Take It To The Bank
Reports like the recent one from SNL Financial - Branch Networks Continue to Shrink really get my goat. As I travel the increasingly vacant highways of Montgomery County, PA I'm keenly aware of my surroundings. If I were a foreigner visiting for the first time, I'd think Space Available was the hot new retailer in the country. I've detailed the slow disintegration of our suburban sprawl paradise in previous articles:
Thousands of Space Available signs dot the bleak landscape, as office buildings, strip malls, and industrial complexes wither and die. Gas stations are shuttered on a daily basis as the ongoing depression results in less miles being driven by unemployed and underemployed suburbanites. At least the Chinese "Space Available" sign manufacturers are doing well. The only buildings doing brisk business are the food banks and homeless shelters.
The sad part is that I live in a relatively prosperous county with a low level of SNAP recipients and primarily occupied by a white collar college educated populace. If the clear downward spiral in my upper middle class county is an indication of our country's path, the less well-off counties across the land must be in deep trouble.
While hundreds of thousands of square feet of retail, restaurant, office and industrial space have been vacated in the last six years, the only entities expanding in my area have been banks, drug stores, municipal buildings and healthcare facilities. I have been flabbergasted by what I've viewed as a complete waste of resources to create facilities that weren't needed and wouldn't be utilized. I have seven drug stores within five miles of my house. I have ten bank branches within five miles of my house. While two perfectly fine older hospitals in Norristown were abandoned, a brand new $300 million super deluxe, glass encased Einstein Hospital palace was built three miles away by a barely above junk bond status non-profit institution. None of this makes sense in a contracting economy.
This is another classic case of mal-investment spurred by the Federal Reserve easy money policies, zero interest rates, and QEternity. Cheap money leads to bad investments. I'm all for competition between drug store chains and banks. CVS, Walgreens, and Rite Aid are the three big chains in the country. I have my pick of multiple stores close to my house. There are clearly too many stores competing for a dwindling number of customers, with a dwindling supply of disposable income. The only reason Rite Aid is still in the picture is the easy money policies of the Federal Reserve. They have been teetering on the verge of bankruptcy for the last five years, but continue to get cheap financing from the Wall Street cabal, who would rather pretend they will get paid, than write-off the bad debt. Who in their right mind would continue to lend money to a company with $6 billion in debt, NEGATIVE $2.3 billion of equity, and losses exceeding $2 billion since 2008? They are the poster child for badly run businesses that over expanded, took on too much debt and should be liquidated. There are over 4,600 zombie Rite Aid stores littering the countryside waiting to be put out of their misery.
Rite Aid will never repay the $6 billion of debt. They know it. Their auditors know it. Their Wall Street lenders know it. The Federal Reserve Bank regulators know it. Anyone with a functioning brain knows it. Tune in to CNBC for those who are paid to keep clueless investors from knowing it. Interest rates that actually reflected risk and weren't manipulated to an artificially low level by the Federal Reserve would make financing for a dog like Rite Aid a non-starter. Creative destruction would be allowed to work its magic, with winners separated from losers. Instead Rite Aid continues as a zombie entity, barely surviving for now. This exact scenario applies to J.C. Penney, RadioShack, Sears and a myriad of other dead retailers walking. Rather than suffering the consequences of appalling management judgment, dreadful strategic decisions, and reckless financial gambles, they have been allowed to remain on life support compliments of Bernanke, his Wall Street chiefs, and the American taxpayer.
In a truly free, non-manipulated market the weak would be culled, new dynamic competitors would fill the void, and consumers would benefit. Extending debt payment schedules of zombie entities and pretending you will get paid has been the mantra of the insolvent zombie Wall Street banks since 2009. The Federal Reserve is responsible for zombifying the entire country. And it wasn't a mistake. It was a choice made by those in power in order to maintain the status quo. The fateful day in March 2009 when the pencil pushing lightweight accountants at the FASB rescinded mark to market accounting rules gave birth to zombie nation. And not coincidently, marked the bottom for the stock market. Wall Street banks were free to fabricate their earnings, pretend they didn't have hundreds of billions in bad loans on their books, and extend the terms of commercial real estate loans that were in default. With their taxpayer funded TARP ransom, ability to borrow at 0% from Uncle Ben, and the $3 trillion of QE cocaine snorted up their noses in the last four years, the mal-investment, fraud, and idiocy of the Wall Street drug addicts has reached a crescendo.
The mal-investment by zombie drug store chains has only been exceeded by the foolish, egocentric, insane bank branch expansion by the Too Big To Trust Wall Street CEOs. In the last ten years dozens of bank branches have been built in the vicinity of my house and across the state of Pennsylvania. These gleaming glass TARP palaces are on virtually every other street corner across Montgomery County. Stunning, glittery, colorful branches stuffed with bank employees pretending to loan money to non-existent customers. They have become nothing but a high priced marketing billboard with an ATM attached. By 2010, the number of bank branches in this country had reached almost 100,000. The vast majority are run by the usual insolvent suspects:
Wells Fargo - 6,500
J.P. Morgan - 6,000
Bank of America - 5,700
The top ten biggest banks, in addition to holding the vast majority of deposits, mortgages and credit card accounts, operate 33% of all the bank branches in the country. The very same banks that have paid out $66 billion in criminal settlement charges over the last three years and have incurred $103 billion of legal fees to defend themselves against the thousands of actions brought by victims for their criminal misdeeds, decided it was a wise decision to open new bank branches from 2007 through 2010. Only an Ivy League educated MBA could possibly think this was a good idea.
