Such savings can be crucial to an industry where the efficiency ratio, which compares overhead costs with revenue, has become a leading measure of success.
Nearly half of the top 100 now run their banking businesses under just one or two charters. By contrast, some were holding dozens just a few years ago.
First Union Corp. now has two charters, after cutting nine over the past year. Chase Manhattan Corp. also has just two, down five from last year.
Not all banks are embracing the trend. Some midsize banking companies are holding steadfastly to multi-charter strategies. They maintain that the structure helps them stay closer to the communities where they do business.
That approach has clear merits for companies below the top 50. Consultants say these smaller institutions tend to give local managements more autonomy. Larger banks tend to be structured along product lines; that makes multiple layers of management cumbersome and inefficient.
"The smaller banks want to deliver community-based service," said Karen Shaw Petrou, a consultant who specializes in charter consolidation at ISD/Shaw in Washington. "But the bigger the holding company, the more illusory that goal gets. Somewhere along the line, the inability becomes apparent and they give up."
SunTrust Banks Inc. still likes multiple charters. It now has 27, and will add another one when its $9.5 billion acquisition of Richmond, Va.- based Crestar Financial Corp. closes later this year.
"We operate with a very decentralized approach to our management," said John W. Spiegel, executive vice president and chief financial officer of $61 billion-asset SunTrust.
From its base in Atlanta, SunTrust operates 516 branches in Alabama, Florida, Georgia, and Tennessee. Separate charters are a well-established practice, Mr. Spiegel said, even though they bring "tens of millions" of expenses each year.
"The charters become icons symbolizing this decentralization," he said. "There are other ways, but it is something that has gotten built in here."
Custom may also be an influence. Banks in states that historically forbade branching across county or town lines-Illinois and Florida are two examples-and banks in the South and Midwest, where community banking is well-established, tend to hold on to the multi-bank structure, Ms. Petrou said.
"It's not a coincidence," she said. "People in these communities really expect to see the guy making the decisions sitting right there in front of them."
At Cincinnati-based Fifth Third Bancorp, 12 charters covering Ohio, Kentucky, Indiana, Arizona, and Florida are used to generate revenues, said Robert P. Niehaus, executive vice president and head of retail administration.
"Management teams in each market have responsibility for each business line," Mr. Niehaus said. "They have to work with each other to cross-sell. We've really found the right blend here."
Banc One Corp. in Columbus, Ohio, had 13 charters at the end of June, down from 88 at the beginning of 1996.
John Russell, a spokesman for $124 billion-asset Bank One, which is set to merge with First Chicago NBD Corp., said his bank will eventually consolidate its 13 current charters to one.
"If you're operating as a community bank, separate charters can work," Mr. Russell said. "If you want to take advantage of economies of scale you must have at least statewide charters, if not one charter."
Among the largest banks, Norwest Corp. appears to be the most contrarian. It added a charter over the past year, reaching a total of 34.
"Over time, we would want to maintain charters for each state," said Stan Stroup, general counsel for Norwest.
