Two years ago, when a New Jersey banker rejected a loan request from a small or midsize company, the conversation often ended right there. It wasn't unusual for the customer to walk away empty-handed.
Now, these same companies are besieged with bank product and service offers, even after getting the thumbs-down on a loan.
The difference, said Thomas Basilo, a senior manager for entrepreneurial services at Ernst & Young in Iselin, N.J., is the arrival in the Garden State of Charlotte, N.C.-based First Union Corp.
"There's been a definite attitude change," said Mr. Basilo, who regularly introduces clients to the state's biggest banks. "First Union started this. And other banks have seen the light."
Aggressive cross-selling is a byword at First Union, the sixth-largest U.S. banking company, which entered New Jersey last year with its acquisition of First Fidelity Bancorp.
An emphasis on sales pervades the culture, according to Percival B. Moser, First Union executive vice president and head of commercial banking in the Northeast. It pays off even without attracting new customers, he noted.
The push to sell more products to each business customer is just one of the changes First Union's acquisition of First Fidelity has wrought. Bank consolidation in the state has also accelerated as a result of increased competition.
First Union, with its wide array of products and superior technology, is a tougher foe across market segments than First Fidelity was, observers said.
"It's on both the retail and corporate side that they are being more competitive," said Sandra J. Flannigan, an analyst with Merrill Lynch & Co.
One steel-edged arrow in First Union's quiver is its CAP Account, which combines traditional banking and brokerage services in a single product and sweeps excess funds daily into an investment vehicle.
At yearend 1996, CAP Accounts held $2 billion in First Union's Northeast region, said Samuel Schreiber, area president for southern New Jersey. That was double the bank's goal for the account, and it was achieved without media advertising, which is just beginning, he said. Moreover, about 40% of the money is new to the bank.
The lending side of First Union's retail business has been similarly successful, Mr. Schreiber said, citing an increase in per branch, per month consumer loan volume in New Jersey from $80,000 to $200,000 over the course of 1996.
The story is the same in the bank's business lending, said Mr. Moser, who supervises lending and product offerings to corporate customers ranging from mom-and-pop shops to companies with up to $250 million in annual sales.
Since March, First Union has closed, approved, or put into the pipeline about $950 million in new loans to commercial and middle-market customers in New Jersey, he said. That is up from less than $750 million posted by First Fidelity in the same period a year earlier.
The bank also reported increases in applications for, and average sizes of, small-business loans.
But the most tangible effect of First Union's arrival in New Jersey, analysts said, is the impact it has had on consolidation.
The First Union takeover of First Fidelity provided an impetus, analysts said, for the merger of UJB Financial Corp. and Summit Bancorp. The new Summit is now the largest bank in the state in terms of deposits, with nearly $17 billion, and is still widely regarded as a takeover candidate itself.
Analysts also said the acquisition of Meridian Bancorp by CoreStates Financial Corp., and Fleet Financial Group's purchase of Natwest Bank N.A., were at least partly driven by the specter of competition from First Union.
According to the most recent figures available from SNL Securities Inc., Summit leads the state in deposit market share with 13.2%. It is followed by First Union, with $14.9 billion in deposits and 11.7% percent market share. PNC Bank Corp. is third, with $11.1 billion in deposits and 8.7% of the market. Fleet Financial comes in fourth, with deposits of $10.3 billion and 8% market share, followed by CoreStates, with $7.3 billion and 5.7% of the market.
"The real issue here is that the guys from out of state have become so much more important," noted Thomas Romano, a bank analyst with McConnell, Budd & Downes Inc. in Morristown, N.J.
Some New Jersey bankers assert that little has changed in their world over the past year. But observers said even if competitors put on a brave face, most knew from the moment the First Fidelity deal was announced in June 1995 that First Union would make a compelling pitch to many of their customers.
"That (announcement) had to shake up boards of directors all over the state," said Elizabeth A. Summers, an analyst with Ryan, Beck & Co. in East Orange. It probably was the motivation for other smaller transactions in the past year, Ms. Summers said, and bankers tell her that lately they're seeing even more small banks put themselves up for sale.
The scurry to bulk up, analysts said, stems from First Union's impressive array of products, aggressive marketing of diverse delivery channels, and technological sophistication. Although First Union is just one of several superregionals to enter New Jersey or make a substantial acquisition there last year, it is the one to watch most closely, analysts said.
The company is wooing consumers with banking via personal computer and telephone, as well as World Wide Web loan applications. At least two staff members in each of its 328 branches have been licensed to sell mutual funds and annuities. First Union customers can transact business at offices from Florida to Connecticut.
Interest rate protection, private placements, corporate finance advisory services, and sophisticated cash-management services are among the products that First Union is now selling to middle-market customers. A small- business lending program enables business customers to receive conditional approval of loans of up to $500,000 within 24 hours.
As impressed as bank stock analysts are with First Union, and particularly with its technological support for new products, some bankers still insist that it's been business as usual.
"I'm not sure that we've seen much of an impact yet," said Mortimer J. O'Shea, president of the $265 million-asset Ramapo Bank in Wayne. He said companies with sales of up to about $10 million prefer the personal service of a community bank. He also insisted that a bank like his can offer investment services through third parties, negating any advantage First Union claims to have.
"We can buy the technology," he said, as Ramapo has done for years with telephone banking and is about to do with PC banking.
In the short term, community banks might make some gains in the small- business segment by knowing their customers better than bigger banks, analysts said.
According to Mr. Romano of McConnell, Budd & Downes, "the consolidation process clearly creates a window of opportunity for community banks. However, over the long term, these larger institutions will certainly represent formidable competition."
First Union's technology will enable it to drive down the cost on both consumer and commercial services, he said. Over time, that will be a powerful counterweight to any service advantage that community banks possess.
First Union's product array is already winning business, said Mr. Moser. Commercial customers purchased an average of 1.5 products from First Fidelity, but now average about 2.5 products from First Union, he said.
And companies throughout the state are benefiting. There is a lot more interest on the part of bankers in servicing small and midsize business customers than there has ever been before, said Ernst & Young's Mr. Basilo.
