We used to take banks for granted as places to store our money, and sometimes we borrowed money from them as well. But recently it has looked like banks were getting tired of those boring and unprofitable tasks.
The dismal interest rates they offered for our savings didn’t offer much competitive excitement. The increasing role that robotic ATMs play in our daily lives didn’t provide relationships with consumers. Or perhaps you’ve had a frustrating run-in with a “Relationship Manager,” trying to sell you a “financial product” you didn’t need or want? This is all in dramatic contrast to the exuberance with which banks offered money to those without assets a few years ago, loans and mortgages they could then securitize and sell to investors. You had to wonder what business they thought they are in.
Such thoughts recently occurred to Richard X. Bove, a well-known bank analyst, reflecting on the poor service to be had received at his local bank: “catering to customers may actually distract from the pursuit of making money in the new world of finance. What really matters, he now believes, is pushing products and managing risk.”
“I’m struck by the fact that the service is so bad, and yet the company is so good,” said Mr. Bove. In other words, you might well consider investing in a bank you would never want to patronize. As reported in The New York Times, “Mr. Bove upgraded his recommendation on Wells Fargo stock to a buy last year at about the same time that he began to move his personal bank accounts to a nearby JPMorgan Chase.”
He concluded: “Whatever it is that drives people to do business with a given bank, in my mind, now has to be rethought.” And it looks like the public agrees. Only 21 percent of Americans had confidence in banks, according to a recent Gallop Poll, “down 2 percentage points from a year earlier and way off the 41 percent in 2007 before the crisis.” (See, “Bank Analyst Sees No Payoff in a Customer-Friendly Focus.”)
But perhaps the banks themselves are beginning to see the problem. JPMorgan Chase just reported a plan to separate its consumer and investment operations. It is being viewed, in part, as a way to prevent disastrous investment blunders in the wake of its recent six billion dollar trading loss. But it is also a way to strengthen its consumer business.
On one level the restructuring is a way of “showing that plain-vanilla banking operations are entirely cordoned off from the bank’s potentially risky investments.” But on another, they need the income. As one analyst put it, “Banks like JPMorgan . . . cannot depend on profits from trading.” (See, “After Huge Loss, JPMorgan Rearranges Top Officials.”)
Perhaps Mr. Bove would be pleased to find banks on the verge of a turnaround, rediscovering the value of their retail operations. One analyst with Barclays, commenting on the decline in investment profits, put it more dramatically: “These companies will live and die on their ability to serve the clients.”