There’s a new merger frenzy in the banking business, and odds are you’re going to see a lot more outfits getting married over the next several months.
Will your bank be one of them? And if it is, how will that impact your pocketbook?
Answer: You could win or lose, depending on who takes over which bank, and how competitive the savings and loan rates are in your market.
Over the long term, mergers could lead to less competition, meaning lower rates on CDs and money market accounts, and higher rates on things like auto loans and home equity lines of credit. But in the short term, as banks gobble up each other and try to grab more business, chances are there’ll be more competition. At least for a while.
So far this year there have been $27.3 billion in merger deals that weren’t government-assisted, like when Uncle Sam coaxes a strong bank to buy up a weak one. That already surpasses the 1993 record of $23.5 billion, according to Ed Dillon, executive editor of Bank Mergers and Acquisitions, Charlottesville, Va.
The actual merger count this year stands at just 211 banks, less than last year’s record 562.
You know what happens when Megabuck Bank swallows up little Friendly Federal, don’t you? It runs ads telling you, the Friendly customer, not to sweat it; everything’s going to remain status quo. In fact, they point out you’ll have even more convenient branches and more ATMs.
But what really goes on behind the scenes in Megabuck’s board room might be something like this:
Megabuck bought Friendly Fed maybe for a bunch of reasons. Banking is rapidly becoming a national-if not international-ball game. Outfits that never used to be able to operate across state lines today operate in as many as a dozen states, with the blessing of the federal government that bent its rules to handle all the bank and thrift failures of several years ago.
Result: Megabuck and a few other big names are now positioning themselves for the day when they’ll be serving customers in 50 states.
Also, Friendly Federal might have been offering certain services that Megabuck wanted to get its hands on, such as a big personal loan customer list or a brisk business in mutual funds. In Friendly’s city, the savings rates may have been lower than in Megabuck’s area-which means the latter can attract cheaper money.
When Megabuck invaded Friendly’s territory, as this scenario might have gone, it immediately began offering “free” checking and low-ball introductory rates, such as 6.5 percent on home equity lines of credit. Why? To steal away as many new customers as it could from other local banks.
But the competition quickly got hip to Megabuck’s ways, and they retaliated with their own special deals to prevent customers from running out the door. Example: A few weeks ago in Detroit, NBD and First Chicago announced a merger. In the same market, Detroit Edison Credit Union added a book of discount coupons and movie tickets to its offer of a free checking account, although it denied that the merger caused it.
The real competition, said the credit union, was coming from another merger, between TCF, Minneapolis, and its partner Great Lakes Bancorp., which began peddling free checking through its branches.
Tip: When a merger comes to your neighborhood, shop for better banking deals while the new kid on the block and the old ones are slugging it out for market share. In the beginning, you’ll probably benefit from the strong competition.
Over time, it could be a different story: Less competition, not more. Example: If Bank A takes over Bank B in the same town, and A’s savings rates have been lower than B’s, chances are that the cheaper rates eventually will be offered to all new customers.
On the other hand, if customers of Bank B have been offered something that those with A didn’t get, such as a great account for seniors, chances are that this service will be available to all customers in the future. But don’t expect any of this to happen overnight. It usually takes months for the newly-marrieds to get their house in order.
———-
Robert Heady publishes Bank Rate Monitor, a newsletter based in North Palm Beach, Fla.
