Bank Lawyer's Blog

Banking Blues On The Border

In a world filled with unintended consequences, a perfect storm of unintended consequences for the banking business is sweeping the US-Mexico border.

Nearly half the bank branches in San Ysidro have closed in the last two years, mirroring a trend along the entire Mexican border that’s creating headaches for small businesses and forcing some residents to go without bank accounts.

Bank officials say branch closures along the border are the result of a recent federal crackdown on drug-related money-laundering and an inevitable reduction in brick-and-mortar locations as more banking gets conducted online.

No one disputes that those are factors, but some question whether the banks are using such things as excuses for closing less lucrative branches in relatively low-income border areas.

Whatever the cause, politicians and community leaders say the closures are stifling business along the border, where cash remains crucial to commerce, and threatening long-term prosperity by leaving a trail of empty storefronts and making loans harder to secure.

Another factor cited is the paucity of new bank charters since the collapse of 2008. No new community banks are being formed by local business leaders to meet the needs of the border communities not being met by big banks.

"Most communities along borders like San Ysidro don’t have community banks — we’re at the mercy of the national chains," [San Ysidro Chamber of Commerce CEO Jason] Wells said.

The national chains are closing, not opening, branches, not only in San Ysidro, but all along the Mexican border.

As of Oct. 1, 80 percent of bank branches had closed in Calexico, 29 percent had closed in Nogales, Ariz., and in Texas 13 percent had closed in El Paso and 17 percent in Laredo.

In San Ysidro, six of the community’s 13 branches have closed.

"Derisking" a bank can be bad for business, obviously.

Among the proposed solutions being urged by business leaders are a softening of money-laundering penalties. The $1.9 billion hit that HSBC took not long ago is cited in the article as a prime motivator for the acceleration of border branch closings. Don't hold your breath on that happening. The US Justice Department and federal regulators are too busy pursuing "hate speech," payday lenders, and online dating services to seriously consider lifting its jackboot off the neck of banks in the area of BSA/AML compliance, unless your a bank that services a state-legal, federally-illegal recreational pot business, in which case, as long as you file a Cheech-and-Chong SAR, you'll likely get a wink-wink/nudge-nudge from General Lynch.

Frankly, I don't see any short-term reversal of the trend. Perhaps, if and when de novo bank charter approvals become more common, a few local banks eventually might be created to serve some of these areas. Or, Princess Fauxcohontas may eventually exhale her pipe dream of a US Post Office "Bank of the People's Republic" and morph border post office branches into border bank branches that specialize in turning cash deposits into money orders. Otherwise, I don't see an end to the trend.

De Novo Logjam "Open"?

No sooner do we post an article about how the dearth of new bank charters appears to be a critical (if not the critical) factor in the phenomenon known as "the incredibly shrinking community banking universe" than out of the chute pops a new community bank (paid subscription required).

Primary Bank is just the second new bank to be approved in more than four years, and charts a potential path for other applicants to follow. The approval, which was reported last week, came more than a year after regulators signed off on Bank of Bird-in-Hand in Pennsylvania in late 2013.

"This does now open the logjam. Now the [Federal Deposit Insurance Corp.] has a process, and as long as future applicants follow that process, they should be in good shape," said Donald Musso, president and chief executive of the consulting firm FinPro, which worked with the new bank's organizers to move the application.

Musso said he is in conversations with four other clients possibly interested in filing de novo applications, although nothing is official yet.

The regulators are "working really hard in trying to open the doors for new de novos to form, but the standards are pretty high," he added. "You need $20 million-plus of new capital, which is a lot of capital. You've got to have enough capital to make it to profitability."

"A lot of capital." Ya' think? When I started working on de novo bank charters, back when Andrew Jackson was trying to bring down the Bank of the United States, you needed a tenth of that amount. Of course, a dollar went a lot farther then, as my buddy Tom Sawyer5 used to say.

