As you readers are aware, The Raddon Report has been the town crier (see submissions by Mssrs. Handel, Leavell and the Irreverent Reverend Pat) that has proclaimed the time is ripe for financial institutions to grab market share from the four giants of banking: Citigroup, JPMorgan Chase, Wells Fargo and Bank of America.

Recent data published by SNL Financial, which is based on the FDIC’s 2009 Summary of Deposits report, details that the four monoliths control over one-third (34.7 percent) of the $7.5 trillion of total U.S. deposits. 

More interestingly, as shown in the graph below, deposits at retail and non-retail branches grew at a 7.1 percent rate from 2008, and the analysis revealed that deposit growth was fueled primarily by super regional banks and community banks (as defined by SNL Financial), with year-over-year growth rates respectively of 18 percent and 12 percent.  The gain apparently was at the expense of the national banks that logged a negative year-over-year growth rate. 

As an advocate of carpe diem, I would like to believe that some financial institutions have heard and heeded the town crier.  However, as a cynic, I understand that other dynamics are at play to explain the national bank category’s negative year-over-year growth rate.  For instance, some nationals have no need for retail deposits because they are shrinking assets in order to better meet the capital requirements being imposed upon them.   Further, cheaper funding has been and is available from the wholesale market, and there is not a compelling reason for some nationals to tap retail customers.

In addition, some nationals still carry the stigma of TARP.  To date, only ten large banks (JPMorgan Chase, American Express, Goldman Sachs Group, U.S. Bancorp, Capital One Financial, Bank of New York Mellon, State Street, BB&T, Morgan Stanley, and Northern Trust) have been allowed by regulators to repay to the U.S. Treasury Department a total of $68 billion they received from the approximately $200 billion of TARP funds that were dispersed.  The TARP stigma is real for those consumers who moved their funds to perceived “safer” institutions (4 percent of all households, according to RFG’s Spring 2009 research study), and for the 25 highest-paid executives at Bank of America and Citigroup who have had their average compensation cut by an October order of the U.S. Treasury Department. (The esteemed Secretary of the Treasury apparently left his former boss, Federal Reserve Bank Chairman Bernanke, with the task of regulating the compensation of the rest of the industry.)  However, such cynicism should be put aside because the town crier still is obligated to do his job and make his proclamations.  

Proclamation #1

Hear Ye! Hear Ye! The Big Four banks have amassed banking relationships with nearly 6 of every 10 consumer households – a collective household penetration rate of 58 percent.

RFG’s Fall 2009 SPSG study of consumer financial behavior reveals that 58 percent of households report that they are customers of either Bank of America, JPMorgan Chase, Citigroup or Wells Fargo.  Bank of America still holds the greatest household share, with 30 percent of all households indicating their affiliation with it, followed by JPMorgan Chase with a 24 percent household share, Citigroup with a 20 percent household share and Wells Fargo with a 17 percent household share. 

Thirty-nine percent of the Big Four’s customers consider themselves “credit card-only” customers, primarily those consumers who specified Citigroup, JPMorgan Chase and Bank of America affiliations.  This was not completely surprising given that JPMorgan Chase, Bank of America and Citibank, respectively, were the top three credit card issuers in terms of credit card dollars outstanding at the end of 2008. (Wells Fargo ranked a distant fifth.)  It should be pointed out that “credit card-only” customer designation is the primary driver for the cross pollination among big bank customers.  In other words, customers of Bank of America may also be “credit card-only” of JPMorgan Chase and/or Citigroup, and vice versa. 

Over one-quarter (27 percent) of all big bank customers deemed themselves as “primary” customers of the Big Four (particularly those consumers who specified Wells Fargo, Bank of America and JPMorgan Chase customer affiliations), and one-quarter (24 percent) of all big bank customers identify themselves as “merger” customers (particularly those consumers who specified Wells Fargo, Bank of America and JPMorgan Chase customer affiliations).  Only one out of 10 big bank customers consider themselves “non-primary” customers of the big banks (particularly those consumers who specified a Wells Fargo customer affiliation).  It should be pointed out that a “non-primary” customer could have other types of relationships (e.g., secondary checking, other deposit account, mortgage loan, etc.) with one of the four big banks.

Proclamation #2

Hear Ye! Hear Ye!  Big bank executives, do not smile, 4 out of every 10 of your customers remain at risk. 

Collectively, six out of 10 (61 percent) big bank customers are resolute in their patronage commitment (extremely and very likely to remain customers) to the Big Four banks.  This is particularly the case if consumers identified themselves as primary customers.  In contrast, almost four out of 10 (39 percent) big bank customers are undecided, not very, or not at all likely to remain customers with those institutions.  In rank order, Bank of America, Citibank, JPMorgan Chase and Wells Fargo are the most vulnerable to customer disintermediation.  Further, it is the merger and credit card-only customers of those firms who are more likely to end or are considering ending their customer affiliations.  Readers should not be surprised that Bank of America, JPMorgan Chase and Citibank credit card-only customers display such displeasure because they are more likely than non-big bank customer households to report that these card issuers have increased the interest rates on their credit cards in last 12 months.

Proclamation #3

Hear Ye! Hear Ye!  Competitors of the Big Four, act now before your window of opportunity closes.   

Financial institutions should recognize that the Big Four banks are on the mend.  Per their third quarter 2009 financial reports, three of the four big banks posted a profit for the reporting period (JPMorgan Chase – $3.6 billion, Wells Fargo – $3.2 billion, and Citibank – $101 million) , while Bank of America posted a loss ($1 billion).  All four banks noted that higher credit costs had muted their earnings.  However, all four banks also reported that they have strengthened their reserves, capital and liquidity positions, and are seeing initial signs of consumer credit stability.  The bottom line is that the four banks have positioned themselves for growth when economic conditions improve.   

Given that there remains, for the time being, unrest in the big banks’ customer franchises, more modest-sized institutions should take to heart that there is still time to act. These firms should heed the town crier’s proclamations, considering the higher income and higher balances of the Big Four’s disgruntled customers.

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