Community banks in New England and elsewhere in the Northeast are already bracing for tougher competition for small business and retail borrowers now that FleetBoston Financial Corp. has publicly rededicated itself to its core banking business.
If Fleet begins to focus on the region, as opposed to distractions outside of it, then that is going to affect smaller banks, said Arthur Meehan, the chairman and chief executive officer of $1.4 billion-asset Medford Bancorp Inc. in Medford, Mass.
When youre swimming in a pool with a whale, anytime the whale starts thrashing about you had better be careful.
Of course, many executives and analysts said it remains to be seen how well $192 billion-asset FleetBoston executes its slimmed-down mission.
The companys image among retail customers has suffered in recent years, and its latest results offered evidence that there is still plenty of room for improvement. For example, deposits fell 5%, to $121.5 billion, at a time when they were growing at many banks.
At the least, said Erik Woodworth, an analyst at Cohen Brothers & Co. in Philadelphia, a refocused FleetBoston determined to improve service would likely stop the exodus of customers who have been taking their business to community banks.
A lot of smaller banks have fed off of Fleet, he said. I dont see Fleet regaining significant amounts of the business it lost, but [the restructuring] could stabilize things and stem future losses.
And in some ways, FleetBostons lackluster performance only highlighted how much potential business it has left on the table, whether because of distraction or neglect.
As they implement these strategies they could give the community banks a run for their money, said Gerard S. Cassidy, an analyst who covers community banks for Royal Bank of Canadas RBC Capital Markets in Portland, Maine. I know that sounds ludicrous, given the reputation Fleet has in the region, but if it could run its retail banking business the way Home Depot runs its stores, then community banks are in trouble.
The changes at FleetBoston will probably have little short-term effect on community banks, Mr. Cassidy said, but the longer-term repercussions could be significant if the execution is done well.
FleetBoston is already directing considerable funding to its core business initiative. Chairman and chief executive Charles K. Gifford said Tuesday that it will spend $75 million to enhance its retail banking and commercial lending functions. The company spent has already that much in the past year to hire 500 new tellers and improve Internet banking and its network of automatic teller machines.
The payoff is stronger, more competitive high-return core businesses, Mr. Gifford said.
But some community bankers said FleetBoston is not even a minor threat, let alone a significant one.
William P. Morrisey said the restructuring would have virtually no effect on $433 million-asset Central Bancorp Inc. in Somerville, Mass. They dont service the kinds of small businesses and small consumers that we do, said Mr. Morrisey, a senior vice president. Their bank is so large we could live off the crumbs that drop off their table.
FleetBoston has a long way to go before it is ready to run with its smaller competitors, he added. They dont provide the same human touch and the same level of service that community banks do.
Banknorth Group of Portland, Maine, FleetBostons biggest New England-based competitor, declined to comment. Well wait and see what happens, said Brian Arsenault, a spokesman for the $21 billion-asset company.
Albert R. Rietheimer, the chief financial officer at $930.5 million-asset Bancorp Rhode Island in Providence, said it was too early to tell how much the changes being discussed at FleetBoston would affect New Englands community banks.
I think that, traditionally, Fleet has had a different customer in mind than we did, Mr. Rietheimer said. Whether or not they are changing that focus remains to be seen.
Marshall Sloane, chairman of $1.2 billion-asset Century Bancorp in Medford, Mass., said there was no question that the steps Mr. Gifford outlined would make Fleet a tougher competitor. Still, Mr. Sloane said it would take time before community banks would feel the effects.
Fleet has done a lot of damage to themselves, he said. Its going to take a while for things to turn around.
The way Medford Bancorps Mr. Meehan sees things, even a small improvement at FleetBoston bodes ill for New Englands community banks. It was better for us when they were paying attention to Argentina and doing derivatives, Mr. Meehan said. If the big guy ever gets going, it stands to reason they will be a more formidable competitor.
