tag:blogger.com,1999:blog-235433516644980443.post6450851673943238842..comments2024-03-27T05:08:10.195-04:00Comments on Jeff For Banks: The Economy of Scale Myth: Go Big or Go HomeJeff Marsicohttp://www.blogger.com/profile/12153599647481141591noreply@blogger.comBlogger5125tag:blogger.com,1999:blog-235433516644980443.post-6824554838351550112011-09-24T21:35:52.120-04:002011-09-24T21:35:52.120-04:00Serge,
I refer you to my top 5 total return to sh...Serge,<br /><br />I refer you to my top 5 total return to shareholder post. The asset size of those banks are from $1-$13B in assets. If the economies of scale argument held water, why wouldn't the largest banks own the list? They're not even on the list.<br /><br />~ JeffJeff Marsicohttp://www.kafafiangroup.comnoreply@blogger.comtag:blogger.com,1999:blog-235433516644980443.post-9332769188585382802011-09-24T16:53:37.010-04:002011-09-24T16:53:37.010-04:00Jeff -
Although this post is now almost 12 month...Jeff - <br /><br />Although this post is now almost 12 months old, the topic is still very much in debate. I wanted to share a bit of information that we published on our blog and get your assessment. See http://bankblog.optirate.com/does-size-matter-for-banks-the-answer-is-unequivocally-yes/ and http://bankblog.optirate.com/community-banks-lag-mega-banks-in-growth-and-profitability/). <br /><br />We find that while there always a few exceptions Economics 101 does not have to be re-written for banking. The law of Economies of Scale holds for Banks.Serge Milman | OptiRatehttp://www.optirate.com/Banksnoreply@blogger.comtag:blogger.com,1999:blog-235433516644980443.post-78519246763305469412010-10-27T13:05:55.061-04:002010-10-27T13:05:55.061-04:00And readers should note that Dan's bank is les...And readers should note that Dan's bank is less than $1 billion in assets and has a year-to-date ROAA of 1.79%. Conversely, Wells Fargo YTD ROAA was 1%.<br /><br />~ JeffJeff Marsicohttps://www.blogger.com/profile/12153599647481141591noreply@blogger.comtag:blogger.com,1999:blog-235433516644980443.post-151473830250281972010-10-27T11:28:16.335-04:002010-10-27T11:28:16.335-04:00Hi Dan,
My thoughts are that we in community fina...Hi Dan,<br /><br />My thoughts are that we in community financial institutions will be "price-takers" in new Commercial Checking pricing/fee schemes to the very large banks. But we may have opportunities to put forth a more attractive product because we don't have the large numbers that they do in terms of re-pricing those accounts. <br /><br />For example, Wells has ~ $181 billion of non-interest bearing deposits. What percent is commercial I don't know, but if they repriced at an average interest expense of 25 bps, that would be ~ $453 million pretax, or about 3% of their after-tax earnings. Because the numbers are so large, my hope is the big banks will come out conservatively.<br /><br />Nearly all bank failures are as a result of credit problems. Some fail because of liquidity, but the liquidity problem typically stems from credit. If community FI's margins shrink as a result of paying interest on commercial accounts, they may seek partners to grow the balance sheet and reduce expense ratios to make up for the shortfall.<br /><br />My guess is the margin contraction will be somewhat small because of the smaller commercial DDA balances, so a review of operating expenses (such as reviewing your core-processor invoices for non value added services) may make up the difference.<br /><br />Thanks for reading and your thoughtful comment.<br /><br />~ JeffJeff Marsicohttps://www.blogger.com/profile/12153599647481141591noreply@blogger.comtag:blogger.com,1999:blog-235433516644980443.post-88045155480418617742010-10-27T10:57:40.800-04:002010-10-27T10:57:40.800-04:00I would agree that you don't need to be a mega...I would agree that you don't need to be a mega bank to be profitable; our bank, State Bank of De Kalb, has been quite profitable for many years and we've been able to do that through the interest margin. If we start paying interst on business deposits, however, all of this will change in a hurry. Do you think that'll cause another big wave of failures? <br /><br />Dan Schmitt<br />State Bank of De KalbAnonymousnoreply@blogger.com