American Banker reporter Joe Adler correctly observes that two banks in four years "hardly makes a trend." He also notes that the community in which the new bank is located suffered the sale of local banks, leaving it "local bank free." Also, the new CEO is a heavyweight in the banking industry and a former governor of New Hampshire is a board member. The bank's business plan appears to be conservative, focusing on small business loans, with no home mortgages and, I assume (although the article does not state this), little or no commercial real estate lending and certainly not much acquisition and development lending.

Consultant Byron Richardson also notes that private equity investors do not appear to be chomping at the bit to dive into de novo banks.

Richardson said a critical obstacle to new-bank formations lately has been finding investors willing to earn a slow rate of return in the face of heavy capital requirements and other regulatory burdens.

"A founder or organizer is not just going to put their money in a mattress," he said. "Part of the equation is: How much capital will the regulators require? But then with the cost of complying with the regulatory burden… how much money can the bank itself earn?"

On the other hand, the lead investor in Primary Bank said that he wasn't phased by the "regulatory burden".

"There has obviously been some concern with Dodd-Frank and regulations, and some people say, ‘That's why there's not banking activity,'" [William] Greiner said. "Our going forward is testament to the fact that we can see opportunity. We're not focused on some of the noise per se."

Unless, of course, the "noise" raises to the level of a diving-bombing Stuka. We'll see how the bank continues to ignore the regulatory burden "noise" as time marches on. Focusing on business rather than consumer loans is one way to lower the noise level.

Another factor involved in this de novo that may limit the pool of potential investors is the large number in the group.

"Most banks start with five, eight, maybe 10 individuals…. I felt it was important, given the environment, to have a bigger, broader group. We talked about having potentially 50 investors in that initial round," he said. (They ultimately raised an initial $3 million from 133 individuals.) "I thought if we could get 50 community leaders, business owners, professionals, to come and take a stake in this bank, it would make a statement that it's not a club… but really a community-based initiative," he added.

I agree with Greiner that the FDIC loves that aspect. Broad-based community investment groups tend to be more conservative, more focused on the long-term needs of the local business community that the bank will serve than on using the bank to make profits, ratchet up stock values through growth of assets and ROE, and cashing out in five years or so. If that's going to be a requirement going forward, however, it will dampen the enthusiasm of a number potential capital sources.

While this latest approval may, indeed (as Musso asserts), "open the logjam," we'll see how wide that opening is, and whether it remains open. At present, color me "skeptical." We may see a few more of these in the next couple of years, but I simply don't yet see a wave on the horizon that yet appears to be worth riding.

The Dearth of De Novos

Economists Roisin McCord and Edward Simpson Prescott have taken an in-depth look at the rapidly shrinking banking industry (in terms of the number of banks) in the United States since the Great recession of 2007-08 and come to the conclusion that the cause is the unprecedented decline in the creation of new banks since 2010.

From the "Economic Brief" (co-authored with Tim Sablik) that summarizes the more detailed analysis linked above):

The financial crisis of 2007–08 significantly altered the banking landscape. From 2007 through 2013, the number of commercial banks in the United States fell by more than 800, a 14 percent decline. This drop was highly concentrated among small community banks (banks with less than $50 million in assets), which saw their numbers shrink by 41 percent.Although many banks failed during the crisis and its after-math, this decline was driven largely by a lack of new banks. The number of newly formed banks (called de novo banks) has fallen sharply since 2010. In 2012, there were no de novos", and in 2013 there was only one: Bank of Bird-in-Hand,formed in Lancaster County, Pa., to serve the Amish community.

The authors claim that this "collapse in new bank entry" is unprecedented "and could have significant economic repercussions."

In particular, the decline in new bank entry disproportionately decreases the number of community banks because most new banks start small. Since small banks have a comparative advantage in lending to small businesses, their declining number could affect the allocation of credit to different sectors in the economy.

The authors take a look at other financial crises in this country during the past 50 years. While the erosion of interstate branching barriers and the financial impact of previous banking crises had reduced the number of independent commercial banks from between 12,000 and 13,000 in 1980 to less than 7,000 in 2000, each previous economic recession that caused an accelerated reduction in the number of banks through bank failures and mergers was accompanied by the robust creation of new banks to offset the failures. The last five years do not differ markedly from the exit rate of banks in previous years. What is remarkably different about the last five years is the almost complete absence of new bank creation. From 2011 through 2013, only four new banks were created.

