Stealing customers. Poaching deposits. It's all on the table when M&A disrupts a marketplace.
Judging by recent experience, however, the banks that lurk in the wings, hoping to capitalize on such dislocation, may find their ability to increase market share depends more on a target bank's health, or lack of it, than on any other factor.
When a distressed or failed bank is bought, the acquirer may have its hands tied in dealing with that institution's problem assets, thereby creating opportunities for a local competitor. On the flip side, some banks have been very efficient in their integrations and thus have been able to stave off a major loss of market share.
"There's always going to be fallout," said Jason O'Donnell, a banking analyst at Boenning & Scattergood Inc. "Some banks are naturally better acquirers than others."
This year's expected acceleration of M&A, which would include both healthy and distressed targets, could alter market shares in ways that not even a deal's protagonists could project.
New York Community Bancorp in Westbury, for example, had anticipated that about 15% of its $8 billion in deposits would run off after its purchase of the failed AmTrust Bank in Cleveland in December 2009. At the time, the bank described that projection as "conservative."
But deposits in AmTrust's Ohio, Florida and Arizona branches actually grew by nearly $200 million in the first quarter, instead of shrinking. New York Community, which does not change the names of the companies it buys, attributed the increase to the fact that most of AmTrust's so-called noncore deposits had run off before the takeover because all but the most loyal depositors are apt to bail out on a struggling bank. The New York company also said deposits benefited because it integrated the purchased bank unusually fast, in just one quarter; ended AmTrust's layoffs and immediately began hiring people.
Conversely, FirstMerit Corp. in Akron, Ohio, was able to woo customers from an ailing northeastern Ohio rival, Cleveland's National City Corp. after the latter's takeover by a Pittsburgh company, PNC Financial Services Group Inc., in late 2008.
FirstMerit began pursuing NatCity customers even before the takeover by running ads touting its own sound lending and business practices, a not-so-veiled allusion to NatCity, a dominant bank in Cleveland before its purchase.
FirstMerit, which did not have as many problem home builder loans as others in the Midwest, stayed aggressive in 2009, advertising a new, consumer-friendly checking account with such features as one free overdraft per year and the free return of cancelled checks.
The grab for market share paid off: Core deposits rose by $1.34 billion in 2009, the year after the acquisition. And its deposit share in Cleveland grew to 5.22%, from 3.67%, as it moved up to No. 7 in deposit market share at June 30, 2010, according to regulatory data.
Likewise, WSFS Financial Corp. in Wilmington, Del., has seen robust deposit and loan growth in its markets, where PNC, the former Wachovia Corp., and Wilmington Trust Corp. also operated. Wachovia was bought by Wells Fargo & Co. in 2008, and Wilmington Trust said it will be acquired by Buffalo's M&T Bank Corp.
"We're getting market share from institutions that are distracted," said Rodger Levenson, an executive vice president and the head of commercial banking at WSFS. "We compete against Wachovia. That merger is over a year old, but as they go through the Wells Fargo integration, there's some opportunity for us. Wilmington Trust, even though that deal was not announced until November, they had been dealing with loan problems. Other institutions have been distracted with credit situations and other things that we've been able to pull from."
Deposits grew 15% during the third quarter, on an annual basis, WSFS reported, and its commercial loan portfolio had a 14% annual growth rate.
"When there's a strong local competitor like a WSFS and out-of-market large banks come in out of acquisition, those local banks I believe do stand to benefit and pick up customers that are either not wanting to bank with an out-of-state bank competitor or just experience some turmoil related to the integration effort," said Mary Beth Sullivan, a partner in the Capital Performance Group consulting firm. "It always has created opportunities," she said, "and it will continue to do that. But my sense is, the best opportunity is on the business banking side of the equation when that happens."
On the commercial side, "in the vast majority of cases, when you have the lending relationship you have the total relationship," Levenson said.
Ali Raza, an executive vice president at Speer & Associates, a financial services consulting firm in Atlanta, said he has seen acquisitions play out in two ways in his local market. "When a new bank comes in to town, there is some opportunity for consumers to look at a new alternative," he said. "At the same time, there is some defensive play and an opportunity created by a longtime hometown bank to assert itself as a player that has been there for a long time and differentiate itself, 'We know the market better than the newcomer' sort of thing."
JPMorgan Chase & Co., for one, has come into Atlanta through its purchase of the failed Washington Mutual Inc.'s banking operations in 2008, which had a strong consumer-friendly message, he said.
"They've opened freestanding branches; they've been doing a lot of advertising, trying to attract core checking account customers."
At the same time, SunTrust Banks Inc. has promoted itself as Atlanta's hometown bank in an effort to win over former Wachovia customers.
In the end, whether customers are persuaded to switch banks or not may have more to do with the bank's branch locations than anything else. "Just [as with picking] gas stations, most people either bank with a bank that is close to home or close to work," Raza said. "Convenience is part of the mix."
It may seem surprising that, in the current environment of low rates, some banks would want to be aggressive about gathering deposits. But banking experts agree that, for institutions that are well capitalized, there's never a bad time to acquire dissatisfied customers.
"It's totally advantageous for a bank if you have the capital to steal deposits," said O'Donnell, the Boenning & Scattergood analyst. "I think that's a general rule of thumb."
