Megan Johnson: The New Face of US Banking

The current recession has hit finance harder than any other sector. (The only one that even comes close is real estate). In the present crisis some banks have gone hat in hand to Congress for bailout money, while many others have simply vanished. CNN Money reports that 92 banks have failed in 2009 alone. For perspective, not even 10 banks failed in 2007. It’s not all bleak though. Amidst all the turmoil, struggling banks have joined forces, and several entirely new banks have opened for business in just the last year. Today we will profile the new banks (and a few mergers) that have opened since the recession began.

Ally

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The online-only bank Ally opened for business in 2009, after doing business formerly as GMAC Financial Services. At a time when customers are more suspicious than ever of banks (brand consultant Rick Barrera likens it to, “…walking down the dark alley with your arms up” according to the Wall Street Journal), Ally has positioned itself as the ultimate in courtesy, support and trust. The branch-less nature of the bank allows Ally to operate without monthly fees, minimum payments or minimum deposits, and their “Tier 1 capitalization leverage ratio is almost triple what is deemed “well capitalized” under the FDIC’s regulations”, according to Ally’s website.

Aldermore

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The dearth of new banks extends beyond the US and into Europe, but at least one UK bank has decided to open its doors amidst the recession – Aldermore. Billing itself as a “new name in British banking”, Aldermore is a relaunch of Ruffler Bank, according to the UK’s Guardian. Its primary selling point, is a lack of involvement with the sophisticated securities and investment vehicles at the heart of our currently financial crisis. As the Guardian explains:

“It will be dead simple, old-fashioned banking. We don’t have any ‘back book’ of toxic debt, we are British, regulated in the UK and will provide consistently good rates to savers.”

The bank, which is, “…the first new bank to launch in Britain since the onset of the credit crunch”, chose to open under the name Aldermore because, “…alder is an ancient British tree that grows well while others fail.” It also aims to become known for its exceptional rates on savings bonds – currently offering anywhere from 3.69%-5.11%. At a time when savings are on the rise, Aldermore could be positioned for superb growth.

California General Bank

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On March 23, 2009, Rueters announced the opening of California General Bank, the only bank to open in all of southern California this year and one of only two in the entire state. Starting out with $20 million in capital, Pasedena-based California General bills itself on its website as a, “…community business bank specializing in the financial needs of the small to medium size privately owned business, professionals, and high net worth individuals.” All eyes will be watching to see how the fledgling young bank handles its first few years of existence amid the worst economy in decades.

Coastway Community Bank

Coastway

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In its article “Coastway Becomes RI’s Newest Bank”, MoneyAisle.com discusses Coastway Community’s transition from a credit union to a full-service bank. As they explain, the newly formed bank is now free from the burdensome regulations it had to contend with as a credit union:

"As a credit union, the maximum Coastway could write in business loans was 12.25 percent of its assets. That was $36 million. The actual amount Coastway had in business loans as a credit union was almost double that at $70 million. It was able to do this because of federal guarantees mostly made by the Small Business Administration that guarantee up to 75 percent of a loan."

Coastway is one of several financial institutions that have re-branded themselves or, in some cases, re-opened with a totally new array of services since the recession began.

Ann Arbor State Bank

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Ann Arbor State Bank opened its doors in December 2008 just a few months after filing for permission to operate. Starting out with $10 million in capital, founder Bill Broucek, a 47 year financial industry veteran exclaimed, “…it’s the very best time to start a bank because of the problems other banks are having” according to Michigan Live. The bank (which uses just one branch currently), was created in order to, “…target small to medium-sized businesses and professional organizations in Washtenaw County, specifically Ann Arbor, as well as offer retail banking and loan services for individual customers.” This seems to indicate a trend in new bank openings during the recession – start small, with growth engaged in only after solidifying one’s roots.

TD Bank

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Following its 2008 merger with Commerce Bancorp, TD Bank has opened several new banks. Most recently, TD has launched, “…its largest U.S. initiative by opening a full-service bank center in downtown Boston, a move that will fill a big gap in its New England footprint” according to Boston Business Journal. And this branch is just the start. The BBJ goes on to explain that TD Bank is looking to aggressively expand its presence, opening several more banks despite the economy in efforts to “build its Boston-area deposit base by several hundred million dollars.”

Farmington Bank

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A major trend in banking during the recession has been rebranding existing banks, in an attempt to distance themselves from past perceptions. One of the more recent banks to utilize a branding strategy is Farmington Savings Bank, the long-standing Connecticut bank that will, effective in October, be known simply as “Farmington Bank.” According to HartfordBusiness.com’s article on the now-widespread practice, bank rebranding is much more than simply a name change.

[Farmington President, Founder, and CEO John J. Jr,] Patrick said the bank is dumping "Savings" from its name because it signifies a smaller institution that has only limited offerings.

"As we talked to a broader spectrum of influences in the region they didn't realize we had the commercial lending capacities we now have," Patrick said.

"We are not just a savings bank anymore and we want the name change to reflect that."

Farmington is the latest in a series of bank rebrandings, including our last entry, TD Bank (formerly known as TD Bank Financial Group.)

JP Morgan/Bear Stearns merger

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The bank merger perhaps most relevant to the recession was the sudden marraige of JP Morgan and Bear Stearns. In a deal orchestrated and largely financed by the Federal Reserve, JP scooped up its fallen competitor for a song and a dance, paying only $236.2 million (or roughly $2 per share.) According to MSNBC, the deal represented, “…a 93.3 percent discount to Bear Stearns' market capitalization as of Friday, and roughly a 98.8 percent discount to its book value as of Feb. 29.” In exchange for the unprecedented discount, JP agreed to guarantee all of Bear Stearns’ business – particularly its trading and investment activities, which the Fed felt were too important to leave to chance. The combined entity is known simply as JP Morgan, and it is unclear whether the Bear Stearns name will surface again.

SJB National Bank (Coming Soon, Presumably)

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Miami Dolphins owner Stephen Ross has been given the green light to charter a new bank, according to Bloomberg. Tentatively called ‘SJB National Bank’, Ross is said to be sharing majority ownership with Bruce Beal Jr. and Jeff Blau. Bloomberg also states that sources claim the new bank, “…will have at least $750 million of capital and may buy assets of banks seized by the Federal Deposit Insurance Corp.” While SJB will not begin operating as a bank until it is accepted by the FDIC, industry analysts expect no complications with either this or securing FDIC membership. This all follows Ross’ completed purchase of the Dolphins in Janurary for an estimated $1 billion.