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Hold Onto Your Wallet: Your Bank’s In a Merger

June 25, 1995

NEW YORK (AP) _ For bankers, mergers mean fatter profits, more customers and bigger titles. Customers usually don’t fare as well.

For consumers, bank mergers can mean fewer choices when it comes to getting a loan, branch closings, higher fees and disruptions in service.

Bankers ``make more, we’ll make less. That’s usually the way it works,″ Craig Yanta of Yardley, Pa., said last week after learning that his bank, First Fidelity Bancorp., will be taken over by Charlotte, N.C.-based First Union Corp.

But bank mergers can also bring benefits to customers: Small banks taken over by larger ones often end up with more products to offer, more money to lend and more automatic teller machines.

Whether the benefits outweigh the disadvantages is debatable. But one thing’s sure _ the number of bank mergers is increasing and many consumers are going to end up with their money in an institution different from the one they originally chose.

Banks are merging to be more competitive, gain market share and take advantage of new laws that make it cheaper for them to have branches in multiple states. Bankers say the day may come when there are just a few dozen large banks with branch networks that stretch across the nation.

``The public understands that the U.S. banking industry is going to consolidate,″ said Anthony Terracciano, chairman and chief executive of First Fidelity, which is based in Newark, N.J., and Philadelphia.

In the past 10 years, the number of banks has dropped to 10,500 from 14,500, according to the Securities Industry Association. Some banks have failed, but the reduction is due mostly to mergers.

The value of bank deals is getting larger. Last year, 562 mergers were done, with $22.5 billion in assets exchanging hands, according to SNL Securities, in Charlottesville, Va. So far this year, 181 deals have been completed or are pending, worth $17.5 billion in assets.

Few studies are available showing how bank mergers affect customers. The most obvious changes are branch closings, sign changes, and new branch personnel and account managers.

But most analysts and consumer advocates agree that customers often suffer from temporary service adjustments and usually end up paying higher fees, especially if they banked at a savings and loan acquired by a commercial bank.

Studies of bank fees conducted by consumer groups show bigger banks charge small depositors higher fees than smaller banks, according to Michelle Meyer at Consumers Union, a Washington-based group.

``Mergers can give banks monopoly power to set rates and fees that are higher than before,″ Meyer said.

Federal Reserve data back up that assertion. Fed studies on bank concentrations have shown that prices in regions with many bank mergers are less favorable for consumers than in areas with fewer mergers, said Tim Hannon, a member of the Fed’s board of governors.

First Fidelity has acquired 22 smaller banks and thrifts since 1990. As a result, fees and minimum balances rose and branch hours shrank for many customers.

Spokesman Paul Levine acknowledged ``service levels and fees are different at savings and loans than they are at commercial banks,″ but said First Fidelity beefed up training and other programs to improve customer service and now gets high ratings from consumers.

The Fed takes customers into account to some extent when considering whether to approve bank mergers. For example, Fed examiners sometimes make one merger partner sell branches or loan portfolios if it believes the merger will result in one bank having too great a share of the market.

The Fed also looks at whether a merger will create or exacerbate a lack of price competition within a bank market, said Dean Amel, an analyst in the Fed’s merger application division.

Most of the time, though, the Fed finds mergers won’t hurt pricing competition, or won’t make it any worse. It has not denied a bank merger on the basis that it would create a lack of competition in five years, Amel said.

Consumers aren’t the only ones who can lose out after a merger. Small businesses often find their bank cuts back on loans. A study by researchers at the Federal Reserve Bank of Boston showed large banks in New England did not maintain the small business lending unit of the smaller banks they acquired.

Many customers don’t take the changes lying down. Bank consultants estimate that after a merger, especially between two large regional banks, about 10 percent of the combined customer base takes its money elsewhere.

For many customers, however, mergers represent just a small annoyance. A good number don’t even notice and some even see improved service.

A 1994 survey of 1,000 households conducted by the Gallup Organization showed that of the one-fourth of consumers who said their bank, credit union or thrift merged the year before, 76 percent said quality stayed the same or improved in 1994, up from 72 percent in 1993.

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