NEW YORK: Call it Overbanked of
America.

News that Bank of America Corp plans to shut some of its 6,109 branches may mark a turning point in what analysts have long deemed a nationwide glut in bank branches, as more customers favor banking from their computers and phones.

The changes come as banks wrestle with credit losses that have migrated from mortgages into credit card and commercial lending, with no clear sign that the recession that began in December 2007 has ended or is nearly over.

Bank of America joins JPMorgan Chase & Co, PNC Financial Services Group Inc and Tennessee’s First Horizon National Corp in reducing branches, either in the wake of mergers or to refocus their business mixes.

“It is certainly a cost-cutting measure,” said Nicole Sturgill, a research director at the consultant Tower Group in New York. “Banks really prize face-to-face customer contact. Branches that are closed must be chosen carefully.”

Customers are not alone in being affected by closures.

Doing away with unneeded real estate can cost jobs for thousands of loan officers and tellers. And owners of buildings and malls can lose stable tenants, hurting their business — and their relationships with banks.

“Branches bring foot traffic, which means more sales and higher rentals,” said Bernard Haddigan, national director of the national retail group at Marcus & Millichap Real Estate Investment Services in Atlanta.

As of June 30, 2008, there were 99,161 U.S. bank and thrift branches, according to the Federal Deposit Insurance Corp. That was up 19 percent over the previous decade, though the number of banking companies fell by roughly one-fifth over that time.

That flood of branches could perhaps be illustrated nowhere better than in the nation’s banking center, Manhattan.

On a three-block stretch of Sixth Avenue near Times Square, one can bank at Bank of America, Capital One, Chase, Citibank, TD Bank and Wachovia.

Wachovia actually has two locations on that stretch, the second with an automated teller machine.

Not convenient enough? Each of these banks has at least one other branch within six blocks of the Sixth Avenue office.

CUTTING BACK

For Bank of America, the largest U.S. bank by assets, a retrenchment in branch banking would follow decades of expansion. The Charlotte, North Carolina-based lender has branches in 32 U.S. states and Washington, D.C.

The 6,109-branch count “will come down modestly” over three to five years, spokesman James Mahoney said.

He rejected a published report that a 10 percent reduction is planned, though he said Chief Executive Kenneth Lewis told investors last week that such a cutback could be envisioned.

Wells Fargo & Co has the most U.S. branches, with 6,668 following its December takeover of Wachovia. A spokeswoman said there is no plan for deep cuts.

JPMorgan Chase ended June with 5,203 branches, even after shutting hundreds of former Washington Mutual Inc branches it took over last year.

Steve Reider, president of Bancography, a Birmingham, Alabama, branch consultant, said he does not expect big cuts in branch banking, though many branches have seen transaction volume fall by one-third to one-half since 2004.He said branches remain critical to getting customers in the door, which can make it worth the roughly $2.5 million it costs to open a
stand-alone branch and $800,000 to open a branch in a mall. The real savings come after the ribbon is cut, he said.

“Branches that can run with five employees rather than eight, for example, is what makes the difference,” he said. “And with stress in commercial real estate markets, landlords are willing to negotiate favorable terms, tremendously so.”

REAL ESTATE WORRIES

That stress could increase as more banks fail, especially where the FDIC allows acquiring banks to quit unwanted leases.

Sixty-four lenders have failed so far in 2009. Analysts believe hundreds more may follow in the next two years.

Moreover, real estate experts said that even relatively healthy banks that entered leases when markets — and perhaps their balance sheets — were stronger are now seeking relief.

“It poses a dilemma for landlords,” said Robert Futterman, chief executive of New York-based retail leasing firm Robert K. Futterman & Associates.

“It may be tough for landlords to find a replacement tenant with credit as strong as a bank’s,” he said. “Whether it’s in a community shopping center or a street, to have space go dark is not a pretty situation.”

Haddigan said banks are trying to modify leases “because they can.”

“If vacancies are rising, you can go to the landlord and say, ‘I’m going to leave or move unless you cut my rent,'” he said.

Of course, convenience remains critical, which is a good reason for lenders to keep branches.

A J.D. Power and Associates study this month found that branch proximity is the second most important factor for people choosing a retail bank, trailing only the bank’s brand image.

“Strategic removal of a branch here or there where you already have good coverage would probably not hurt your brand,” said Jaime Peters, an analyst at Morningstar Inc in Chicago.

source: Economictimes

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