By Dick Miller
WE.CONNECT.DOTS: The Wells Fargo scandal prompts a look at banking in Western Pennsylvania.
If you are under 50, you probably can’t remember when local banks were an important part of the community.
A single share of local bank stock was something you might give to each of your children at Christmas or to every employee in your own company at year end.
Your local banker was a revered member of the community. He took leadership in local charity projects, worked with others to bring new business to the area and, in all aspects, were genuine contributing citizens.
In those days, any substantial lending had to be formally approved by a local board of directors. Rest assured, the board almost always followed the recommendations of its CEO. If you needed new money to expand, or even reorganize, you had an informal chat with your local banker. Even though you still have to complete a ton of paperwork, you knew it was only a matter of time until you could begin writing checks.
To be profitable, banks needed to attract deposits and make loans.
When did it all change?
For me it was watching an associate close out his banking career in ignominy.
Picture the cartoon where a goldfish is swallowed by a larger fish which is then gulped by an even bigger fish, culminating ultimately when a whale eats the last fish in the chain. That was the story of banking here during the last two decades of the last century.
Beginning with the Reagan administration, the government ceased using its anti-trust laws and regulations to prevent monopolies from being created. That’s not to say larger banks buying smaller banks were hostile takeovers.
Rather, the offer to buy a smaller bank’s stock was at a healthy premium, making it hard to turn down.
Sometime around 1980 we entered an era where banks either had to acquire or be acquired. I remember local predictions that one day there would only be five banks in the United States. We’re getting there. The six largest banks hold $9.7 trillion in assets, about 63 percent of all bank assets.
Authority to make loans have all but disappeared from the local level. Pittsburgh backrooms occupied by gnomes wearing green eye shades process the apps, applying formulas that don’t include instincts.
Even though they carry the title “personal bankers,” local employees function as in takers. They use their familiarity to find deals and ship them to Pittsburgh. With interest rates at a historic low, banks would rather charge their customers higher fees than lend.
That is here Wells Fargo got into trouble. Retail personnel were pressed to sell services, the only way they could earn more money. In many cases, where they could not meet quotas, they were fired.
From 2011 to 2015, Wells Fargo opened nearly two million new bank accounts and issued over a half million credit cards to unknowing customers. In the rest of the world, the managers would have been charged with fraud, identity theft and forgery.
Instead, Wells managers fired over 5,000 “personal bankers” accused of the practice, known as “cross-selling.” According to Bloomberg News, “advocacy groups have noted aggressive sales tactics, similar to those that led Wells employees to fake accounts at Bank of America, J.P. Morgan Chase and Sun Trust, among others.”
In Western PA it is rare to get an interview with PNC bank CEO Bill Demchak where he does not brag about closing some branches and automating others. He succeeded Jim Rohr as top dog in 2013. Rohr was known as an outstanding community participant. Demchak is setting the pace for closing bank branches.
In the 25 largest bank markets in the U.S., Pittsburgh ranks fifth in highest overdraft fees. Checking account and ATM fees are also at record highs.
Retail bank employees have become an endangered species.
In 2012, just four years after the “great” recession, bank profits totaled $141.3 billion. A study by the University of California pegs government subsidies at over $1 billion paid to eligible bank employees. These benefits to about one in three tellers include food stamps, income tax credits, Medicaid and children’s health insurance. Numbering 600,000 and dwindling in 2014, their mean hourly wage was only $11.91, according to U.S. Bureau of Labor Statistics.
Less than ten percent of tellers make more than $33,000 per year.
Presidential candidate Sen. Bernie Sanders hoped to make “too big to fail” banks a primary issue this year, but it has been nearly pushed off the table by more titillating matters.
Bottom Line: Back to my friend. He was the president of a bank that got gobbled up about two decades ago. He had to support the sale of his bank or get sued (or fired) by stockholders. He still had some time to serve until retirement and the acquiring bank needed him around to insure a smooth transition.
He was “required” to visit each office at least once per month. With over a hundred, that was all he got done.
One of the most knowledgeable bankers to ever serve in West Central PA, he ended his career as an “internal ambassador.”