The authors discuss the possible reasons for the lack of de novo creation. One explanation is low bank profitability as the result of the Fed's low-interest-rate policies and the resultant anemic net interest margins. However, in discussing another Federal Reserve Board study that takes this position, the Richmond Fed's economists contend that a "literal interpretation of " the FRB's model "would predict that even if the net interest margin and economic conditions recovered to 2006 levels, there still would be almost no new bank entry." They also cite another study, this one by the Federal Reserve Bank of Kansas City, that concludes that while the net interest margin is historically low, it is similar to the net interest margin that followed the 2001 recessions and higher than the net interest margin during the recovery from the 1981-82 recession.

Another potential factor discussed is the high cost of operating a small bank due to the plethora of regulations enacted in the wake of the Great Recession, including those mandated by the Dodd-Frank Act. While the authors note that a recent study found that compliance staffs and costs have risen substantially since 2010, the ratio of non-interest expenses to assets for community banks has not increased significantly. Therefore, regulatory costs, standing alone, may not be a major deterrent to de novo creation, since they may be offset by decreases in other costs.

Another factor, which we also have discussed, involves the time and expense of de novo applications, especially the applications process for insurance of accounts filed with the FDIC. The process is a long and expensive, and there has been a much greater chance than in previous economic cycles that the FDIC will not grant approval. Spending considerable time, money, and brain cells, not to mention the cost of cases of anti-acids to fight the heartburn, with a questionable chance of approval has, in our experience, been a major deterrent.

Once potential deterrent, the 2009 policy of the FDIC to extend the period of time that new banks are subject to greater examination costs and higher capital requirements, was allegedly abandoned by the FDIC within the past year. We think that jury is still out as to whether this abandonment is real or window dressing.

Obviously, the authors of this study, working within the bank regulatory system, are required to be more circumspect and less opinionated. As one living outside that system, and being possessed of a faulty governor of my internal sense of circumspection, I can be more blunt. My personal concern is that I have neither heard nor read anything recently that convinces me that the same regulators at the FDIC who made comments a few years ago that there were too many banks in the United States, and they were in the business of reducing, not maintaining, the total number of banks, have changed their opinion.

Whatever the reasons for the dearth of de novos, the study's authors draw some stark conclusions.

The current decline in commercial banks appears to be driven largely by the complete collapse of new bank entry. If entry remains weak and the exit rate remains constant, the number of banks overall, as well as the number of community banks, will continue to fall.

A Good Man(trap) Ain't Hard To Find

Back in 2006, we discussed the problems that one bank had when it installed what was then a relatively new technology called a "mantrap" in a branch located in a predominantly black neighborhood. Activists found the entire idea of bank personnel trapping a robber who just stole a wad of cash from the bank in a vestibule located between a rock and a hard place to be an obviously racist outrage. We were hard-pressed to find the discriminatory connection, but at the time, the bank deactivated the mantrap and opted instead to post signs asking those entering the branch to doff hats, hoods, and sunglasses. Apparently, no rappers banked there, because that strategy to deter would-be thieves generated no protests.

Fast-forward eight years and we find that unrepentant banks are still employing mantraps and...well...trapping men.

A bank robber nearly got away with the heist Thursday, until employees hit a button and trapped him between the bank's two outer doors, state police said.

He was caught in what police call "a mantrap," Sgt. Paul G. Shavack said.

The suspect tried to escape the electronically locked enclosure, attempting to smash the break-resistant glass of the windows and doors, Shavack said.

He managed to cause some damage – but didn't escape – growing frustrated and wearing himself out as bank staff looked on, Shavack said.

Police soon arrived and arrested Stephen D. Dunfee, 38, of the New Castle area, without incident, he said.

