Banks spin their wheels in battle for customers

October 28, 2005

BY MARY WISNIEWSKI Business Reporter
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Chicago banks want your business. Fiercely. Plaintively.

Anyone who turns on the radio can hear about great CD rates, Sunday hours and free checking. And new branches seem to spring up on every urban corner.

With the hot competition in Chicago area banking over the last few years, you’d think a few banks had gained some ground. But a government report on area market share shows the rankings mostly unchanged. It’s like a tug of war, in which combatants pull with all their might but hardly move.

“The fact that it doesn’t change is bizarre. It’s bizarre that the market hasn’t consolidated more,” said Mitchell Feiger, CEO at MB Financial.

“Maybe it speaks to the fierceness of the competition here and the fierceness of small and middle-sized guys like us,” Feiger said. “We battle tooth and nail for every customer.”

The Federal Deposit Insurance Corp.’s deposit market share report for the Chicago area, released this month, shows Chase, LaSalle and Harris at the top of a heap of 309 banks, where they’ve been for years.

These three banks account for 38 percent of the market. The FDIC report is a snapshot showing where deposits were on June 30, 2005.

“The big competitors that came in haven’t done much,” said David Rudis, president of retail banking at LaSalle.

Rudis noted that LaSalle not only kept its number two spot this year, but increased deposit balances by 9 percent.

Perennial top-20 contenders include Chicago area natives Northern Trust, MidAmerica and MB Financial.

The stagnancy in market share distribution hasn’t come from lack of trying — most obviously in branch building.

The number of bank branches in the Chicago area jumped by 561 to 2,989 in three years, accord- ing to FDIC reports. Chase added 133 branches from June 2002 to June 2005, and Harris added 109.

National City, Fifth Third and Washington Mutual are all playing the branch-building game. Washington Mutual has put up 163 new branches since it entered the market in June 2003.

Washington Mutual’s deposit share is at 0.3 percent, or about $711 million, ranking 48th in the area. This shows how hard it is to grow in the market without making acquisitions, analysts say.

“Organic growth in Chicago is difficult,” said Ron Peterson, vice president at Moors & Cabot. “If someone wants to come to this market and get meaningful market share, they’ll have to do acquisitions — probably more than one.”

Shane Winn, a spokesman for Washington Mutual, said the bank is “performing at expectations.” Winn noted that Washington Mutual is a middle-market retail bank, which isn’t trying to go after large commercial deposits like LaSalle and Chase, so a direct comparison can’t be made.

Fifth Third came to Chicago in 1999 and now has 135 branches in the area, 60 percent newly built and about 40 percent acquired through the takeover of Old Kent. Another six new branches are planned for this year, and 20 for next year.

Fifth Third Bank Chicago CEO Terry Zink said that while branch building is important, the Chicago affiliate is also is focused on what products it needs to develop for a particular community, such as a low-cost way to wire money for Hispanic immigrants.

Feiger said that the “jury is still out” on whether all the branch building will pay off.

LaSalle’s Rudis said LaSalle hasn’t stayed at number two by standing still. The growing competition in the Chicago market has forced the bank to become more focused on the customer and relationships, Rudis said.

“When all else is a commodity, the relationship wins,” Rudis said. “You can’t get a relationship by just opening up a new build- ing.”

The number of Chicago area banks continues high relative to the rest of the country. Illinois has a history of having a lot of small banks, because of now-defunct state laws that restricted how many branches a bank could have.

Even after the laws were repealed, Illinois residents who need to park or borrow money still have plenty of choices. The Chicago area has 309 banks, with just under $240 billion in deposits. In comparison, New York City has $655 billion in deposits with 233 banks.

“It kind of screams for consolidation,” said Brad Milsaps, an analyst at Sandler O’Neill & Partners, who predicted the area would see more merger activity in 2006. He said mid-size banks, like First Midwest, Midwest Banc Holdings and MB Financial, might look to acquire smaller banks.

“It’s possible the competition’s going to get more and more fierce among banks until people say I can’t take it anymore and give up,” said MB Financial’s Feiger.

Whatever happens to the banks, Feiger said, the competition is great for customers. His own bank led the current trend of staying open on Sundays, which was taken up by Chase and LaSalle.

“This is the finest banking market to be in,” Feiger said. “People banking in this market are getting fantastic value.”

ank Branches Deposits in Market (Billions) Market Share
1. JPMorgan Chase Bank 324 $38.4 16.02%
2. LaSalle Bank 140 31 12.92
3. Harris 163 21.7 9.04
4. Northern Trust 18 8.5 3.53
5. Fifth Third Bank 123 8 3.36
6. Charter One Bank 136 6.4 2.69
7. Corus Bank 14 5.5 2.3
8. CitiBank 51 5.4 2.27
9. MidAmerica Bank 49 4.9 2.05
10. First Midwest Bank 56 4.5 1.87
SOURCE: FDIC