SAN JOSE, Calif. - The downsizing of Money Store has sent some commercial banking companies flocking to pick up share in California's lucrative small-business banking market.

Case in point: Comerica Bank California of San Jose, a subsidiary of Comerica Inc. of Detroit, is preparing to open two new business banking offices in the northern part of the state - one in Sacramento, the capital, and the other in the tony San Francisco Bay suburb of Walnut Creek, where it already has an office.

The company plans to open the Sacramento office by yearend, perhaps as early as November. The Walnut Creek office, which will open in two months, will replace the Oakland one, which is to be shut down; the 12 Oakland employees will be among the 16 or 17 at Walnut Creek.

The Northern California strategy is in keeping with Comerica's desire to forgo big acquisitions in favor of natural expansion. Because of the large-scale reorganization of West Sacramento-based Money Store - the leading Small Business Administration lender not long ago - Sacramento is particularly attractive for banks looking to grow organically.

First Union Corp. of Charlotte, N.C., which bought Money Store two years ago, said in late June that it would close the unit's home equity lending operations, once a hot property in the subprime lending market. In the shutdown First Union cut 25 employees from Money Store's small-business lending operation to integrate that business with the rest of its small-business activities.

Comerica Bank California expects changes at its competitor will result in some small-business bankers seeking jobs elsewhere - including Comerica.

"We always thought we should be there [in Sacramento], and now it's a good time to open," said J. Michael Fulton, president and chief executive officer of the $5 billion-asset subsidiary.

Unlike its parent, which also has a broad retail presence in Michigan and Texas, Comerica Bank California focuses on just one segment of the banking market: small- to middle-market businesses and the professionals, such as accountants or lawyers, who work with them.

The company's California operations were cobbled together from various acquisitions in the 1990s, but Mr. Fulton said in an interview Tuesday that he feels no pressure to continue buying local business-oriented banks to keep expanding. Comerica Bank California already has 33 offices, and growth will most likely come by opening more offices in the region, he said.

Mr. Fulton also said he may open a location in Seattle, though that would be at least a year off.

In California, the bank stays away from "anything where you compete with scale rather than skill," he said.

By emphasizing internal expansion rather than acquisitions, Mr. Fulton is in tune with statements made earlier this summer by Eugene Miller, chairman and chief executive officer of $39.6 billion-asset Comerica Inc.- albeit on a local scale.

Mr. Miller has said he wants to avoid the upheaval that his competitors have faced because they overpaid for acquisitions or underestimated the challenge of integrating a merger partner.

The company appears to be following this strategy even as potential competitors, including more than one out-of-state bank, have shown interest in acquiring commercial banking businesses in California.

Of course, Southern California might require a somewhat different approach.

Los Angeles, where Comerica has a 1% share of the small-business market, may be one area where an acquisition could make sense. With such a small market share, "one disadvantage is getting our name recognized," Mr. Fulton said. "To position ourselves in a major way in Los Angeles, you would have to do a deal"

In Los Angeles, which currently represents a third of Comerica Bank California's business, it is not just competing with powerhouses in the region, such as Bank of America Corp. and Wells Fargo & Co. Over the last few years other companies with a similar business focus have put down roots in the area too.

U.S. Bancorp, for instance, late last year bought Western Bancorp of Newport Beach, Calif., which had commercial banking operations in Los Angeles and Orange counties.

In 1997, Pacific Century Financial Corp. of Honolulu, the holding company for Bank of Hawaii, bought CU Bancorp of Encino, which specialized in business banking services. Pacific Century executives have said they would be interested in acquiring another similar institution in California.

When it comes to making an acquisition or doing advertising campaigns to get the bank's name across, the question "is how much more do you want to grow annually?" Mr. Fulton said. "We're putting on about $650 million a year" in loans.

Last year Comerica Bank California's loans increased about 20%, to $3.8 billion, which contributed to Comerica Inc.'s 17% increase in business loans.

Mark Quinn, district director for the Small Business Administration in San Francisco, says it makes sense that lenders would move inland in Northern California to target small-business clients, because competition there is just beginning to heat up.

"The Bay Area has such a mature lending community, with all the lenders in the same food chain," Mr. Quinn said. At the same time, "a lot of businesses are expanding out of the area."

Comerica Bank California has already hired a manager for its Sacramento office, Everett Orrick, from Mellon Business Credit in San Francisco. The office will house two other lenders in addition to Mr. Orrick.


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