Dunfee's mug shot indicates that he doesn't appear to fit any obviously protected group (unless dumbass is now a category of homo sapien entitled to special consideration), and he is bereft of hat, hood, or shades. I think we might have passed beyond the era of mantrap sensitivity into a new time when all robbers are trapped equally without regard to race, creed, color, gender, sexual orientation, or terrestrial origin, a time when being sandwiched in a bank branch vestibule is not only considered unobjectionable but...dare we say it...right and proper.

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I am off the rest of this week to participate in two sessions at the D+H Connections Annual Users Conference in Orlando, Florida. I will see you on the flip side of the Labor Day holiday weekend. Have a nice holiday.

 

Drive-Bys: Not Just For Gang-Bangers

Colorado attorney Jennifer Gokenbach sounds a warning of a phenomena we've seen not only in Colorado, but in other states, including Texas: the dreaded ADA Public Accommodation “Drive-By” Lawsuit. She alleges that "since April of this year, 20 lawsuits (and counting) have been filed against Denver area businesses by the same Plaintiff who is represented by the same two attorneys from Florida, for alleged violations of Title III of the ADA, including things like lack of ramps, narrow doorways, missing signage, doorknobs that can’t be opened by a closed fist, and misplaced soap dispensers and coat racks."

I should add that such ADA-related claims have also been filed against banks in a number of states, usually alleging that the bank's ATMs or branches don't comply with Title III of the Americans With Disabilities Act.

Ms. Gokenbach explains the gist of these lawsuits.

The problem with these cases is that the vast majority are not situations where a disabled individual truly felt discriminated against and sought out an attorney to help redress an injury due to a lack of accommodation. Instead, it is the lawyers who hire investigators to identify local businesses that are not in technical compliance with the ADA, and then recruit plaintiffs from disability advocacy groups to serve as the front person. The investigators take pictures and build the case while the plaintiffs merely “drive by” the establishment, without any honest intentions of ever servicing the establishment.

Once the boilerplate suit is filed, questionable litigation tactics are then employed, such as serving immediate discovery in violation of the rules, asking the courts to order the parties to a settlement conference to force a quick settlement, and refusing to accept agreements or assurances of ADA compliance without monetary payments, even though the ADA itself does not allow damages to be awarded to plaintiffs (the ADA allows only injunctive relief and attorneys’ fees).

Yes, that's right: "even though the ADA itself does not allow damages to be awarded to plaintiffs," the plaintiffs are trying to squeeze money out of the banks and other businesses. In many cases, defendants, looking at the matter strictly from a cost standpoint (since paying litigation attorneys to defend you can quickly cost more than paying off the plaintiff and his or her attorney) decide to close their eyes, hold their noses, and consider a relatively small monetary settlement a nuisance cost. However, other defendants decide they want to make the point that they're mad as hell and they're not going to take it anymore. After all, if you buckle under the wings of the first vulture to land on you, can others be far behind?

Ms. Gokenbach asserts that those businesses that decide to stand up to the shakedown have plenty of ammunition to bring to the gunfight. In addition to advising businesses to check with an insurance professional to determine whether they are covered against such claims (or, if not, if they can get coverage for future claims), she notes that "in some cases, where business owners decide to fight back, courts have dismissed the suits, sanctioned the plaintiff’s attorneys for unscrupulous litigation tactics, and/or awarded attorneys’ fees to prevailing business owners." Of course, each fight-or-flight decision has to be made on the facts of the individual case, as well as on the defendant's appetite for engaging in butt-kicking contests with butt-heads. Nevertheless, rolling over and forking over cash is not the only alternative when hit with a cookie cutter drive-by.

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I'm speaking at, and otherwise haunting, the annual NAFCU Regulatory Compliance Seminar this week in Seattle. Therefore, I'll be off the air until next week. If you're attending the conference, and aren't enraged by either of my presentations tomorrow, or otherwise offended by my blogging or the fact that I represent commercial banks, feel free to say hello. I generally don't engage in concealed carry when I travel, so chances are. I won't be strapped.

