The recent merger of local financial giant FleetBoston Financial, which was based at this building at 100 Federal St. in Boston, and North Carolina-based Bank of America has raised many questions.
Some say it’s all about profits, others say it’s about rebuilding the economy, but whatever the reason for the recent trend of bank mergers, the face of banking in the Bay State has changed drastically – an occurrence dramatically punctuated by last week’s acquisition of FleetBoston Financial by Bank of America.
Chad Gifford, chairman and CEO of FleetBoston Financial, said last Monday’s merger between Bank of America and Fleet was “historic” and called Bank of America the “finest financial institution in the country.”
According to Gifford, this coupling was inevitable.
But some industry watchers question the motives behind BoA’s foray into the region and wonder what impact the emergence of a national bank power in the Bay State will have on the local community, economy and the overall banking industry.
“There will be more consolidation – it is inevitable. There is a tremendous amount of emotion involved in this transaction. This is an important financial institution for the region, but again, knowing what kind of company [Bank of America] is and its values, I have no doubt that this company and its devotion to its commerce and the community is going to thrive. It was right thing to do and I’m proud of it,” said Gifford.
Bank of America, based in North Carolina, has announced it will keep operations headquartered in Charlotte. However, several divisions of the combined entity will be “based” in the Hub, including lending, small-business banking and wealth management. When the merger is complete, Bank of America will operate the largest wealth-management private bank in the United States and the third-largest bank-owned investment brokerage. With $470 billion in assets under management, the wealth management business will be the ninth-largest overall in the country, and will be based in Boston.
According to Kenneth Lewis, chairman and chief executive officer of Bank of America, the BoA/Fleet merger is about delivering the best products to the customers, shareholders and communities.
“Customers will benefit from the most extensive retail franchise in the nation, a shared commitment to service excellence and a full range of traditional and innovative financial products and services. Shareholders will benefit from the best retail and wealth markets in America, unmatched diversity of revenues and resources, and the most talented management team in the industry,” said Lewis. “Our communities will benefit from our shared tradition of public-private partnership, community development and philanthropic investment.”
Merger Mania
In addition to the high-profile BoA/Fleet deal, the recent merger of Bay State locals Seacoast Financial, based in New Bedford, and Abington Bancorp, has added to stir amongst local bankers and analysts, who are attempting to define and adjust to the inevitable change in Boston’s banking marketplace.
The Bank of America/FleetBoston merger follows hard on the heels of a mini-wave of 14 deals involving community banks in Massachusetts and Connecticut, most when notably the $4.479 billion-asset Seacoast Financial – holding company for CompassBank and Nantucket Bank – announced the acquisition of $950 million-asset Abington Bancorp on Oct. 21.
“We view this as another strategic geographic acquisition for the bank, and it filled in very nicely in between the existing franchise on the South Coast and filling in the gap between Plymouth and Norfolk and Suffolk counties,” said Kevin Champagne, president and CEO of Seacoast Financial. “For us, the Abington company, notwithstanding the fact that they’ve had some difficulties, was viewed as a pretty low-risk acquisition for us. These things happen when they happen … you strike when the iron is hot.”
Champagne said the recent Seacoast mergers and the introduction of Bank of America into the New England marketplace has caused many bankers to rethink and review their business strategies.
“The remaining participants in New England are looking around and saying ‘the rules of the game have changed, the speed of the game has changed, and consolidation is still the buzz word,'” said Champagne. “I think you’re going to see a continued pace of consolidation over the next year or two, and it’s [more apparent] because Bank of American broke down the walls of interstate banking and broke into the New England market.”
Thomas Hollister, president of Citizens Bank Massachusetts, said a shakeup of this type in the marketplace would undoubtedly force other banks in the area to reassess their business strategies.
“Whenever there is a change in the marketplace, strategic or otherwise, we reexamine what we are and recommit to doing exactly what we’ve been doing,” said Hollister.
With this shift in ownership, Providence, R.I.-based Citizens becomes the largest bank headquartered in New England, boasting $71 billion in assets, but Hollister said the focus remains on customer service and corporate visibility in the marketplace.
“There is going to be a period of adjustment and it causes us to step up and play a more prominent role in being a good corporate citizen, and that manifests itself in all kinds of ways,” said Hollister. “You will see Citizens become even more visible, but still doing the things we’ve done before.”
The merger of Bank of America and Fleet Bank gives BoA the leading market position in Massachusetts, Rhode Island, Connecticut and New Jersey, as well as a powerful retail platform in New York City, upstate New York, New Hampshire and Maine, said Lewis.
Undoubtedly, top executives at BoA are predicting a profitable future in Massachusetts banking, but other bankers are not as optimistic for the big bank, saying a lack of attention to customer relationships will give smaller community banks and credit unions a chance to increase their market share at the expense of the newcomer.
