World Economy
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US Banks Fail to Slim Down

Analysts say closures would hurt revenue more than  help reduce costs.Analysts say closures would hurt revenue more than  help reduce costs.

Despite banks’ nudging toward online tools, many US customers are not ready to give up regular visits to their nearest branch, complicating the industry’s efforts to slim down.

US banks have trimmed the number of branches by 6% since it peaked in 2009, according to Federal Deposit Insurance Corp data. The 93,283 branches open at the end of last year was the lowest level in a decade, Reuters reported.

Yet analysts who have examined the data say banks should have done more to offset the pressure on revenue from low interest rates and regulatory demands.

The number of FDIC-insured banks has fallen by more than 25% over that time even as industry assets have grown, indicating room for greater branch consolidation.

Bank executives argue, however, that branches remain crucial for acquiring new customers and doing more business with existing ones. Closures, they say, would hurt revenue more than help reduce costs.

“Our customers still want to visit us,” Jonathan Velline, Wells Fargo’s head of ATM and store strategy, told Reuters in an interview. “They’re still coming to our stores and our ATMs at pretty consistent rates.”

Bankers across the industry share that view. They say online banking complements traditional services for US customers, but few have gone fully digital.

The United States falls somewhere in the middle among developed nations in terms of how aggressively its banks have been slimming down, according to the International Monetary Fund’s population-adjusted data. They have cut relatively more branches than banks in Germany, France or Canada, but not nearly as many as those in Greece, Ireland, Spain or Italy.

While other factors are at play, one difference is that US customers still routinely use checks and need branches to process them, said Rick Spitler, managing director at consulting firm Novantas.

  Conflicting Views

The case for reining in sprawling branch networks as a way to cut costs looks compelling.

The traditional branch costs roughly $2-4 million to set up and $200,000-400,000 per year to operate, according to Ed O’Brien, an analyst at Mercator Advisory Group. For big banks with thousands of branches – many of them clustered in pricey urban centers–it can get expensive. Yet bank executives argue that, in a competitive market, they need to be footsteps away from the best customers.

Executives at JPMorgan Chase & Co, the country’s largest bank, say each branch earns about $1 million in annual profit, but takes a decade to reach its full potential.

Chase bankers regularly scrutinize data on branch foot traffic and what customers do while inside to determine whether a location should remain open, shut down or shrink.

The bank has shut 265 locations since 2013, roughly 5% of its network, but executives insist that branches remain essential for JPMorgan’s relationships with customers. They are the best way to sell clients many products and services ranging from mortgages to investment advice, according to Gordon Smith, JPMorgan’s head of consumer and community banking.

John Elmore, vice chairman of community banking and branch delivery at US Bancorp, says branches are especially important for small businesses that need to deposit cash frequently, prefer to negotiate loans in person, or want strategic advice.

Financialtribune.com