“If there’s anything that could dislodge a customer, a merger is it.”
— Anita Gentle Newcomb
Economic turmoil and the crisis in the financial industry has created an upheaval in deposits of epic proportions. Many financial institutions smell blood. But to others, the idea of trying to gain from a competitor’s downfall is a bit unsavory.
When WaMu got absorbed, BECU in Seattle chose not to take the fight head-on because they “didn’t want to be perceived as dancing on WaMu’s grave.”
Reality Check: In the war for deposits, there are no prisoners. You gotta go for the jugular. Snag every deposit dollar you can. No one will fault you for taking advantage of the situation.
Despite exercising some marketing reserve, things worked out well for BECU anyway. “Daily membership doubled since the severity of WaMu’s problems became known,” said a BECU spokesman. Things went “gangbusters.” But you have to wonder how much more BECU could have gained if it adopted a more assertive strategy?
Key Fact: When banks merge or get taken-over, they lose somewhere between 10 and 20 percent of their deposits within a year.
Here are some typical examples of the losses in deposits these banks saw within a year after their acquisition:
- Mercantile Safe Bank lost 12.5% of their deposits
- North Fork Bank lost 17.1% of their deposits
- Fleet Bank lost 19.7% of their deposits
- World Bank lost 26.1% of their deposits
Within an hour after the announcement that Wachovia had been forced to sell itself, the phones started ringing at local banks. Wachovia customers wanted to move their accounts.
Right now, about a third of all the deposits in the Washington D.C. area are changing hands due to mergers.
Billions and billions of dollars, just floating around…
“If there’s a lot of glitches in the transition, that dramatically increases the potential for customer defections,” Greg McBride, senior financial analyst for Bankrate.com, told the Pittsburgh Tribune-Review. “And competitors are happy to scoop up those customers.”
That’s why many banks started running ads attacking PNC’s takeover of National City the very next day after the merger closed. Two weeks later, some banks are stepping up their efforts. Now what does that tell you?
“2008 was difficult for us. Our competitors did take advantage of our situation.”
— Sam Schreiber, Wachovia
An aggressive strategy worked remarkably well for Sonabank, whose 9-month effort added $20 million in deposits — pulled straight from Wachovia. Not bad for a bank with only $400 million in assets.
The recent tsunami of mergers sweeping over the financial industry has triggered much discussion among industry experts about the best way to approach them.
Direct Mail – In an eBrief from CreditUnions.com, Ray Springsteen suggests sending targeted direct mail pieces within the immediate vicinity of the merging bank’s branches. It can’t hurt to tailor your message specifically to the situation. You might also want to think about sending a DM piece specifically to those existing customers or members who don’t have a deposit relationship with you already. The chances are reasonable that they could have deposits with the merging bank.
PR – Springsteen also recommends contacting the local news outlets. If you’re healthy, well-capitalized and making loans, tell them your side of the story. When journalists report about failed banks and mergers, they are frequently happy to report the flip side about other local financial institutions that aren’t struggling.
Staff Awareness – It’s critical all staff know which financial institutions are struggling or merging in your area. Tell them their ears should perk up when they hear someone mention these financial institutions. This is an easy opportunity for your staff to have a switching conversation. Sonabank gave employees weekly updates on the bank’s strength to help them persuade Wachovia customers to switch. “It used to be that loan officers and branch managers didn’t need to know our capital ratios,” a Sonabank representative said. “Now they do, and they spend time educating clients about it.”
Ads – One ad from Sandy Spring Bank read: “Another bank is about to change names. But as a customer you could be faced with more than just a new name – new account numbers, changes in personnel and higher fees. Why not change on your terms?
Key Takeaway: Your constituents expect you to do what’s best for the organization. You are obligated to capitalize on competitive opportunities as they present themselves.
Bottom Line: The unprecedented volume of mergers in the financial industry creates massive opportunities for financial institutions to grow deposits. But you have to act now. The window of opportunity closes quickly. If you don’t go after the deposits of failing banks you’re leaving a lot of money on the table.