“The biggest thing it [the BoA and Fleet merger] will reinforce is what big banks are all about – the money. No one will deny that this merger is driven by finance and making a more profitable business entity,” said Robert Kimmett, senior vice president of public relations and marketing at the Massachusetts Credit Union League. “As a result, the consumers lose one more local option because of the national banking franchise that is coming into their neighborhood. The consumers don’t know the people or what decisions are being made.”
In addition to being America’s largest consumer bank, the new Bank of America will be the No. 1 lender to small businesses in the United States. But to smaller community banks and credit unions, bigger doesn’t necessarily mean better.
“When you look at the personal relationships that people want in their lives, it’s nice to have a personal connection that is nearby,” said Kimmett. “Can they get by without that? Sure. But would they rather have a financial relationship with someone at home and locally owned? Yes.”
David O’Brien, president and chief operating officer of $175 million-asset Braintree Co-operative Bank, said the BoA/Fleet merger will only help the smaller community banks in the state become more profitable.
“The merger doesn’t change the landscape for the small, local banks. We don’t compete against [Bank of America] head-to-head, but in terms of relationship building with consumers and small-business people, I think this merger positions us even better because we are very close to our customer. But for the Banknorths and Rockland Trusts of the world, it makes their life harder” because they do compete with the very large banks, said O’Brien.
Industry Evolution
However, the two remaining large regional banks in the commonwealth have their home base elsewhere – Citizens Financial Group in Providence and Sovereign Bancorp in Philadelphia – and while they also will position themselves to inherit defecting former Fleet customers, community banks and credit unions are also creeping further towards the front lines in an effort to attract those who feel their needs were not taken into consideration during the merger.
“This is great for credit unions because people will recognize that locally owned financial cooperatives will not leave the marketplace,” said Kimmett. “Those poor souls that have been through four, five and six mergers have been merged for the last time. They want to do business with someone who will be around for 10 years and credit unions can fill that promise.”
Historically though, the banking industry has continuously evolved – whether through start-ups, mergers or consolidations – and to some industry officials this change is necessary for marketplace growth and development.
As with banks like Commonwealth National Bank, Seacoast Financial, Connecticut-based Webster Financial, and other community banks in the region, the industry is constantly changing, according to Daniel J. Forte, president of the Massachusetts Bankers Association, who said that in order to build the economy, banks have to reestablish themselves.
“De novo banks have spun off, been created and been acquired. You do have that, and the community banks will continue to grow and be active,” said Forte. “Banking is a consolidating business and it always has been, and with the merger of Bank of America and Fleet, I think you’re going to start to see the industry evolve.”
Being the unified voice for over 250 banks in the Bay State, Forte said the MBA expects that Bank of America, which is currently an MBA out-of-state-member, will be more active with their role in the MBA and also in Washington, D.C.
But what still remains to be seen is the overall impact that Bank of America – currently with $737 billion in assets, $409 billion in deposits and a market capitalization of $116.2 billion – will have on the New England banking marketplace.
According to Bank of America and Fleet officials, the merger will be beneficial to consumers and to the industry as a whole, but some wonder how thin the fine line between customer loyalty and shareholder profitability has become.
“With a company like [Bank of America], when the winds blow in a different direction and there is more profit to be had elsewhere, their commitment to the community and the marketplace is only going to last as long as the margin of profitability,” said Kimmett. “That’s not to say they won’t be a good corporate citizen, but their mission is to return shareholder value.”
Fleet’s Gifford takes a more optimistic view.
“It was so clear that Ken [Lewis] valued this franchise, the responsibility to our people and the shareholder value,” said Gifford. “I say to the customers of Fleet, we are going to go through a conversion but they will have the best financial products in this country.”
However, the merger will involve an examination of redundancies between the two banks, and “that doesn’t mean people won’t lose their jobs. When the layoffs will be, and where, we don’t have that information,” Gifford said.
But a more pressing question to many consumers and bankers revolves around community investment, and how much dedication a national bank will show to local low-income communities.
The MBA is optimistic that BoA will continue contribute to the underserved communities of the commonwealth at least as much as did Fleet because it’s good business, and because it’s the law.
“Bank of America is responsible to give back to the communities where they do banking, so they have the same requirements as we do,” said Hollister.
But after the hype and excitement of this merger wears down, the name of the banking game remains who can survive, and ultimately, whether as individuals or business customers, consumers will determine the winners.
“At the end of the day, the customers decide who to bank with and, in that respect, we look forward to competing with BoA and other banks,” said Hollister. “I don’t believe there is an end game. Some people believe that all the banks will consolidate and they’ll be left with no choices. I don’t believe that. I believe the banks that will grow and survive are those that are loyal to their customers … we look forward to competing against BoA.”
