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Remaking of the banking landscape might mean higher fees for consumers

Associated Press / October 1, 2008
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NEW YORK - The sale of Wachovia's deposits and other assets to Citigroup leaves the nation with three superbanks, reshaping the landscape in the midst of unprecedented financial upheaval.

For customers of those institutions - Bank of America, Citigroup, and JPMorgan Chase - the consolidation may result in higher fees on everything from checking accounts to bounced checks, and lower interest-rate yields on deposit accounts, banking experts said.

"The larger the bank is, theoretically the more power they have to set pricing and other policies," said Nancy Atkinson, senior analyst at Aite Group, a research firm. "I expect we'll start to see free checking accounts start to disappear, and rates on overdrafts could go up. Savings [interest] rates could drop."

But the news isn't all bad. Atkinson and others say the approximately 8,500 remaining regional and community banks nationwide will continue to play a role, providing consumers with more options.

"If you are a customer of the Big Three, you're probably going to see some increased fees because these banks have increased their market shares - dramatically in some instances," said Tim Yeager, associate professor of finance at the University of Arkansas and a former economist at the Federal Reserve Bank of St. Louis. "From the community bank point of view, I don't think you're going to see much change."

Customer service glitches can be expected as Citigroup Inc. absorbs most of Wachovia Corp. and JPMorgan Chase & Co. consolidates the branch network of the nation's largest savings and loan, Washington Mutual Inc., said Michael Pagano, finance professor at Villanova University.

However, he was not overly concerned about the risk of much higher costs from a quasi-monopoly created by the recent bank purchases.

"If we had five banks in the whole country, I'd be worried about market power," Pagano said. "But there are more than 8,000 banks. And even credit unions are a viable alternative."

Wachovia became the latest casualty of the widening global financial crisis after Citigroup agreed to buy its banking operations for about $2.16 billion in a deal brokered by federal regulators.

The deal greatly expands New York-based Citigroup's retail franchise - giving it a total of more than 4,300 US branches and $600 billion in deposits.

But it comes at a cost: Citigroup said it will slash its quarterly dividend in half to 16 cents. It also will dilute the value of existing shares by selling $10 billion in common stock to shore up its capital.

Essentially, Citigroup, Bank of America, and JPMorgan, which acquired the investment bank Bear Stearns in March, now own about a third of the banking market, said Anant Sundaram, professor of finance at Dartmouth College.

And many midsize regional banks continue to suffer under the weight of losses tied to bad mortgage debt.

Consumers can take solace, however, in Federal Deposit Insurance Corp. coverage, which safeguards up to $100,000 per account and covers IRA accounts up to $250,000 in the event a bank fails.

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