U.S. banks want to cut branches, but customers keep coming

Westbury Bancorp

22/08/2016 06:00

By Dan Freed 
    NEW YORK, Aug 22 (Reuters) - Despite banks' nudging toward 
online tools, many U.S. customers are not ready to give up 
regular visits to their nearest branch, complicating the 
industry's efforts to slim down. 
    U.S. banks have trimmed the number of branches by 6 percent 
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. (http://tmsnrt.rs/2b66WKY) 
  
    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 
percent 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 U.S. 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 U.S. 
customers still routinely use checks and need branches to 
process them, said Rick Spitler, managing director at consulting 
firm Novantas. 
    FDIC Chief Economist Richard Brown said he often fields 
questions why the industry still has so many branches. 
    "This thesisthat we have mobile banking and high-tech 
banking, therefore the branch offices are dinosaurs and going 
away appears to be substantially overstated," he said.  
     
    ON EVERY CORNER 
    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. 
    For instance, an eight block stretch near Manhattan's Penn 
Station houses 14 bank branches - Astoria Bank, Apple Bank, 
Capital One, Citibank, HSBC, PNC, TD Bank, Sterling National 
Bank, Wells Fargo, two Bank of America branches, and three Chase 
branches.  
    Yet bank executives argue that, in a competitive market, 
they need to be footsteps away from the best customers. 
    Executives at JPMorgan Chase & Co  JPM.N , 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 
percent 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. 
    "Often I will be asked why don't we just accelerate 
closings. Why don't we close 400 or 500 branches?" Smith said at 
the 2016 investor day. "The answer is that customers won't go 
there." 
    John Elmore, vice chairman of community banking and branch 
delivery at U.S. 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. 
    "Proximity to their business is a very, very important 
factor to their bank selection and their continuing relationship 
with a bank," Elmore told Reuters. 
     
    COST QUESTIONS 
    Banks do keep trying to steer customers to digital tools. 
    They have reduced the number of tellers and moved them to 
the back. Their ATMs can perform more sophisticated tasks and 
banks have developed nifty mobile apps for routine banking 
needs. They are even experimenting with digital loan 
underwriting. 
    Yet customers still expect contact with bank staff and 
JPMorgan recently had to hire more tellers after customer 
complaints. 
    JPMorgan and Wells Fargo data show most customers visit 
branches several times every quarter, though younger clients 
tend to visit less often. 
    It may be too early to tell what happens in the long run 
when a big bank shutters many branches. 
    Bank of America Corp  BAC.N , which has closed a quarter of 
its branches since 2009, could eventually serve as a test case. 
The bank says it is done with cuts, but Keefe Bruyette & Woods 
analyst Fred Cannon calls for more. 
    He also points to Citizens Financial Group Inc  CFG.N , 
KeyCorp  KEY.N , Comerica Inc  CMA.N  and Zions Bancorp  ZION.O  
as banks that have not slimmed down enough. 
    James Abbott, investor relations chief for Zions, said the 
group had eliminated roughly 20 percent of its branches since 
2009 and continued to evaluate further cuts. The other banks did 
not provide a comment for this story. 
    Cannon argues their costs are too high, and that they could 
eliminate locations without giving up much revenue. 
    "I think there's going to be a real question about the cost 
of that branch infrastructure," he said. 
 
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Graphic showing U.S. bank branches    http://tmsnrt.rs/2b66WKY 
Hauling cash, replacing cards, fixing ATMs: the stubborn costs 
banks can't erase     urn:newsml:reuters.com:*:nL1N1A41D2 
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 (Reporting by Dan Freed in New York; Editing by Lauren Tara 
LaCapra and Tomasz Janowski) 
 ((Dan.Freed@thomsonreuters.com, 646-223-4887)) 
 
Keywords: USA BANKS/BRANCHES