California Draws Big Interest from Banks


There’s a new trend developing in California — a host of big national banks storming the state and potentially knocking smaller regional banks out of business. Why the sudden interest in California?

The Los Angeles Times is close to the action, and it’s reporting that banks with home bases outside the state like JPMorgan Chase (Stock Quote: JPM) and U.S. Bank (Stock Quote: USB) are crashing the California bank party and are “aggressively courting” Golden State customers.

That has set off a domino effect this summer that has established California banks like Bank of America (Stock Quote: BAC) and Wells Fargo: Stock Quote: WFC) fighting back with some new customer retention campaigns designed to cordon their customers off from out-of-state banks.

The Battle of the Goliaths could also push regional banks to the margins, as customers begin to choose from a menu of new appetizing deals like rebates of 5% on debit-card purchases and bonuses of $100 for new customers.

“Bank of America Corp. and Wells Fargo & Co. have long dominated that market in California," The Times reports. "But a massive shakeout of financial institutions nationwide has large new competitors moving in, eliminating many medium-size banks and thrifts that once presented an alternative to Californians.”

Among those new competitors, Chase (with $1.7 trillion in assets) and U.S. Bank ($280 billion in assets) are swinging from the heels. The former now has 700 branches inside California and U.S. Bank has 600 locations in the state. U.S. Bank’s Southern California Regional Chairman Sean Foley told the Times that U.S. Bank’s goal is to move from the middle of the pack, in terms of market share, to "top-notch.”

Why is California such an appealing battleground for big banks — and for banks that want to become big banks? California's vast consumer base — 37 million customers — overshadows concerns like double-digit unemployment and a state government that is billions of dollars in debt. As Foley told the Time, "This is where the population is, this is where the growth is, this is where the wealth is.”

The big marketing push from both in-state and out-of-state banks comes at the same time that the California Bankers Association is working with Gov. Arnold Schwarzenegger’s office to increase consumer awareness on how banks can help state residents better manage their finances.

Dubbed the "Bank on California" initiative, the goal is to have the CBA work with California’s community leaders and financial institutions to educate Californians on the benefits of doing business with a bank.

“In these difficult financial times, it is important for Californians to take charge of their finances and establish savings, build a credit history, gain access to lower-cost sources of credit and learn how to invest for the future," said Rodney Brown, president and CEO of the CBA. "This program is one of the first of its kind in the nation and CBA applauds the governor for his leadership on this issue by encouraging unbanked Californians to open starter accounts and increase their money management knowledge.”

It’s all good news to California banking customers. With the gloves off between bigger banks over market share, and a big government-sponsored initiative to get more consumer cash into banks, customer should expect to see bigger and better deals on banking services. That should include higher yields on certificates of deposit and bank checking accounts, and lower fees designed to attract new customers to the fold.

When the dust finally clears, it’s uncertain how much new territory out-of-state banks can carve out of the California market. What is clear is that the harder big banks try, the harder others will try to match or exceed them. In a tough banking market, that should mean a better banking experience for Golden Staters — and that’s good news in this economy, no matter who wins out in the end.

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