What are the Banks thinking?

[ESRBob]

Has anyone else been struck by the flurry of new construction of bank branches these days?

Is it just us, or is it happening all over? *We must have 8 new bank branches being built right now, all within a two mile drive. *It is pretty much the only new business construction for miles.

What are they thinking? *I am guessing everybody here pretty much *just puts monthly expenses in the bank, and keeps the bulk of your savings in mutual funds, brokerage accounts and the like. * Maybe it's all about originating mortgages. *But don't most people use a mortgage broker these days? *Maybe the spread/float on a month's worth of your expenses sitting in a checking account is enough to warrant all these buildings? *

My wall street friends say the banks are trying to build up branch networks so a foreign bank will acquire them in *a few years as they try to move into the US market through acquisitions. *(Consequence of the deficit, I guess....). *Still it seems like the industry is headed for a bloodbath, in which case why would foreigners want in?

As if this weren't enough probs for the banks, last I heard Credit Unions are taking the gloves off and becoming tax-advantaged competitors to banks in all their traditional lines.

I just can't figure it out. *Anybody know what is going on?

[Martha]

Here is a link to an FDIC report on trends in bank growth through branching: http://www.fdic.gov/bank/analytical/...070904fyi.html

I also understand that a lot of bank growth in the 1990s was through acquisitions and now the trend is growth through branching, especially among community banks. Community banks are looking for more deposits and more retail business, or loans. Community banks are not generally in the financial position to acquire another bank (they often are overpriced) so they try to grow through opening more branches. Building is cheaper than buying. Also, there has been some disappointment in the industry with acquisitions. Cost savings might not have panned out. Customers are unhappy for one reason or another and bail out.

If this is primarily a community bank trend, then I question whether they are positioning themselves for acquisition.

[BUM]

A buddy of mine says "in 5 years there will be 1/3 of the number of banks that there are today"...pretty bold statement but Citi, BOA, Wachovia, etc. are buying up everything. More branches, fewer institutions.

I often travel between NY and NC and have the same banks in both states. I would like to just have Barclay's in the Caymans as my local branch. 8)

Engulf and Devour.


BUM

[ESRBob]

Martha,
Thanks for the FDIC link-- I got about halfway into it and will look at the rest tomorrow. They agree that it seems paradoxical, but explain why branching is still profitable and thus why it continues to grow. New York, where I live, may have recently relaxed branching laws, too, which could be having a local impact.

Thanks

[brewer12345]

FWIW, I think the smart players in retail banking have ignored the construction binge. All three of my small to medium sized bank holdings have chosen to skip opening new branches in favor of leveraging what they have. I would guess that we will see a large number of bank branch closures over the next 5 to 10 years, some from acquisitions, and some from branches simply not being successful.

These things go in cycles. Frankly, if you can think of a use for the space a branch was once in and are patient, you could probably either buy the building or assume a sub lease very, very cheaply when the next wave of closures hits.