A Double-Bonus Of Unintended Consequences, Courtesy Of Dick Durbin

When former FDIC Chairman Bill Isaac called the Durbin Amendment "pure and simple, special-interest politics," he obviously meant that Dick Durbin was a tool of big-box retailers, which are the businesses that benefit from cutting debit card interchange fees in half. It's "price control" in its most naked form, and the retailers who receive the price cut claim it will benefit customers by reducing costs of each transaction. If you believe that retailers will pass along the reduced costs to consumers in the form of lower prices rather than keep the savings for themselves, I guarantee you that for a very reasonable price, I can get you a date with Sophia Vergara. Just send me $500.00 in unmarked twenty-dollar bills and trust me. Hey, would I lie to you?

Lining the pockets of the those who line the political committee coffers of pols is a time-honored tradition in this country, yet it's not the most odious aspect of this piece of federal legislative sausage. Legislation like the Durbin Amendment (as well as the remaining 2300 pages of that steaming heap of bat guano popularly known as "Frank's Folly") has all kinds of unintended consequences (as opposed to the intended consequence of increasing retailer profits). One of those unintended consequences is inconveniencing consumers, as consumers in Houston, Texas, and elsewhere will discover in the near future.

International Bancshares Corp. this week said it plans to close 17 grocery store branches in the Houston area by the end of the year.

The branches are among 55 branches the Laredo-based bank holding company will shutter. IBC cited new bank regulations limiting how much banks can charge for stores for debit card transactions as the reason for the closings.

The bank operates most of its Houston-area branches in H-E-B and Kroger stores, according to its website.

“Our customers have always made it clear to us that free products and services are extremely important to them,” Dennis Nixon, IBC chairman and CEO, said in a statement. “To keep those free offerings in place, we will have to reduce expenses. This means we will close 55 of our smaller in store branches located in grocery stores.”

IBC (Nasdaq: IBOC) expects the move to affect about 500 permanent jobs over the next 90 days.

So, as an added bonus unintended consequence to customer inconvenience, 500 bank employees will hit the streets to find new jobs as IBC reduces expenses to match reductions in fee income. This little vignette is just one example of many similar consequences that are unfolding, and will continue to unfold, all over the country.

The post-Dodd-Frank world that's looming on the horizon is starting to resemble the world created by Cormac McCarthy in The Road. For those of you who haven't read the book or seen the movie, that is not a good thing.

 

Getting Where You're Going

I don't customarily use guest posts on this blog. In fact, I generally ignore the requests I receive to guest post here, since the overwhelming majority of such requests are from people trying to sell you something. However, I'm making an exception for former client and current friend Pat Dalrymple (who's also a blogger and who I've mentioned previously) because he's not trying to sell you anything, he just wanted to "vent," and there's nothing I like better than a good "venting." The following opinions are solely those of Pat, and I neither endorse nor disavow them. They just make me chuckle because, as a former US president once proclaimed, "I feel your pain."

HE WHO DOESN’T CHANGE COURSE WILL GET WHERE HE IS GOING

(Said to be a Chinese proverb)

By

Pat Dalrymple

There are a slew of community banks walking the road to extinction that are refusing to even consult a map, let alone considering making a right turn to avoid oblivion.

Their condition is compounded more by paralysis and denial than by confusion.  Many haven’t crawled out of the potentially fatal image of a community bank to even dither over survival options.

Before speaking further, I’d better make a few things clear:

I’m not very smart; if I were, the bank that I helped charter in 1990 and ran for 16 years wouldn’t have been compelled to sell for virtually nothing in 2008, after being hit with loan repurchases from secondary market investors (most of which aren’t around anymore, if that’s any satisfaction).  But I’ve been around banking since 1961, and I’ve seen things done very well, and very badly.  Because of my own recent experience, I’ve been both empathetic and, frankly, appalled by what I’ve seen in the last three years in my consulting business, which has targeted troubled community banks.

And I am smart enough to know that, if you’re heading east and don’t want to go there, you’d better go west fast.