It was almost as if the CEO's of the biggest Wall Street banks didn't care about pissing away the $2.5 million to build the average 3,500 square foot bank branch, which would require $30 million of deposits to breakeven. This level of deposits isn't easy to achieve when your customers are unemployed due to your bank destroying the American economy, broke due to their real household income declining by 10% over the past fourteen years, and your bank paying them .15% on their deposits. It also probably doesn't help when you charge them $3 every time they withdraw their own money from your bank and you charge them $25 when their bank balance falls below $1,000 because they just got laid off from Merck on Christmas Eve. It is now estimated that one-third of all bank branches in the country lose money. Who can afford to run something that consistently losses money, other than our government? Wall Street bankers can when the taxpayer is footing the bill and Bernanke/Yellen subsidizes their mal-investment by lending to them at 0%, providing them $2.5 billion per day of QE play money, and paying them $5 billion per year in interest to park the excess reserves that aren't getting leant to small businesses and consumers at their thousands of gleaming bank branches.
Hasn't one of the thousands of highly educated MBA vice presidents occupying offices at the Too Big To Control Wall Street banks explained to Stumpf, Dimon and Monyihan that bricks and mortar are dead? A new invention called the internet has made in-person banking virtually obsolete. Why does anyone need to go into a bank branch in this electronic age? I've been in my credit union branch five times in the last ten years, twice for a refinance closing on my home and a couple times to get a certified check. With ATM machines, direct deposit and on-line bill paying, why would the country need 100,000 physical bank locations? I pay 90% of my bills on-line. If I need cash, I hit the ATM at Wawa, where there are no ATM fees (my credit union doesn't charge me to get my own money). The only people who go into bank branches on a regular basis are old fogeys that don't trust that new-fangled internet. The older generations are dying out and the millennial generation has no need for bank branches. Their iGadgets function as their bank connection. Plus, since they don't have jobs or money, a bank account at the local bank branch of J.P. Morgan seems a bit trite.
The writing had been on the wall for a long time, but the reckless bank executives continued to build branches in an ego driven desire to outdo their equally irresponsible competitor bank executives. Now the race is on to see which banks can close the most branches. Bank consultant Jim Adkins succinctly sums up the pure idiocy of physical bank branches:
"There's almost nobody in the branches. You could shoot water balloons all over the place and not hit anybody."
It seems my humble state of Pennsylvania leads the pack in closing branches in the past year, with 149 abandoned and only 43 opened. Only two states in the entire country had more branch openings than closings.
After shuttering 2,267 branches in 2012, the industry is on track to closing another 2,500 in 2013. Shockingly, the leader of the Wall Street zombie apocalypse, Bank of America, led the pack in bank branch closings with 194 in the last year. Staying true to his hubristic arrogance, Jamie Dimon actually opened 62 more branches than he closed in the last year, despite his upstanding institution having to pay tens of billions in fines, settlements and pay-offs for their criminal transgressions.
There are now 93,000 bank branches remaining in this country, and one third of them don't generate a profit. That percentage will grow as the older generations rapidly die out and are replaced by the techno-narcissists who never leave their family rooms. Online banking already accounts for 53% of banking transactions, compared with 14% for in-branch visits. Younger bank customers increasingly prefer online and mobile banking, as advancing technology enables them to make remote deposits, shop for loans and manage accounts more efficiently from their desktops or smartphones. This trend will only accelerate in the years to come.
Banking industry profits reached a record level of $141 billion in 2012 as more vacancy signs appeared on Main Street. Now that the Wall Street cabal have syphoned every ounce of blood from their customers/victims through ATM fees, overdraft fees, minimum balance fees, credit card fees, late payment fees, and paying no interest on deposits, they are forced to focus on the $300,000 average loss per bank branch. QE and ZIRP might not last forever. Yeah right. AlixPartners, a New York consulting firm, expects the number of bank branches to drop to 80,000 over the next decade. They are wrong. They have failed to take into account the lemming like behavior of Wall Street banks. As their accounting gimmicks to generate fake profits dissipate, the increasingly desperate insolvent zombie banks will rapidly vacate their prime corner locations in droves. With approximately 30,000 locations already generating losses, the Wall Street MBAs will be closing branches quicker than you can say "mortgage fraud". There will be less than 70,000 branches within the next five years. That means another 20,000 to 30,000 Space Available signs going up on Main Street. That means another 200,000 to 300,000 neighbors without jobs. But don't worry about Jamie Dimon and the rest of the Wall Street bankers. They'll be just fine. In addition to being endlessly fed by the Fed, they'll get creative and charge their customers a new bank branch access fee of $50 for the privilege of entering one of their few remaining outlets. By now we should know how cash flows to Main Street in this corporate fascist paradise.
Do your part to starve the beast. Move your bank accounts to a local credit union. Don't support criminals.