Dear Reader

Who Benefits from Big Bank Mergers?(A)

A)At one point in my life, as a not-quite-starving artist in Boston, I needed to earn a real living, so I procured a job at the Bank of Boston simply because it was the biggest, most stable employer I could imagine. The bank was good and bad – still rooted in chauvinistic habits that hadn’t yet become illegal. Yet in the quintessential New England tradition, the bank was very proper and generous in its own way. I received good training there, for which I am grateful, and made many lifelong friends. I made my way into the management training tour, where I learned that the bank was larger than its next five competitors combined in New England, that the new building it was erecting was the tallest in town by a few feet, and that if you fly over the top of the building you can see the number “1” on the top.The bank was pioneering a new thing called “credit cards”, aimed at customers who would always keep large balances and always pay their bills on time. I actually learned quite a few useful things, although that last tidbit struck me as a bad idea for the customer
The Bank of Boston is gone now, subsumed by Fleet Bank, out of Rhode Island, which is now being subsumed by Bank of America, which was itself subsumed by Nations Bank out of Charlotte, North Carolina, which kept the name. Recently, JPMorgan Chase of New York announced that it was merging with Bank One, out of Chicago, and probably gave indigestion to Bank of America upper management as it moved to secure the second biggest bank spot in a bar graph on the front page of the Wall Street Journal. The bank will be headquartered in New York, so it looks like Chicago, too, will lose out on a mega bank presence. This is not trivial. Along with headquarters designation come tax revenues, upper management personnel, supporting law firms and other satellite businesses and of course jobs.
But perhaps the least understood and the most profound of all impacts is the cost borne by the consumer. Banks have figured out how to make money on the retail customer to the point where JPMorgan Chase’s purchase of Bank One is seen as a kind of hedge to offset the volatility of derivatives or trading. The Wall Street Journal said “Citigroup and a handful of competitors have proved that lending to consumers – via credit cards, mortgages or automobile financing – can turn a lumbering institution in to a growth business.” Banks will say that they need the scale to serve large corporate customers who like all their financial needs met in one place. But large customers can negotiate favorable rates on all services. Retail customers are forced to simply pack up and leave.
There are places to go, if you can find them. With my account at the Marblehead Savings Bank in Massachusetts I can actually talk to lending officers or support people who (I’m not making this up) know me. I was so moved by a particular wire transaction last summer that I wrote a letter of appreciation to the bank. A real friendly person had helped me, offered me suggestions, and faxed me confirmations. Boston’s Wainwright Bank customers have the same experience, as do customers of other community banks around the country.
We can’t begin to quantify the social cost or environmental burden of the huge consumer debt, where, at the very least, much too much interest is being paid by way too many people to purchase goods they always want but seldom need. The big banks’ ability to make money on the retail customer is testimony to the gullibility of people and to the banks’ marketing sophistication. Those huge multi-national companies are growing their towers around the world at the expense of the little guy in more ways than one.
In today’s world, it’s widely agreed that stealing is not only illegal but immoral. We are attacking the obvious cases of stealing in the corporate world with gusto, sending hapless perps up the river as an example that corruption doesn’t pay. But there’s a kind of subtle corruption in the way the big banks treat ordinary, middle class people who just want to achieve the American dream, but do not understand that they are being pushed to the edge of financial disaster on purpose.
We do have the people who really benefit. As an example, there’s James Dimon, the current CEO and Chair of Bank One, who will become CEO of JPMorgan Chase after the merger. In 2002, Mr. Dimon, according to an AFL-CIO Executive PayWatch, “raked in $10,707,005 in total compensation including stock option grants from Bank One Corp”. And he has another $21,189,600 in unexercised stock options from previous years. Does anyone want to hazard a guess what Mr. Dimon gets out of this merger? Mr. Dimon had a falling out with Sanford Weill at Citigroup, thus pushing him out of the running to head the country’s biggest bank. The new combined bank will be positioned to challenge Citigroup at the top of the anthill, and it’s my bet that both Bank of America and JPMorgan will do just that. Look for more consolidation in the future. But hey, don’t despair. Our economy needs the consumer to keep spending, and your debit card will be at home in more and more ATM machines. What more could you ask?