I’ve noted that the malady suffered by small problem banks, from, say, $75,000,000 up to $1,000,000,000 in assets, is a form of paralysis.  Below are the causes and symptoms of the illness- and maybe even the treatment:

• Management and the board of directors say, “If we can just hang on until we get rid of our problem assets, we’ll be fine”.  No, they won’t.  Few troubled banks in this asset range are making money operationally, and virtually none have a viable business plan for profitability in the radically changed banking industry.  They believe that they can go back to making the kind of loans they made before the roof fell in.  These are the loans that got them into trouble in the first place.  Economic conditions preclude making these loans, the regulators won’t permit it, and the potential customers don’t qualify anyway.

• “Whatever we do, we have to preserve the franchise value of the bank”.  Today, the bank in a troubled state has no franchise value, and may never, under any circumstances, have much of a franchise vale if it can’t find a business model that can turn a profit.  Recently, I heard a CEO say, “Yeah, we’d like to sell, but we’re not going to give the bank away”.  He’s right as rain; nobody would want it.

• “I can sell a branch (or branches), shrink so I’ve got a well-capitalized core ratio, and make some money at the same time”.  Probably not; branches finally being perceived as what they’ve always been:  anchors encased in concrete that have an annoying tendency to drag the ship down.  They have to be very well located, and have the potential to generate profit, not just deposits.  Besides, those that want to expand can readily do so for virtually nothing by just cutting a deal with the FDIC on a shuttered institution.

• “We may have problem assets, but we’ve got a great management team, and loyal employees”.  Maybe: but it’s a management team that can’t move its arms or legs, a group that’s looking over its shoulder at the regulators, and isn’t managing to do much of anything, including making money.  The worth of a business’ human assets are in direct proportion to their ability to generate profit.

• “We don’t want to gut the bank, and upset our customer base by laying off people” (See “franchise value”, above}  Take a look at the quarterly financials of troubled banks on the FDIC website. Most of them haven’t reduced their employee count.  Many have increased the number of people.  The latter is often a result of regulators mandating a new positions, such as credit officers or compliance managers.  Banks have no choice but to acquiesce to this.  But they often are bound by inertia when they have discretion in reducing staff.  One reason is the feared community reaction.  It’s never as bad as expected, and news stories about the suits coming in on Friday night aren't exactly the best press either.

• “We’ve put our loan people to work managing problem assets”.  This is an oldie but goodie.  This mantra has been around long enough for the dismal results to become apparent.  Ask practically any CEO of a troubled institution, as Dr. Phil would, “How’s that workin’ for ya?”  and the reply invariably is, “Not very well”.  You end up with a lousy asset manager, and a terrible loan officer, especially if they’re trying to do both.

There is no cure for the Bad Asset Virus.  If it’s serious enough, it’s terminal, and about all that can be done is make the last corporate days of the bank, its employees and stockholders, as comfortable as possible.  However, if the case is merely serious and not terminal, there are treatments that can help mitigate the condition.

• First thing: make money.  Oh sure, easier said than done.  But, consider:  if management can’t figure out how to do it, the bank is done anyway.  The route to a profitable business model won’t be found by thinking in the customary community bank frame of reference.  Being what you were won’t make you what you want to be, and being what you were is why you’re where you are, so….

• Explore ways to use the bank platform to bring in revenue quickly, with a minimum of risk. One example:  there’s no business operation or financial entity that’s better positioned than most community banks to produce residential real estate loans in their market area.  Borrowers think of their bank first when seeking a home loan, and banks can originate the deals and pass them on to the secondary market.  If the loans are table funded, or directly funded by the end lender, there’s virtually no risk of repurchase. But banks are failing miserably to grab this opportunity, which can generate an impressive new revenue stream in a short time.  Many feel that not closing in the bank’s name will make them (whisper, and spell out the words) a m-o-r-t-g-a-g-e  b-r-o-k-e-r.  I assure you, Mr. or Ms. Community Banker, your customers don’t really care where their money comes from, they’re not immediately going to transfer their allegiance to Wells Fargo, and, yes, they will respect you in the morning.

