A Close Look at Who Wins When Banks Go A-Courting
David R. Francis Columnist, The Christian Science Monitor
OK, another bank buyout: big numbers that rumble on Wall Street, promises of efficiency and nationwide reach. But beyond the rhetoric and investment buzz, another story emerges.
As Bank of America plans to take over Fleet Bank - the third largest bank merger in United States history - there is renewed concern with the gradual concentration of power and influence in the banking industry.
To begin with, the buyout is mostly a nuisance for the thousands of people who bank at Fleet. Many have already suffered through bank changes in earlier mergers.
"There's no redeeming value for consumers whatsoever," says consumer advocate Ralph Nader. He sees no new consumer services, no reduction in bank fees - just more absentee ownership for New Englanders.
Of course, you might expect him to say that. But experts point to studies that demonstrate that bigger does not necessarily mean better. Mid-size banks (between $1 billion and $10 billion in assets) have a higher "efficiency ratio" than bigger or smaller banks, according to data from SNL Financial in Charlottesville, Va. That means they pay a smaller share in expenses to generate a dollar of income.
"Smaller banks are able to compete very effectively with bigger institutions," says Christopher James, a finance professor at the University of Florida, Gainesville. That's so at least in areas of most concern to ordinary consumers.
So if the deal isn't about efficiency, what's all the hoopla about?
Bank of America, by paying $43 billion (at time of the announcement) to take over Fleet, will become a truly national bank. That was not possible until passage of the Banking Act of 1999.
It will become the nation's second-largest bank (after Citigroup). It will have branches in most states with a total 9.8 percent share of deposits in the US, according to SNL Financial. By law, BofA cannot make another acquisition that would push its share over 10 percent. It can, though, exceed that percentage by internal growth.
Wall Street has been focused on the financial aspects of the deal. Shareholders of Fleet Bank stand to do extremely well. They will get BofA stock worth perhaps 30 percent or more than their Fleet shares, depending on the value of BofA shares if the deal wins approval of regulators and is completed.
As a result, the top executives and directors of Fleet, with sizable holdings of their bank's stock, also stand to benefit hugely. An analysis by the Boston Herald finds that FleetBoston Financial Corp. …