Post-merger L.A.

One look at the assembled executives at this month's meeting of the L.A. chapter of the California Bankers Association drove home the extent to which the local banking industry has devolved.

The group - once comprised of top executives from such multibillion-dollar powerhouses as First Interstate, Security Pacific, Great Western and Home Savings - now is hard-pressed to attract even an executive from a $100 million institution.

On hand this month were executives from Alliance Bank ($63 million in deposits), Gilmore Bank ($57 million) and Asian Pacific Bank ($32 million).

Heading the proceedings was L.A. chapter Chairman Ray Dumser, president of Verdugo Bank, with one branch and $74 million in deposits.

Welcome to the local banking community, 1999.

It's not that L.A. is devoid o banking giants. In fact, half of all bank and thrift deposits in Los Angeles County are held by just three financial behemoths. But each of those giants - Bank America Corp., Washington Mutual Inc. and Wells Fargo & Co. - is based elsewhere.

And that carries consequences.

"If you want something done, you can't just pick up the phone and call up the CEO," said Los Angeles Mayor Richard Riordan. "You can call the second or third guy at the bank, who may be here, but there is going to be a longer process before they can do anything."

The only financial institutions that still call L.A. home are a few mid-size specialty banks, and dozens of small community banks that most people have never even heard of.

"The banking community has changed dramatically," said Russell Goldsmith, chairman of City National Bank of Beverly Hills, a mid-size bank that focuses on serving high-income individuals and mid-size businesses. "It is as if you took a pyramid and turned it into an hourglass shape. The very top is heavy with major banks. There are a few mid-size banks in the middle. And there are lots of little banks at the bottom."

The prominent names of the Los Angeles banking community are all gone, taken over by the three out-of-town giants.

Robert Gnaizda, director of San Francisco-based public policy center Greenlining Institute, isn't happy about the changes he's seen. "Customers are not better off," he said. "ATM fees are way up and competition is substantially reduced."

Branch closures associated with bank and thrift mergers have sparked some of the greatest complaints, he said.

Since 1995, there have been 123 closures in L.A. County, according to the Los Angeles County Economic Development Corp. While that's less than a 10 percent reduction, the bulk of those closures were among the branches of the big institutions that serve most of L.A.'s retail customers.

Former customers of Coast Savings and Loan, for example, became customers of Home Savings and are now being converted to customers of Washington Mutual.

Not everyone, however, believes that Angelenos are worse off in post-merger L.A.

"In terms of service, access to capital, convenience and the amount of loans being made, I really don't see a deterioration." said Ken Ackbarali, a senior economist at the EDC, himself a former banker.

In fact, giant banks - even those based elsewhere - provide customers with a broader range of financial products and services. For example, Wells Fargo has a mutual fund and institutional money management subsidiary, Wells Capital Management. And Bank of America has a major foreign exchange operation in downtown Los Angeles.

In addition, the banking giants have far greater resources with which to make commercial loans. And most of them have made much bigger investments in new technologies than have smaller banks. That's turning out to be a particularly powerful magnet for attracting younger customers, who are more adept at using electronic devices, Ackbarali said. Such customers would much rather make withdrawals and deposits over a computer, phone line or ATM than drive to a branch and stand in line to talk to a teller, he said.

But that increased use of technology, combined with branch closures, has taken a toll on employment.

As of the end of 1998, 63,300 people were employed at banks and thrifts in Los Angeles County, according to the EDC - a 35 percent drop from 97,300 in 1990.

While some of these employees moved to other institutions, many simply pursued new careers. "The worst part about it," said Gnaizda, "is that all these mergers have not helped shareholders. So they will continue to put pressure on the banks to raise fees and cut services."

While many banks may be cutting services and raising fees, they are also tending to devote more attention to L.A.'s minority communities, according to John Bryant, chairman and chief executive of Operation Hope, a non-profit banking operation that serves inner-city residents.

"On balance, things have improved," said Bryant.

And improving service to minority communities makes good business sense in an era when Asians, Latinos and African Americans comprise the majority of L.A.'s population, Bryant said.

"The white middle class is stagnating in Los Angeles," said Bryant. "So how are you going to grow your customer base unless you figure out how to do business with minorities?"

The push for customer service is a message that's apparently getting through at Wells Fargo. Long a leader in the use of technology, such as online and telephone banking. Wells is now re-evaluating its strategy, according to Paul Watson, the bank's vice chairman and the highest-ranking official in L.A.

"Before the merger (with Norwest) the bank was less personal. That cost us in some markets." he said. "What we want to offer is choice. so customers can access the bank any way they want - through a branch, or Internet or telephone."

For L.A.'s exploding population of less-risky small and mid-size businesses, which typically demand a closer relationship with their banks, there remain a healthy number of community banks.

In fact, these smaller banks have been indirectly aided by the consolidation of the big boys, bankers and analysts say.

As mid-size banks have been acquired, many of their commercial customers have jumped to small community banks rather than stick with the large, merged institutions.

At the same time, smaller banks have been able to hire large numbers of talented bankers entering the job market after either being laid off or voluntarily leaving on the heels of a merger.

Both the president and chief financial officer at City National, for example, are former Security Pacific executives who resigned alter the bank was bought by Bank of America.

Other refugees from bank mergers simply decided to start their own banks.

Donald Johnson left 1st Business Bank after the institution was bought by Mellon Bank Corp. of Pittsburgh. Together with 1st Business Bank colleague Robert Schack, they founded U.S. Business Bank, a downtown banking boutique devoted to serving smaller industrial and retail-related industries in the L.A. area.

"Mellon is a fine bank, but we had to ask ourselves whether we wanted to go back into a big-bank market again," said Johnson. "We looked at the market and realized that there is an opportunity to bring big-bank experience to a smaller-bank market."

Another result of the mega-mergers has been a huge financial commitment to community reinvestment. When Bank of America merged with NationsBank last year, the combined company said it would earmark at least $70 billion for community investment in California's underserved markets over the next 10 years - much of that going to Los Angeles.