Fine Print - November 2008
I like to think of myself as an Average Joe Six-Pack, but I know that’s not truly the case. I have a taste for decent red wines, I shop at Harry & David, and — God bless my conservative-leaning soul — I’m even an occasional guest on my local National Public Radio affiliate, so as to maintain my media-elite street cred. But let me nonetheless don the clothes of A.J. Six-Pack here to pose this question: How is a bigger, more powerful, Merrill Lynch-owning Bank of America good for me?
It’s easy to see how it’s good for others. Merrill Lynch had the Grim Reaper banging on its door in mid-September despite having raised more than $20 billion in equity capital the past year. BofA swooped in and in the course of a day put together a rescue/purchase. Was this good for Merrill Lynch? Yup. BofA’s stock price, which had dropped precipitously on news of the takeover, bounced back to levels it hadn’t seen since earlier in the summer. Was this good for shareholders? Yup. (Well, it was initially, but in this economy, who knows what will happen.) BofA chief Ken Lewis — whom the Wall Street Journal recently described as “a man who grew up poor and bristled at the feeling that bankers from elite New York and Ivy League backgrounds viewed him and his Charlotte-headquartered institution as hayseeds” — took a huge bite out of the Big Apple. Was this good for Lewis’ ego and the status of his management team? Yup and yup. Finally, Merrill Lynch was a looming crisis that federal regulators and policymakers would have had to deal with when all the fire trucks had left the station to answer other alarms. Was this good for Henry Paulson & Co.? Yup.
Let’s say my alter ego, A.J., has checking and savings accounts with BofA. (In reality, and by way of full disclosure, my only relationship with BofA is that I became a credit-card customer when the ever-hungry behemoth swallowed MBNA a few years ago.) Was this deal good for A.J.? As it turns out, the Associated Press did the heavy lifting for me, posing that to an analyst with a Boston financial-services research firm. “The larger the bank is, theoretically the more power they have to set pricing and other policies. I expect we’ll see free checking accounts start to disappear and rates on overdrafts could go up. Savings rates could drop.”
That quote above should come with an asterisk, because the question actually addressed how Wachovia’s demise, which left the nation with three “superbanks,” would affect customers. But just to drive the point home, the same AP report quoted another expert, a former economist at the Federal Reserve Bank of St. Louis. “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.” So let’s boil the answer down to a tidy paraphrase. Was this Merrill Lynch/BofA deal good for A.J. Six-Pack? Nope. In fact, A.J. and his kin will get some small portion of the bill, in the form of higher fees, but none of the benefits.
Think of the deal as yet another step toward the “cable-ization” of financial services. There was a time when my cable-television company’s sole line of business was to bring a clear TV signal into my home. Then it added Internet access. Then phone service. These days, I write a single check to my cable company for all three services, a minor convenience during my monthly bill-paying marathons. But that’s about all I get out of it. There’s little, if any, cost benefit, and any fool so reckless as to call the customer-service number for help is launched into a button-pushing, response-prompting aural maze guaranteed to leave him dazed, con- fused — and unhelped. My cable company is too big nowadays to be truly concerned with my welfare.
It is one of the perversities of business that the larger a company becomes, and the more its alleged economies of scale result in an expanded customer base, the less important any single customer is made to feel. Another is that a customer who depends on one company for a wide menu of services is less likely to feel loyalty than to think of himself as a captive whose pocket is being picked stealthily. Yes, he can leave, but the alternatives are limited simply because the existence of a megacompany tends to discourage competition.
It was not too many years ago that BofA was North Carolina National Bank, which on the day in 1960 it formally took the name had a presence in a mere 20 communities in the state. It needed to care about ordinary customers. Today? Not so much. Sadly, that’s progress in the business world.
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