Special Coverage: ABA Card Convention
The struggle between banks and nonbanks for credit card supremacy shows no signs of abating, according to American Banker's annual card industry survey. Banks as a group continue to lose market share, and their competition keeps getting more numerous.
Much of what banks have learned in marketing credit cards can be helpful in mutual funds and other investments, experts say. But selling funds also presents some unique challenges.
Many large credit card issuers have stepped up securitization, but investor worries about credit quality have forced them to strengthen their reserve mechanisms. "There is evidence issuers have been moving down the credit spectrum," says one expert.
The industry applauded an Environmental Protection Agency decision to clarify lender liability for environmental cleanup. "This is a giant step in the direction we've always needed the EPA to go," said the ABA's senior counsel.
Bank Profits Hit Record $12B in Second Quarter
Bank profits hit an all-time high of $12 billion in the second quarter, the Federal Deposit Insurance Corp. reported, and Chairman Ricki Helfer said there was no reason to expect a downturn soon.
Legendary banking lawyer John D. Hawke Jr. has returned to the limelight as Treasury under secretary for domestic finance - the Clinton administration's point man on issues affecting the financial services industry. He may understand banking better than anyone else who has ever held his job.
Despite double-digit loan growth in the first half, two government reports show bank credit quality still strong. Industry observers attributed the paradox to intense jawboning from regulators, the strength of economy, and nightmares from the last recession.
The logjam that stymied regulatory relief legislation this summer is breaking up - but for larger banks eyeing new insurance powers, the price of progress seems likely to be high. The legislation had been held up for months by insurance agents who opposed an amendment to let banks and insurance companies affiliate in most states. But key House Republicans are expected to drop the amendment.
Fleet Financial Group announced plans to provide $208 million for community reinvestment programs in Connecticut. The move is part of a deal with the state, which had threatened antitrust action on the planned Shawmut merger.
UJB to Buy Summit In $1.2B N.J. Deal
Two New Jersey companies announced a $1.2 billion merger agreement, but Wall Street was not enthusiastic. UJB Financial, which agreed to pay 2.4 times book plus some shareholder dilution for Summit Bancorp., insisted that savings and 26% market penetration in the state would make the price worthwhile.
Because of massive merger dislocations, the new Chase might have a hard time holding on to corporate customers, some analysts say.
In his first year as chairman and CEO of First Bank System, John F. Grundhofer fired 2,000 people and replaced 19 of the top 20 managers. But the hatchet-man image has faded during the past three years as Mr. Grundhofer has built a model superregional.
Washington Mutual is reporting some success with its year-old effort to market free checking. The aim is to add customers and try to sell them other products.
Small Banks Gain Share In Texas Fed District
Though small banks are losing market share to their larger competitors nationwide, the reverse is true in the Fed's 11th district, which comprises Texas and parts of Louisiana and New Mexico.
Farm banks resist tacking fees on to their services, and even the most profitable of them credit extraordinary circumstances rather than aggressive fee strategies.
At least half of the highly regarded leadership team at Intercontinental Bank of Miami is set to work for the bank's prospective new owner, NationsBank.
Ken Tepper, head of a nascent Philadelphia holding company, is out to prove that Bill Gates and those who think plain-vanilla community banking a dinosaur are wrong. After all, he says, the Microsoft chairman doesn't take deposits or know how to underwrite loans.
CB Bancorp in Michigan City, Ind., has carved out a correspondent banking niche buying loans from mortgage banks with agreements to sell them back later.
Securitization Tail Seen Wagging the Lending Dog
With securitization looming, lenders that originate small-business loans will have to be sensitive to emerging standards for credit scoring and documentation, writes David N. Bernstein of Furash & Co.
Natwest Spies Opportunity In New York's South Bronx
Natwest Bank has been winning praise and customers for helping renovate New York's South Bronx. "We're just taking disciplines of good banking and applying them to community development," says senior vice president Susan Rice.
Inasyst software in use at Minnesota banks and being tested by federal regulators is meant to reduce the burden and cost of bank exams.
The new "suspicious activity report" - the filing banks will use to alert federal officials to questionable transactions - will not be ready on Oct. 1, as had been expected. Fed officials said it won't be available until December.
Debate on Study Linking CEO Pay to Membership
A survey showing that compensation of chief executives is closely tied to membership size is stirring debate in the industry.
The planned merger of Chemical and Chase could provide New York's 30 community development credit unions with new opportunities for expansion. The new Chase, expected to close 100 branches, could win CRA by giving some of them to financial cooperatives or leasing them at favorable terms.