• Seriously, really seriously, consider cutting personnel costs.  Don’t get high on your own supply by recycling amongst board and management the same canned routine that’s provided for the examiners' consumption. Don’t succumb to the temptation to keep people because you’ll need them “when things turn around”.  If your bank is still around  when things turn around, it won’t be the same bank. One way to do this is to….

• Eliminate branches.  Put them on the market, and if they languish with no takers, as they likely will, then close them down.  Recent studies have concluded that the cost benefit of maintaining expensive facilities and personnel to serve the least profitable customers, which are generally those who use branch facilities, simply doesn’t make sense.  Increasingly, the value of a branch network is being judged by its ability to produce revenue at a reasonable cost, and not just on its liability generation.  In banking, the easiest side of the the balance sheet to satisfy is the liability side.  Putting on good assets is the hard part.

• If the bank’s management team is seriously challenged to solve the profit generation problem, it can be surprising what can happen.  People continually shock themselves and others with their creativity.  But the impetus won’t come from the management group; it has to be external.  Community bank executives aren’t conditioned to suggest radical changes to boards and stockholders, because they feel that a radical course change smacks of blasphemy, especially in the community bank culture.  Regulators can, and do, scare the be-jesus out of everybody, but they can’t light this particular fire.  Somebody, maybe a maverick director, or perceptive chairman has to say, “Folks, we’ve got to change our direction, or we’ll surely get where we’re headed.  Put your heads together and come up with new business model options.  The bank’s survival, the investment of the stockholders (who may be friends and neighbors) and your jobs depend on it”.

• And finally don’t fear changing the makeup of the board, and replacing top management.  No CEO ever said to the board, “What we did was wrong, what we’re doing is wrong”.  Human nature almost surely precludes this.  A new team may be the only answer.

As I said, I’m not the brightest light in the chandelier, but I’ve done some things right, and some wrong.  And, finally, after half a century, I do have the wisdom to know the difference: one of the marketing blurbs for my consulting operation is=

“Hire the guy who’s made the mistakes.  He won’t make ‘em again”.

Wal-Mart Getting The Last Laugh

Last summer, Wal-Mart was scooping up small business borrowers through its Sam's Club unit. This summer (paid subscription required), Wal-Mart is stealing another march on bankers by focusing on consumers.

The retailer next week will begin rolling out automated versions of its MoneyCenter offices, which provide a range of financial services to shoppers.

The "MoneyCenter in a box" concept will feature ATM-like machines positioned in Wal-Mart stores that do not have full MoneyCenters, said Jane Thompson, the outgoing president of Wal-Mart's financial services unit.

According to TowerGroup's Brian Riley, bankers should quaking "[b]ecause if Wal-Mart starts linking their kiosks to doing reloadable gift cards, they have the power to move a lot of transaction money."

Ya' think?

Wal-Mart has more than 1,000 MoneyCenters throughout the country that provide check cashing, bill payment, wire transfers and other services. Manned by customer service agents, they are one of the most profitable areas in Wal-Mart stores, Thompson said.

Companies with a hand in financial services have been trying to encourage self-service as a way to control labor costs, while potentially keeping longer store hours. Kiosks are also a way to blend Internet banking and financial services functions with shopping in the physical world.

"If you take a Wal-Mart shopper, if maybe they want to buy a washing machine and they want to transfer funds online without having to get to their home computer, or maybe they don't have easy Internet access, they can do that now within a Wal-Mart," said James Van Dyke, the president of Javelin Strategy and Research. "It makes a lot of sense for a limited segment of the population."

As we observed two years ago, the FDIC may have done Wal-Mart a favor by derailing its application to acquire a Utah industrial loan company charter through Sheila Bair's passive-aggressive "moratorium." Unhindered by federal examination bobble-head dolls looking over its shoulder and second-guessing every move it makes in a regulatory world gone tight-sphinctered in the wake of Dodd-Frank, since it withdrew its application in 2007, Wal-Mart has been rolling out the bad news for banks in the area of cheap consumer financial services world faster than Lady Gaga changes extra-terrestrial outfits. With their size and pricing power, they are formidable when it comes to delivering cheap financial services to a mass market. Banks may have kept Wal-Mart from entering the banking business through the front door, but that hasn't slowed the Behemoth of Bentonville down much. The side- and back-doors look mighty friendly.

