Reply Mon 6 Feb, 2012 12:16 pm
City Of Berkeley Plans To Pull $300M Out Of Wells Fargo
by Beth Buczynski
February 2, 2012


In what may be the most damaging blow to Big Banks since the overwhelming success of Bank Transfer Day in late 2011, the City of Berkeley recently announced its intention to withdraw all financial assets from Wells Fargo.

On Tuesday night, the City Council voted unanimously to find a more socially-minded institution to hold approximately $300 million in city assets. Council members said that they hoped the decision would send a very strong message to the Big Banks ultimately responsible for the housing crisis that sent the economy spiraling.

“I feel that this is one way in which we can make a statement and push for wider changes and promote better banking practices and more equity in our society,” Council member Jesse Arreguin told a local ABC news outlet.

In preparation for this major financial migration, the City of Berkeley is searching for a local credit union or community-based bank that can handle the payment collections, revenue sharing, and sophisticated money transfers its requires.

While credit unions and smaller banks can normally offer all of the same financial services, unique arrangements might have to be made in order for them to collateralize such a large amount of assets, since they don’t usually carry that much FDIC insurance.

As might be expected, the local Wells Fargo branch was shocked and somewhat defensive following the City Council’s announcement.

“Over the past three years, Wells Fargo has donated more than $3 million to 89 nonprofits in Berkeley… And less than two percent of homeowner-occupied loans in our servicing portfolio have proceeded to foreclosure sale,” said Wells Fargo spokesman Ruben Pulido.

While that may be true on a local level, there is no denying the dubious actions of the Wells Fargo corporation:

Wells Fargo was a significant player in the subprime crisis. In 2006, the last year before the subprime bubble started to burst, Wells originated or co-issued $74.2 billion worth of subprime loans, making it one of the top subprime lenders in the country.

As recently as September 2008, Wells still held $48 billion worth of subprime mortgages in its servicing portfolio, making it the nation’s sixth largest subprime servicer.

Despite its large portfolio of at risk mortgages, Wells Fargo has started trial mortgage modifications for only 11% of its 292,515 borrowers who are eligible for the Obama Administration’s Making Home
  • Topic Stats
  • Top Replies
  • Link to this Topic
Type: Discussion • Score: 1 • Views: 1,613 • Replies: 2
No top replies

Reply Mon 6 Feb, 2012 12:46 pm
February 6, 2012
As debit card fees disappear, banks look for ways to recoup revenue
By Andrew Dunn | The Charlotte Observer

Three months after banks scrapped plans for debit-card fees, it's becoming clearer how they intend to recoup money lost in the Dodd-Frank financial reform law.

Instead of one new fee, prepare to be sold more products, offered new service packages, lose debit rewards and face more fees in general.

Banks' fourth-quarter earnings provided the first definitive look at what they lost after a cap took effect on the fees merchants pay banks when you use your debit card.

Combined, Bank of America Corp. and Wells Fargo & Co. reported losing nearly $800 million in swipe-fee revenue in the fourth quarter. Regional banks felt a deep impact as well.

Banks were on pace to lose the $6 billion that had been predicted.

So with debit-card fees off the table, how will they make it up?

One way is by selling more products. Bank of America talks about "deepening relationships" with customers. Wells Fargo is focused on selling existing customers more products.

Midsize banks have been a little more specific in their plans.

Fifth Third Bank is reducing rewards, bundling products together and considering new fees. Regions Financial has launched fee-based products like prepaid cards and changed checking account requirements so that more carry fees.

"Fees have gone up across the board in the industry," said analyst Dick Bove of Rochdale Securities. "That's the only way they can get their money back."

The cap on swipe fees, advocated by Sen. Dick Durbin, D-Ill., was touted as a boon to small businesses and consumers. After being adopted as part of Dodd-Frank, the Federal Reserve in June settled on a limit of about 21 cents per transaction, about half what the industry average had been.

Banks said that would cost them billions. Some Republican lawmakers and presidential candidates have vowed to repeal Dodd-Frank, calling it a burden on businesses.

As the cap went into effect, several banks' response was to announce plans for monthly fees on debit-card use. Bank of America's plan for a $5 fee drew the most notice, though Wells Fargo also began testing a $3 monthly fee and SunTrust Banks Inc. began charging $5.

The backlash was swift and severe. More than 300,000 signed online petitions decrying the fees, and even President Barack Obama called the fees a mistreatment of customers. By early November, most of the debit-card fees were off the table.

That left the biggest banks in a political quandary: how to satisfy investors while avoiding the ire of the public.

Selling more products

Even without a debit fee, Wells Fargo is on its way to making up the loss. While it is difficult to determine which changes are seasonal and which are strategic, Wells' financial statements show that other categories helped make up for a $365 million swipe-fee loss.

Credit card fee revenue increased in the fourth quarter. The bank said that was driven by new account growth on the East Coast as Wells completed its integration of Charlotte-based Wachovia. Revenue from "other fees" ticked up as well.

