As Banks Get Bigger, Fees Rise

This week's mega-mergers potentially offer customers more services and convenience - but at a price.

Twenty-five years ago, Patricia Covello opened a bank account with Lincoln Savings Bank in New York City. In exchange for keeping her money, the bank charged no fees. Two bank mergers later, the Manhattan nurse is now paying as much as $30 per month to the Dime Savings Bank, the surviving bank.

"There are so many extra charges, it's incredible," she groans.

While stockholders cheer the accelerating pace of mergers among America's banks - this week saw two more mega-mergers - consumer groups are warning that Ms. Covello's experience is not unique. They warn that the consolidation of the banking industry may create major problems, ranging from the potential for catastrophic financial collapses to lower interest rates on deposits.

But the mergers of NationsBank and BankAmerica into the country's first coast-to-coast bank and First Chicago and Banc One into a huge regional bank may also give consumers a wider variety of services - from mutual funds to more convenient automatic teller machines - even if they have to pay more for them.

"From the consumers point of view, it could be a bit of a mixed bag," says Robert Dederick, an economist with Northern Trust Company in Chicago.

Take ATM fees, says Donald Ratajczak, an economist at Georgia State University in Atlanta. With branches in 22 states, he notes, the new BankAmerica will be able to offer its customers the opportunity to access its cash machines in more cities, whether they're living in Atlanta or on vacation in Seattle.

That can save consumers money because increasingly banks are charging ATM users extra fees if they're not members of that bank.

Covello, the Manhattan nurse, for example, was recently visiting San Francisco where she used an ATM. "They charged me double and then my bank charged me again," she complains.

Last year, in an annual report to Congress, the Federal Reserve found that in 1996 the average fees for banks that were part of multi-state operations "were in most cases significantly higher" than the average fees of banks that were not part of such organizations.

For example, the Fed found average fees for stop payment orders were $4 higher for multi-state banks and $3 higher for Not Sufficient Funds checks and overdrafts. Annual non-interest checking fees came to $91.59 for large banks compared to $73.56 for smaller banks.

ATMs as Cash Cows

The same is true for using ATMs. The US Public Interest Research Group (USPIRG), annual survey of ATM charges, found that big banks charge larger fees than smaller banks. "They exert monopoly muscle rather than pass on the economies of scale that accrue to the bigger business," says Edmund Mierzwinkski, a consumer advocate for the Washington-based watch dog group.

The merger trend may be accelerating this process. In 1996, when Nationsbank purchased Boatmen's National Bank of St. Louis, it quickly raised its fees. Some customers fled to the smaller, local banks. But "a lot of the other banks quickly followed Nationsbank in raising fees," says William Plasencia, a director of the Bank Rate Monitor, a Palm Beach, Fla.-based company that follows banking trends.

If the banking markets continue to become more concentrated, free ATM usage may go the way free toasters for new deposits, predicts Ken Guenther, executive vice president of the Washington-based Independent Bankers Association, which represents small banks. "Every study indicates concentrated markets are not consumer friendly but lead to higher fees and could lead to lower interest rates on deposits."

No need to apologize

Tony Plath, director of the Center for Banking Studies at the University of North Carolina, says its not surprising that big banks tend to charge more and don't apologize for it. "Nobody ever said a Mercedes should sell for same price as Saturn. If you don't use the financial services and you never travel outside your region, go to a community bank."

And they're still around. While it may seem that the biggest banks are leaving nothing in their wake, that's not always the case. In Charlottesville, Va., where North Carolina-headquartered Wachovia bank has taken over two local banks in the past few years, two new local startup are opening this year. "My guess is at least one of them ought to do pretty good," says Charles Meiburg, professor at the Darden School of Business at the University of Virginia in Charlottesville. "

But the big banks aren't unresponsive to consumers' dissatisfaction with high fees. Within the last two months Nationsbank introduced a new pricing structure that cuts down on the number of fees for each bank service, says Mr. Plath who adds that just offering multi-state banking isn't enough. "You're starting to have to offer competitive pricing too. The development of nationwide banks is going to reduce fees ultimately," Plath predicts.

When banks merge, however, they also tend to reduce the number of branches. When Chase Manhattan Bank merged with Chemical Bank two years ago, it closed 100 branches, many were located close to each other. At some of the surviving facilities, long lines taxed customers' patience. But Ken Herz, a spokesman for Chase, says most customers no longer go to branches but bank by phone or computer.

The biggest consumer loss when banks merge may be the impact on the community. Banks headquartered in a distant locale may be less likely to provide loans to small businesses or to patronize local social and cultural programs.

Still, even that may be tempered by the way mega banks are expected to do business. Rather than putting all banking operations at a single corporate headquarters, the different banking services will be spread out among a variety of cities. That's going to be case for the new Nationsbank-BankAmerica merger. The new bank's headquarters will be in Charlotte, N.C., while the corporate banking offices will be in San Francisco.

In another model, national banks could turn out to be like airlines. When smaller banks offer lower rates, the big bank could undercut them, lowering rates in one locale while raising them in another where the competition is less stiff to offset the costs. "And once they gained supremacy,they would raise the fees again," Mr. Ratajczak says.

"They are ups and downs to mergers, pluses and minuses," he says. "In the long run, what consumers need to worry about is whether their bank is healthy."

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