Raleigh's Banks

[RALNATIVE]

According to an article in today's TBJ, Raleigh has 2 banks currently in the top 50 largest U.S. banks. Charlotte has 1 and Winston-Salem has 1.

Largest Banks in NC

I'm very surprised that First Citizens is ranked at #44. They've been operating under the radar recently, and swallowing up a number of distressed banks. Clearly their strategy is growth, and this will only benefit Raleigh in a number of ways.

If the current trend continues, what are the chances of Raleigh becoming the next banking mecca in the country?

[ctl]

No chance. Unlike BB&T, First Citizens is very conservative. The Holding family still owns about half the stock. Until this year their only acquisitions had been small-town banks; otherwise their growth was organic. They made some larger acquisitions recently, but it was out of character and under special circumstances.

Meanwhile, the question in Charlotte is whether anybody important in banking will still live there... or whether they will all go to NY (BofA) or San Francisco (Wells Fargo).

[RALNATIVE]

No chance. Unlike BB&T, First Citizens is very conservative.

I'm not so sure about that. It was also reported this week that BB&T is significantly expanding it's office space in the Highwoods bldg. in Raleigh. I get the feeling that alot of things are going on behind the scenes that isn't public knowledge.

[Jones_]

I have an honest but probably dumb question....what creates banking momentum in the US (for any particular metro) other than proximity to business opportunity? Or does that even matter? Is it just a matter of being near whatever has banking cache?

[kermit]

I have an honest but probably dumb question....what creates banking momentum in the US (for any particular metro) other than proximity to business opportunity? Or does that even matter? Is it just a matter of being near whatever has banking cache?

Over the past 20 years (the interstate banking era) bank growth has been largely a product of the desires of the CEOs and boards. If their ego was tied to running a huge bank then the banks generally expanded rapidly via acquisition (see Hugh McColl, Ken Lewis and Ken Thompson). Before that, bank growth was mostly a function of state regulations -- and North Carolina's regulatory environment was among the most friendly to bank growth.

Overlay the somewhat random forces above with the availability of experienced, mid-level, bank executives (banking is still a very top-heavy business) to determine future growth. The ability of First Citizens and RBC to continue to grow their consumer operations in Raleigh will be dependent upon their ability to lure experienced bankers to the Triangle. This is generally an easy sell if you are targeting a single person, but it gets more complicated when their spouse also works in banking -- this is why large banks tend to be clustered / big metro creatures.

Just my two cents....

[Jones_]

those 2 cents are appreciated. With Capital and North State also headquartered here I had been wondering about our potential to be at least a regional banking center but did not have industry experience or even a basic understanding of the drivers. I don't think I would want something like BofA here but several midsize banks lends itself to more stability I would think. These guys seem well positioned to in NC to maintain sound fundamentals as long as jobs and the ensuing rooftops keep moving to this area. I have a gut feeling that when the economy is fully on the rise, Capital Bank will aggressively fund downtown projects and end up needing something larger than 333 Corporate Plaza, building their own 25 story glass box nearby...maybe across from the Marriott.

[RALNATIVE]

those 2 cents are appreciated. With Capital and North State also headquartered here I had been wondering about our potential to be at least a regional banking center but did not have industry experience or even a basic understanding of the drivers. I don't think I would want something like BofA here but several midsize banks lends itself to more stability I would think. These guys seem well positioned to in NC to maintain sound fundamentals as long as jobs and the ensuing rooftops keep moving to this area. I have a gut feeling that when the economy is fully on the rise, Capital Bank will aggressively fund downtown projects and end up needing something larger than 333 Corporate Plaza, building their own 25 story glass box nearby...maybe across from the Marriott.

Keep in mind also that several banks have setup regional locations here...CapTrust, Regions, etc., not to mention the very strong business banks. Credit Suisse, Fidelity, and DeutscheBank each have opened technology centers in this area in recent years. These establishments will undoubtedly continue to attract other banks and financial services firms, and turn this area into a banking and financial center.

Just like with any industry, companies locate in areas where they can find the greatest pool of qualified candidates at both executive and non-executive levels, and areas where they have the best chance of retaining that top talent once they recruit them. This is why Charlotte is struggling as a banking center, and places like NYC and San Francisco are thriving.

[Gard]

I wanted to throw my 2 cents into this as well and make a point that banking is increasingly becoming more and more dependent on technology. With people being more mobile than ever and the ever-increasing regulations and need for tight internal controls, customers are demanding that the bank be everywhere they are (this is where mobile banking comes in), governments are demanding more accountability (this is where banks needs more technology that looks for compliance issues and spots potential regulatory problems) and banks are looking for ways to decrease costs in a time profit-margins are getting thin (this is where technology for loss-prevention comes in). Technology gives the Triangle a definite advantage in attracting banks, in addition to some very large universities to recruit fresh talent from. Another thing I'd like to point out is that the French Business college opening a satellite campus at State definitely helps as well. That satellite campus could provide talent for some bank's foreign markets in an ever-expanding global market.

