Bank Mergers Produce Winners and Losers

Sandy Weill and Jamie Dimon may be household names in the world of big banking, but chances are many credit union folks never heard of them. Chances are even better that what Weill and Dimon combined know about credit unions would fit on one page of a small notebook with room left over. In fact, it would probably be safe to say that these two banking titans whose names are once again making headlines and are undoubtedly on the lips of every banker theses days, could care less about the entire credit union industry. Furthermore, it’s a good bet that they are pretty much unaware of all the reasons banking lobbyists devote so much of their time and resources towards trying to put credit unions out of business. Dimon once worked for Weill. Together they developed a unique (for banks) strategy to focus on consumers to build piece by piece what eventually came to be known as Citigroup. Then Weill dumped Dimon who quickly emerged as CEO of one of the most aggressive and problem-ridden banking conglomerates in the country, Bank One, itself the creation of multiple mergers. But Dimon didn’t stop there in showing his former ungrateful mentor what a colossal mistake he had made sending him packing. Soon they will be equals by virtue of Dimon emerging as the heir apparent to the top spot in the entity resulting from one of the largest mergers in banking history. J.P. Morgan is forking over $58 billion for Bank One. When (not if) approved it will operate under the name J.P. Morgan. The once mighty Bank One will be no more. The new J.P. Morgan, based in New York, will weigh in at $1.1 trillion, still smaller than Weill’s Citigroup at $1.9 trillion, but larger than the third mega bank that also has had the urge to merge, Bank of America, at just under $1 trillion in assets. Besides being a bit mind boggling, what does all of this have to do with credit unions which still tend to get all excited when they hit $1 billion in assets? For starters, it was Weill and Dimon, first together and now in competition with each other, who discovered what credit unions have known since the first CU opened its cigar box for business decades ago. Concentrating on the consumer makes a lot of sense for a lot of reasons. Consumers are much more stable than corporations. They can and have weathered rough economic times. And although they gripe about them, they apparently are willing to pony up the cash for ever escalating fees which are traditionally higher at larger banks. In short, serving consumers can be very profitable for banks. Something else for credit unions to think about. If this mega merger follows the usual pattern, thousands of employees of the merging banks will shortly be given pink slips. An enormous pool of well-trained workers will immediately become available to credit unions seeking staffers who know their way around financial transactions. Probably more important, mergers like these usually result in hordes of dissatisfied bank customers. There will be the inevitable confusion as all the details of the impending marriage are worked out. There will be new faces behind the teller counter and new voices on the phone. Favorite branches will be shuttered. Computer glitches will be common place as armies of tech types try to make sense out of making incompatible technology systems function as one. Among the immediate winners will be makers of signs and stationery. Also, advertising agencies and the media they select to herald the news that J.P. Morgan is now one of the big three that together control a huge share of the retail banking marketplace. One can only imagine the nightmare of getting signage in place (again) and the millions of dollars that will be spent attempting to let customers and potential customers know that there’s another new and much larger kid on the block. Credit unions will also be winners. At least they have been every time one of these giant banking mergers takes place. It is no coincidence that membership numbers at nearby credit unions rise dramatically as once competing banks struggle to put on a happy face as one entity. Typically disgruntled customers desert merging banks by the thousands. As bank staff morale plummets and customer service deteriorates, customers seek a smaller, friendlier, cheaper, more caring financial institution at which to do business, one that treats them like a real person rather than a tiny blip on a giant computer somewhere in New York. That spells credit union membership. This all proves once again one more thing that credit unions have always known, namely, that big banks couldn’t care less about credit unions, even the 82 credit unions that have over $1 billion in assets. Watch for an increase in the number of big banks. Many financial observers are predicting that this latest merger of behemoths will re-start the merger frenzy that some had thought had disappeared forever. The race to be number one has just begun all over again. Maybe credit union trade groups need to use this occasion to play a little offense in the ongoing war with banking lobbyists? How about issuing a statement that this merger could prove harmful to the average consumer as it becomes one more example of big banks controlling an ever growing proportion of the country’s assets. It could be pointed out that choice is good for consumers and the number of choices is once again being reduced. Also, thank goodness that credit unions are out there. Finally, it is worth noting that potentially the biggest losers in giant bank mergers into “too big to fail” mega banks are the community (smaller) banks. It is becoming increasingly obvious that banks have more to fear from each other than from credit unions. Comments? Call 1-800-345-9936, Ext. 15, or Fax 561-683-8514, or E-mail [email protected].