News: Analysis & Commentary: BANKING
`THANKS FOR YOUR DEPOSIT. THAT'LL BE $3'
Outside the First Chicago bank branch in tony Lake Forest, Ill., Shaun C. Borden is threatening to take his "six-figure" account to another bank. "I don't like the attitude of First Chicago," says the president of Swiss Financial Securities Inc., a brokerage firm. Borden is steamed because of the bank's plan, announced on Apr. 25, to slap thousands of customers whose balances total less than $2,500 with a fee mf $3 for visiting a teller when they could have used an ATM. Borden isn't in that category, but perception counts--and his is that the bank is unfairly jacking up its fees.
Like Borden, bank customers across Chicago are outraged. Now, the city's largest bank is scrambling to respond to what one of its board members calls a "public relations disaster." First Chicago Chairman Richard L. Thomas quickly mailed letters to all customers seeking to clarify the fee issue. Analysts think the bank may have to at least partially retreat from its new plans, though Executive Vice-President W.G. Jurgensen contends the bank is "only going after excessive transaction activity."
However First Chicago responds, though, bank customers everywhere are having to get used to forking over fees for what once came free. From Bank of America on the West Coast to Citicorp back East, banks increasingly are nickel-and-diming customers in ways that add up to big revenue. Since 1990, service charges on deposit accounts alone have grown from $11.4 billion to $15.3 billion (chart). And fees are likely to keep growing. Chris M. Bauer, chairman of Firstar Bank Milwaukee, predicts that eventually the whole industry may have to move in First Chicago's direction.
IRKSOME ACCOUNTS. Many banks already have. Indeed, First Chicago riled consumers over an old idea: In California, Wells Fargo Bank began charging teller fees for some accounts back in 1987; BofA did so in 1992. Meanwhile, fees keep rising even as banks add new ones. Bank Rate Monitor reports ATM fees rose 17% last year, to an average of about $1. Three years ago, 35% of banks leveled a charge on customers who unknowingly deposited someone else's check that bounced; today, it's 85%, reports the U.S. Public Interest
Research Group. Banks impose dozens of other fees, too.
The fact is, many bankers would like some customers to shift to a credit
union or small bank. "As long as there is service available somewhere, let the marketplace work," says Norwest Corp. CEO Richard M. Kovacevich.
The trick is to coax unprofitable customers into paying their freight. First Manhattan Consulting Group Inc. figures that 50% of households with bank accounts are money-losers for banks. These are low-balance customers who constantly bug tellers with requests to inspect their balances or see if a check has cleared. The result is anemic revenues and high costs. The danger in dumping a whole class of customers, of course, is that the profitable customers could walk, too.
POLITICAL FLAK. One of the few banks to finely dice its customers by profitability is Firstar Corp., the parent of Bauer's Milwaukee bank. When it ranked customers for money-making potential, 15% of households with incomes over $125,000 were unprofitable, while 76% of households with incomes under $25,000 a year were profit generators. The first group had relatively low balances but demanded costly personal attention; the latter group had even lower balances but eschewed tellers for low-cost ATMs. The lesson: Getting rid of low-income clients isn't the solution.
Still, bankers may ignite a political powder keg with their fees. "A large proportion of the population believes they have a constitutional right to free banking service, including congressmen," says Joel Friedman, senior partner at Andersen Consulting. Indeed, Representative Maxine Waters (D-Calif.) used a May 3 press conference to denounce First Chicago and push a bill to freeze all fees for two years.
The bill probably won't pass, but banks can't afford to antagonize Congress while pushing for repeal of the Glass-Steagall Act barring them from businesses such as securities and insurance. Even if First Chicago retreats a bit, rising bank fees are here to stay.By Russell Mitchell in San Francisco and Richard A. Melcher in Chicago