[Merboy]

I thought Charlotte was *the* financial city of the South? They're struggling now?

And if so, and if banks and financial companies move here then what sort of influence would that mean for our own economy? Banks are great and all but aren't we more of a R/D kind of place? Not that I'm saying we can't be both and more, but I'm just trying to get a feel for the spirit/essence of future Raleigh once the economy improves.

Seems like I'm constantly saying that too, "once the economy improves". Man I hope Raleigh starts growing and building once that happens. Whenever that happens.

[kermit]

I thought Charlotte was *the* financial city of the South? They're struggling now?

And if so, and if banks and financial companies move here then what sort of influence would that mean for our own economy? Banks are great and all but aren't we more of a R/D kind of place? Not that I'm saying we can't be both and more, but I'm just trying to get a feel for the spirit/essence of future Raleigh once the economy improves.

Seems like I'm constantly saying that too, "once the economy improves". Man I hope Raleigh starts growing and building once that happens. Whenever that happens.

I don't think it is accurate to say that Charlotte's bank center status is at risk. Before their epic failure Wachovia employed around 20,000 people in CLT, Wells eliminated around 600 of those jobs (many at the top of the corporate hierarchy), but they have been adding jobs recently. BofA remains the largest bank in the US (it holds $2.3 trillion in assets -- about 60% more than the GDP of Canada) and is sending signals that it is hiring in Charlotte again (they now plan to occupy nearly all of their new office tower, a year ago they were only planning to take half of the space).

The concern about Charlotte's status comes from changes in the nature of banking. Charlotte is an outstanding place to run a consumer bank (low costs, lots of experience talent, excellent communications infrastructure, a hub airport (for now) and a broad range of local employment opportunities in finance). However Charlotte is a crappy place to run an investment bank (e.g. about half of Merrill Lynch) since most of those transactions require personal (face to face) contact with various corporate big-wigs few of whom are South of DC. In addition, the skill set for investment bankers is very different than the skill set for consumer bankers -- those folks are hard to find in North Carolina. So Charlotte's future as a headquarters center depends on the percieved need for the BofA executive corps to shift closer to Merrill operations in NY -- this decision will (IMO) be based on the future profitability of investment banking, and that will be determined almost entirely by the financial industry re-regulation bill currently being shaped in Congress. In a nutshell Charlotte is at risk of loosing the BofA executive corps (and the legacy BofA investment banking activities which were based in CLT) but little beyond that.

The technology argument above is a sound one, banks with lousy platforms will fail. However, tech is a back office function for banking (a means to an end) -- trading, deal making and relationships are where banks make money (access is just a commodity). I don't want to condemn the Triangle but given the relationships (and hub airports) necessary for banking, I have a hard time seeing places which lack a strong culture of finance growing into anything more than regional banking towns.

just my 4 cents....

[RALNATIVE]

One of the biggest problems that BOA faced recently was finding a CEO who was willing to relocate to Charlotte. Your would think that this wouldn't be a big deal, but for a company of that size, it was a huge issue. There long has been speculation that BOA would pull up ranks and move its HQ to NYC. Now that Wachovia is now own by Wells Fargo, this would make sense.

To kermit's point above, the need for BOA to have its execs located in NYC is more than just proximity to Merrill execs and investment banking, BOA execs in general need to be in the mix of the action, which is on Wall Street. By having their execs located in Charlotte, eventhough it is only an 1.5 hr flight away, they are missing out on being in the thick of things. When the company was NCNB decades ago, this was OK, but now that they are the largest bank in the U.S., this is not OK.

[architect77]

I read about a year ago that Wells Fargo(formerly Wachovia) is the dominant bank in the Triangle, in terms of the most $ in deposits.

I must vent how furious I've been that Wells Fargo(Wachovia) never followed through on their Sept. 2009 promise to revise their overdraft policies. At least Bank of America implemented changes the same day that they issued their press release. Wells Fargo apparently decided to wait until they're forced to make changes next month.

[Jones_]

Well the culture of walk-all-ovah-yah must have transmitted to Wells Fargo

[ctl]

You can look up market share data at www.fdic.gov by county or even by zip code. The most recent data is June 2009. At that time, for Wake County the market leader was Wachovia with 28% of deposits. BB&T was second, with 14%. First Citizens was third, with 9%.

Of course, what we call Wachovia today is the amalgamation of Wachovia and First Union, which were the two of the top three in the 1980s. Interestingly, the big loser in local market share has been BofA, which ran second in the 1980s as NCNB. They're now fourth with 8%.

[RALNATIVE]

No chance. Unlike BB&T, First Citizens is very conservative. The Holding family still owns about half the stock. Until this year their only acquisitions had been small-town banks; otherwise their growth was organic. They made some larger acquisitions recently, but it was out of character and under special circumstances.

Read this article Poised to buy more banks, and it might change your opinion on First Citizens.