That doesn't necessarily mean the fees increased. The bank reported selling more checking accounts and credit cards, leading to higher fee revenue.

CEO John Stumpf has said his bank's strategy is to increase its cross-selling, measured by the number of products a household owns with the bank. In the fourth quarter, the number of products per household ticked up to 5.9, from 5.7 last year.

"Our customers pay for all the convenience we offer them through more products and services with us," Stumpf said in a conference call with analysts.

All told, the bank's noninterest income - money the bank makes on fees and other charges - was up 7 percent from the quarter before. By Bove's estimation, the bank already has made up 75 to 80 percent of its lost revenue.

"Wells has kept their cards closer to the vest and has done what they need to do without making headlines," said analyst Gary Townsend of Hill-Townsend Capital.

Wells Fargo declined to comment, instead pointing to public statements its executives have made.

Bank of America, however, saw its income more affected by the swipe-fee cap. It took the largest loss of its peers, $430 million, mainly because of the size of its business.

Bank of America's noninterest income from deposits was down, as well as its overall revenue.

CEO Brian Moynihan did not specifically talk about strategy for making up swipe-fee revenue in this quarter's earnings conference call. But he has said the bank's strategy is to give customers reasons to do more of their business with the bank.

To that end, Bank of America last month began testing a program called BankAmeriDeals that will give cash discounts to card users through deals based on their spending history.

The bank also continues to test a new checking program in Arizona, Georgia and Massachusetts that involves different combinations of monthly fees, services and ways to avoid fees.

But as the bank works to cut expenses and trim its retail operations, some analysts say Bank of America will have a harder time gaining customers to boost revenue.

"Companies like Wells or JPMorgan are investing in their businesses and are quite likely to be able to broaden and deepen their relationships with customers," Townsend said. "Bank of America, on the other hand, is currently disinvesting in its businesses and shrinking. It's hard to conclude that they can be very successful in an environment like this until they repair themselves and get back into a growth mode."

Bank of America declined to comment except to point to public statements. Analysts believe Bank of America's overall health was improved in the fourth quarter, as capital levels and liquidity increased significantly.

Clearer strategy

Some of the larger regional banks, with fewer lines of business to tweak, have felt the loss of swipe-fee revenue more keenly.

Without being as large a political target, their executives have been more explicit in how they will recoup some of that money. Still, analysts expect them to remain cautious about wading into significant new fees.

Fifth Third Bank is lowering rewards and plans to add fees and bundle debit cards into packages with other services.

"We are being very deliberate in our actions," said Fifth Third Chief Financial Officer Daniel Poston in a conference call with analysts. "We are consulting with our customers about their preferences for our services and how they pay for those services."

By the end of September, the bank plans to have made up two-thirds of the impact from lost swipe-fee revenue.

Regions Financial, which has a limited presence in Charlotte, recently launched a package with more fee-based products and is back into the credit card business.

PNC Financial, which is entering the Charlotte market with the takeover of RBC Bank, says it is looking at various types of fees as well. It already has changed its checking product lineup to highlight fee-based packages instead of free checking.

"We have to reprice our relationships with the consumers," CEO Jim Rohr said on a conference call last month. "Some people have learned that you just don't say, 'OK, we'll make it up with one new fee.' I think you just have to look at the whole consumer relation."

BB&T, though, fared comparatively better. The bank reported losing about $36 million from the debit-card rules, but executives have said little else about their strategy to make it up.

But with strong credit card and insurance fees, Bove, the analyst, said BB&T already has made up half of what it lost.

That would put BB&T ahead of the curve. Analysts say most banks will have recouped between 50 and 75 percent of the lost revenue by the end of 2013.

To get there, analysts expect the years-long trend of increasing fees to march on. Whether it's paying new fees or facing higher minimum balances, consumers will be the ones paying more in the end, said Greg McBride, senior financial analyst at research firm Bankrate.com.

"The consumer is getting stuck with the costs."

Read more here: http://www.mcclatchydc.com/2012/02/06/137976/as-debit-card-fees-disappear-banks.html#storylink=cpy
0 Replies
Reply Mon 6 Feb, 2012 01:12 pm
I hope the city finds another bank as tightly managed as Wells Fargo. I can't deal with them myself, but it looks like about the soundest of the large banks.
0 Replies

Related Topics

An Investment Question - Question by Brandon9000
I have sold off all of my investments - Question by cicerone imposter
Trump's tariff war is affecting our investments - Question by cicerone imposter
Brexit and the stock market - Discussion by cicerone imposter
The market crash of 2016 - Question by cicerone imposter
Expected return CAPM - Question by Darkstaron
What is your take on the US and world economies? - Discussion by cicerone imposter
Wait, Investors Paid Germany To Hold Their Cash? - Discussion by BumbleBeeBoogie
Profitable Handicapping - Discussion by melissahc
Handicapping - Profitable - Discussion by melissahc
  1. Forums
Copyright © 2024 MadLab, LLC :: Terms of Service :: Privacy Policy :: Page generated in 0.03 seconds on 04/19/2024 at 04:02:25