So much for the ICBA's "popping champagne corks" over its "defeat" of Wal-Mart in 2007. You should watch out when you do that, because the ricochet can put your eye out.

A-Venting We Will Go

Every once in awhile, I receive such an excellent rant from a reader who functions (or malfunctions) in the higher reaches of a community bank that I must take a knee, catch my breath, and say a quick prayer of thanks to both the Hairy Thunderer and the Cosmic Muffin. Today was such a day.

In an only slightly edited form (to protect the guilty), here was my first e-mail of today, thoughtfully composed and spewed by a frustrated senior member of the board of directors of a community bank lodged snugly in the heartland of America :

I can buy an ATM that takes deposits, images checks and delivers cash for $50,000. No health care, no workman's comp, no vacation, no 401K, no lunch break, no lawsuits, no whining. Regulation is making technology much more attractive despite the cost. Don't get me started on the 'talking' ATM's that will cost at least $10,000 each to upgrade (to comply with the ADA in case a blind person in a taxi needs money at midnight...it's a civil rights non-discrimination issue don't you know)

Two banks in our area of the country "agreed" to "settle" Fair Lending claims/investigations (or face daunting litigation) by opening branches in minority neighborhoods that, absent Fair Lending's required enlargement of MSA's to encompass entire county boundries, would not be in their market area. One can agree the areas are underserved by banks; two (minority owned community) banks in the areas failed. Unfortunately, community banks do not have the deep pockets of Boeing to litigate and each bank that settles makes it easier for DOJ to get the next bank to comply. The appropriation of community bank capital (in more ways than this) is stunning.

Why has 'banking the un-banked' become such a rallying cry? Maybe low to moderate income folks don't need a bank. Maybe they need access to their cash without paying high fees to get it. (Remember the cash payroll? An envelope with money in it. Our bank discontinued it decades ago. It was a sad day.)

 

 

I feel your pain. You can rant me a river any old time.

Stop Whining And Post A %#$*& Sign!

I suppose I'd be more sympathetic to banks that complain about plaintiffs who cruise bank branches, seeking ATMs that don't post the signs required by the Electronic Funds Transfer Act, and then sue banks for violating that particular requirement portion of the EFTA, if (A) the law hadn't been around for a decade and/or (B) plaintiffs or their attorneys were ripping off the signs when no one was looking, then suing the bank for not having a sign. The latter might be the case in a few instances, but I doubt any bank that actually posted the sign wouldn't prefer to get into a swearing contest before a judge than they would merely roll over and pay off the leaches who would pull such a stunt. No, I think in most cases, the banks have simply failed to comply with a basic requirement of applicable law.

We can debate the merits of giving private citizens, like the retired couple of Robin Hoods who are featured in the linked story, the right to squeeze money out of banks when the plaintiffs haven't been misled or otherwise personally harmed. However, a private right of action is provided by the law for just this purpose: to arm private citizens with the ammo they need to force banks to comply with the law. With all the other matters they have on their plates at the moment, I'm sure state and Federal law enforcement and bank regulatory agencies are happy to leave the harassment of banks to roaming legions of do-gooders without portfolio.

Bank counsels' complaint that these lawsuits amount to a nuisance may be correct. The law intends them to be a nusisance. They're intended to change behavior. If you don't like the nuisance, you've got a choice: change the law or comply with it. The latter seems to me make the most sense, and is certainly the most cost-effective course of action, but what doesn't make sense is to complain that there's something unfair about private citizens doing just what the law intended them to do.

In this case, I have to agree with the anti-bankers. As a modification of PJ O'Rourkes Memo to Gen X, I'd tell complaining banks to pull up their pants, turn their hats around, and get a sign.