[ctl]

Ho hum. $2 billion in total assets is a small fraction of what they already have ($17.6 billion on 12/31/2009).

[DPK]

Ho hum. $2 billion in total assets is a small fraction of what they already have ($17.6 billion on 12/31/2009).

I fail to see how a gain of roughly 11% is really that small a fraction. $2 billion is a large number in this case, I don't care how you swing it.

[RALNATIVE]

I fail to see how a gain of roughly 11% is really that small a fraction. $2 billion is a large number in this case, I don't care how you swing it.

I certainly agree. More importantly, it's not the size or dollar amount of the deals that should be opening eyes, it's the types of deals and frequency at which deals are being done that should be the most impressive in this situation. Not many banks are in a position to do such lucrative deals with government subsidization.

[Jones_]

11% is probably pushing the limits of what a bank can pull off, though I am clearly not a banker. I agree that this is a substantial acquisition.

[architect77]

BB&T is slapping its name up on tall buildings here in Atlanta.

[ctl]

$2 billion is about the total asset amount (net of write-downs) of FCB's recent acquisitions of failed banks in Florida, California, and Washington.

What would be big news. . . a decision by Royal Bank of Canada to bail out of what we used to call Centura. Or a decision by the Holding family to monetize their stake in First Citizens.

[Jones_]

^ you want to explain that in terms us simple minded brick and mortar engineers can understand? Money was not a difficult concept until bankers got involved. You make something. It's worth something. Monetizing and writing down sound like paragraphs in the book of phantom wealth that keeps our boom and bust cycles robust.

[ctl]

Ah, money is never simple (like love). But I apologize for the code language.

When a bank fails, the FDIC steps in. That's the government agency that protects your deposits in the failed bank, up to a certain amount. The question arises, what are the failed bank's assets truly worth. Usually, loans are the largest category of these assets. But the most likely reason why the bank failed is that the loans are "non-performing"... in other words, the borrowers aren't making payments, and perhaps never will. Many of those non-performing loans will be written off or adjusted downward in value, to match the most likely scenario of future payments (or of foreclosing and selling the underlying collateral, usually real estate). Those are the writeoffs that I alluded to. When First Citizens (or any other bank) is willing to step forward and acquire the assets and liabiltiies of a failed bank, they usually pay a marked-down price for the assets. Depending on the details of the deal with the FDIC, the acquiring bank may have upside if the loans turn out to be better than the write-downs (or downside, if they're even worse).

As for monetizing a stake in a company, think of the difference between wealth and cash. The Holding family is very wealthy, in that they own so much First Citizens stock. Suppose they want to buy a $100 million property in the Rocky Mountains, and suppose further that they don't have $100 million in cash lying around. They'd have to sell some First Citizens stock. It's one example of how to "monetize" an asset.

Let me add that it's not so simple for a founding family to exit a business that has gone public. First, they may be subject to a huge capital gains tax. Second, if they are considered "insiders" by the SEC, they may be under stringent regulations as to how and when they can sell. Third, if a founding family sells stock, the market and the public may interpret that as a statement of no confidence in the bank's future -- causing the market value to decline. Fourth, depending on how much they want to sell, merely unloading that much stock can depress the price of the stock due to simple supply and demand.

[Jones_]

Thank you sir. As a consummate failure at love, this is making more sense all the time. I have other questions that nag me but am not sure if they are appropriate for forum discussion. Maybe I can tie them to local banking operations. Here goes: I had wanted to refinance my mortgage with BB&T because I was under the impression that they hold their loans through maturity. I noticed my original mortgage has been bought and sold twice now. I was wondering what is the fair value of a loan when bought and sold. This practice seems to be risky since this seems to have been done with high risk loans the most...those that store front operations were handing out. A quick profit for the storefront and risk for my first buyer, GMAC that they were properly evaluated. I know that my interest each month was proping up GMAC's pension fund. Fine. But then GMAC hit hard times and started selling many of their loans....Nationstar picked up mine. Now Nationstar paid some amount above the principal due which raises their risk and lowers their return. If I refinance before they recoup the amount paid to GMAC then they lost money....unless there is some deal with GMAC in the event that happens. How does all this work? What are the normal practices of typical banks....hold loans to maturity? Sell some?

Second question is are any banks more lenient when you get behind on payments if you have been paying on a loan for say 25 years? In that amount of time, the money paid to the bank is almost double the original value of the loan, though on paper, the payments are of course credited as principal and interest. It seems like it would be proper for a home to no longer serve as collateral even if the loan is still due for another 120 payments or whatever. Is there any practice of this sort at any level in the industry? (I am assuming at this point you work for a bank...)

Thanks for your time and thoughts.

[Spatula]

Don't forget credit unions. NC SECU is one of the largest credit unions in the country, and it's based here in Raleigh. Then there's Coastal Federal, and a number of others. Smaller players, but remember that the credit unions are doing fine compared to the banks in this economy.