The credit union industry is in an introspective mood. The National Credit Union Administration is organizing a conference for the fall of 1996 that will focus on how to reach and extend services to poor people. Meanwhile, the Credit Union National Association has invited credit unions to participate in a review of its structure.
Competition is pushing more credit unions to enhance their credit cards. Only 700 of the 5,600 that offer cards tack on rebates, travel insurance, airline miles, or other bells and whistles, says a trade group executive, but that number will double in the next 30 months.
Toys R Us Chooses A Cobranding Partner
Bank of New York Delaware is issuing a Toys R Us Visa credit card, which will reward consumers with toys, clothes, and points toward free meals, discounted cruises, airline tickets, and hotel stays.
PNC has joined the NYCE regional electronic banking network, becoming the largest bank to do so since Citicorp last year.
Bankers at the national bank card conference in New York may have felt as if they'd made a wrong turn onto the information superhighway. Though for years credit cards have been banks' biggest and most consistent source of profits, the ABA was no longer content to put on just a card conference.
American Express has pulled off another striking partnership, announcing that it will issue a cobranded Optima card with Hilton Hotels.
Bank-card pioneer D. Dale Browning has been named president and chief executive of Procard, the Colorado-based marketer of procurement-card programs.
Waivers of Fees Said To Undermine Revenues
As banks waive management fees to help draw fresh assets into their fledgling mutual funds, they may also be waving goodbye to the promised revenue that motivated their ventures. The difference between what prospectuses let banks charge and what cusomters actually pay could amount to more than $150 million a year, according a consultant.
Amid a flurry of merger rumors in the investment products marketing industry, one name repeatedly mentioned as a takeover target is Independent Financial Marketing Group.
With banks merging right and left, the firms that execute their brokerage transactions are jockeying for position. Mergers are reducing the number of bank brokerages.
An NASD official acknowledged that the group erred when it imposed a blanket ban, later eased, on bank advertising related to bank-brokerage operations. The official also promised that a new set of rules on bank broker-dealers will take industry concerns into account.
Big Fleet Commitment To Conn. Home Loans
Fleet Financial Group is launching mortgage programs with a big piece of the $207.5 million it is committing to Connecticut under an agreement with the state's attorney general.
August originations at Countrywide Funding and North American Mortgage far outpaced those of a year earlier. Executives credited expansion efforts and a hardy housing market.
GE Capital Mortgage said that despite a drop in wholesale lending in the first half, it has no plans to exit the business. It said its volume has already rebounded.
Originators are likely to see business fall off as computers take over many of the tasks they have traditionally performed, a PaineWebber analyst says.
Intuit-Microsoft Fiasco A Blessing in Disguise?
Scott Cook, founder of Intuit, says the breakdown of its merger deal with Microsoft was a lucky break after all. Banks are lining up to use his company and its Quicken software in their home banking programs.
The Chemical-Chase merger would create one of the nation's largest providers of corporate banking services. But not surprisingly, many consolidation issues would have to be resolved before the new Chase could fully flex its wholesale muscle.
Perot Systems' unusual technology alliance with Swiss Bank Corp. is expected to benefit both.
Surfing the Net has won wide popularity among providers of financial products and services. Lawyer Steven J. Eisen offers a whirlwind tour of the Internet, explaining how it is used, and what it has to offer.
Michigan National said it is capturing check images at a remote processing site using a new system from IBM.
Chase Deal's Catalyst Cuts His Bank Holdings
Michael Price, the activist shareholder credited with triggering two of the largest bank mergers of the year, has drastically reduced his bank holdings, he told American Banker. Bank stocks have surged so high on takeover speculation that there is little value left in the sector, said Mr. Price, whose surprise investment in Chase helped push it toward its $10 billion merger deal with Chemical.
Less than a week after putting a "trading buy" on NationsBank, Brown Brothers Harriman analyst Nancy A. Bush reluctantly downgraded it to "neutral." The revision came as shares bounced back from a slide that followed the announcement of a proposed takeover of Bank South.
Will interstate banking ultimately reduce price competition and boost profits for the banks that survive? The Texas experience suggests that it will not. In a market now dominated by large multistate banks that bought out failed Texas institutions, the supposed pricing benefits of oligopoly have yet to materialize.
First Union chief executive Edward E. Crutchfield Jr. is ready and willing to defend his bank's history of acquisitions. They are absolutely necessary for the superregional to compete against nonbanks, he said at a conference.
Rating agencies and investors think most bank holding companies are weaker than their banks, so holding company debt carries higher yields than bank debt. Whether the difference is justified has become a subject of debate among fixed-income analysts.