Can someone with a thorough understanding of banking explain? (lending, fees, loans)

[gentlearts]

I work for a small, boutique bank which was just bought by a large, privately held regional bank with deep pockets. We were small, but had a nice bunch of big depositors.
The first thing the new bank did was lower interest rates on existing depositors...I'm talking going from 1.2% down to .55%. We've been hemorrhaging millions of dollars every day since.
I am told the new bank does not need the money, and makes no income from "money parkers" who never generate any fees. I thought this money was necessary to lending?
My question is, why did they bother to buy us, if they don't care to keep our depositors, and they don't even like our building?
Why not just buy their own building and start a branch here?
I don't get it.

[chet everett]

The acquistion, like many in the consolidation of banks, almost certainly has less to do with with your existing deposit holders, who as you do seem to understand, generate essentially no income for the bank, and more about "out flanking" even larger competitors.

The last thing the firm that acquired your bank wants to see happen is another competitor around the corner. If they get to essentially "shut down" your bank and "rebrand it" with their identity / policies that is pretty much how they "ward off" other banks... It sometimes seems less like "science" that these alleged MBA types studied and more like "anti-vampire folklore" -- they act like thier logo is the equivalent of garlic or a silver cross that will cause the competitor banks to head to the other side of town .

Unlike in times past, when deposits were key to lending and that lending was a big part of how a bank made money, the "new new thing" is to rely pretty much exclusively on "free money" from the overnight loan system of the Federal Reserve (with it's zero percentage rate ...) to provide capital for lending as well as hedging / speculation on all manner of commodities and futures to make the big money.

Retail and even mid-market commercial banking is driven just by fees.

There are a glut of retail bank buildings and moving into a newer vacant structure with crazy cheap rent is easier than making due with some ancient building that needs upgrades.

[gardener34]

It is called a strategic acquisition rather than a financially motivated one. Like when one company buys out another company - just in order to kill off their competition.

[west336]

The better question is why did your bank accept the offer? Something must have made sense, right?

I did a stint (key word here) at Wells Fargo as a Financial Counselor for the Wholesle Banking department who spent much of its time working with these types of customers (bank to bank loans). I found that Wells was RAISING rates to lower its capital accounts, and free up some capital to allocate to other parts of the business. So your situation is a bit odd to me. It very much sounds like a strategic acquisition, like the person above stated. Maybe your bank does much better with SFH lending (a major sore spot with major banks who overextended) or another area of business that the "big boys" just couldn't compete with, like customer relations (I mean, do any big boys really do customer service anymore.......not in my opinion!). Banks suck. Wells was a nightmare and I assume they are all alike -- boring, over-stressed, conservative, stuck in their ways, inefficient, and management-driven (not customer-driven). If I can I will get loans through the smaller guys like you because I want to be able to trust and RESPECT the person who I do the MOST financial business with.....and I plan/hope to be an entrepreneur in the near future!

[rkcarguy]

Good write...the bank was bought to kill off the competition. The owners/shareholders essentially got a nice chunk of change(for what it's worth being it's being given away at 0% by the fed) in exchange for what would have been a growing and profitable bank that locals trusted. I am seeing alot of this going on, as people exit dealings with big corporations, they find the best way to fight it is to flex their money muscles and buy the competition to shut the doors.
I'd imagine this big bank will eventually shutter your branch and probably offshore all the customer service jobs to India the way things are going.

[wawaweewa]

Banking (we're talking major banks here) is a cartel business in every sense of the phrase.
Once you look at it from that lens, things should be clearer.

I doubt that it was even made to ward of competing banks. Banks do not need to compete for depositors anymore. There's so little money in it.

It was probably acquired for a dubious reason regarding taxation, regualtions, compliance, etc. The acquisition either lets the acquiring bank skirt some regs or avoid some taxes. In fact this acquisition will be a tax write off if nothing else. You can bet your ass on that.