Bloomberg Business News
By Frank Bass and Dakin Campbell
Banks that opened more than 15,000 branches across the U.S. in the decade leading to the financial crisis are retreating from lower-income neighborhoods, even as the industry posted its second-most-profitable year on record.
Banks have shut 1,826 branches since late 2008, and 93 percent of closings were in postal codes where the household income is below the national median, according to census and federal banking data compiled by Bloomberg. The number of branches, boosted by acquisitions at Bank of America Corp. and JPMorgan Chase & Co. (JPM), peaked at 99,540 in 2009, up 20 percent from 1998. A study released two days ago estimates the branch total could fall by as much as 40 percent in the next decade.
The figures show that the same neighborhoods targeted by predatory lenders before the housing-market collapse are now suffering the biggest losses in bank branches. The decline limits access to basic financial services for people who don’t have bank accounts and forces them to pay fees for such activities as cashing checks and settling utility bills.
“It’s very hard for people to get an economic toehold in neighborhoods without banks,” said Sarah Ludwig, co-director of the Neighborhood Economic Development Advocacy Project, a New York-based community support center. “If you don’t have banks, you’re not fostering small businesses. You’re diminishing jobs, and you’re diminishing your own tax base.”
A study released in September by the Federal Deposit Insurance Corp. estimated 10 million households lack bank accounts. Another 24 million are “underbanked,” using check- cashing services and other unregulated businesses for financial transactions. The households represent 28 percent of the U.S. total.
The ranks of underserved people approach 50 percent in more than a dozen U.S. counties. The Bronx in New York City ranks behind only Hidalgo County in Texas as the nation’s most unbanked large county, with 48 percent of households either not having an account or relying on alternative financial providers. That’s according to a report by the Corporation for Enterprise Development, a Washington-based advocacy organization for lower- income Americans.
More than 96 percent of the 47,300 people who live in the Longwood neighborhood of the Bronx are black or Hispanic. Median household income in the postal code is $22,458, less than the 2011 national poverty line of $22,811 for a family of four, according to the Census Bureau.
Two bank branches operated in the neighborhood in June 2012, down from five in 2008. The remaining branches, owned by Hato Rey, Puerto Rico-based Popular Inc. (BPOP) and New York-based JPMorgan, are within 300 feet of each other on a busy street. They’re outnumbered 3-to-1 by pawn shops, gold-buying stores and check-cashing businesses.
“There used to be a bank over there,” Amar Ndiaye, 65, said, gesturing at a fast-food restaurant across the street from the table where he has sold electronics accessories for more than a decade. “We used to have more choices.”
On the other side of the street, a dozen people stood in line waiting to use one of Chase bank’s four ATMs as the No. 2 train screeched above on its elevated track.
The banking withdrawal from lower-income neighborhoods has occurred on the heels of a “reverse redlining” epidemic where lenders targeted poor and uneducated residents with ruinous credit terms.
Banks acquired the mortgages from brokers, securitized the loans and sold them to investors, before the housing bubble burst. Major financial institutions, including Countrywide Financial Corp. and Wells Fargo & Co. (WFC), settled federal complaints that their policies encouraged reverse redlining, paying more than a half-billion dollars in penalties.
The U.S. Justice Department last month began notifying customers of a Virginia subsidiary of SunTrust Banks Inc. (STI) that they were part of a class of black and Hispanic neighborhood residents who might be eligible to share in a $21 million settlement reached with the Atlanta-based bank. SunTrust, the nation’s 10th-largest bank by deposits, denied allegations of wrongdoing.
Median income and other demographic data were available for only about half the bank branches shut nationwide in recent years. Officials at the biggest U.S. banks said income levels had nothing to do with the departures from less-wealthy areas.
“We’ve got a moral and regulatory obligation to be in those places and serve those customers,” said Pablo Sanchez, JPMorgan’s national director of consumer banking. “We’re not walking away from them.”
Banks, which posted $141.3 billion in net income last year, are required to provide services to low- and moderate-income communities under the 1977 Community Reinvestment Act. While some Republican politicians, including 2012 presidential nominee Mitt Romney, have said the law prodded banks to give mortgages to those who couldn’t afford them, a 2009 Federal Reserve Bank of Minneapolis study found it didn’t encourage banks to make high-risk loans.
Branches generally require $40 million of deposits to be profitable, Paul Miller, an analyst with FBR Capital Markets in Arlington, Virginia, has estimated. About 15 percent of bank branches in the U.S. held less than $15 million in deposits, Brian Foran, now head of regional bank coverage for Autonomous Research LLP in London, said in a 2011 interview.
A report released Tuesday by Celent, a Boston-based consulting firm, predicted that the number of branches could fall by as much as 40 percent within the next decade in an erosion that “will be gradual, but unavoidable.”
Bob Meara, co-author of the report, said in a telephone interview that regulatory changes and increased reliance on digital transactions in recent years “took the wind out of banks’ profit sails.” Net interest margins, rates and fee income have decreased, putting extra pressure on individual bank branches to show steady profits, he said.
The lack of banking services is taking a toll on communities like the South Bronx.
“People here are in a desperate situation,” said Greg Jost, deputy director of the University Neighborhood Housing Program, a New York nonprofit group. “They’re living paycheck- to-paycheck, and they’re paying higher fees than people in Manhattan to make the same transactions.”
About eight miles south of the Bronx, those in need of a bank needn’t look far. The neighborhood that includes Union Square has 34 banks, up from 26 in mid-2008.
There are 56,024 people in the area, with 95 percent citing white or Asian ancestry. Median household income is $88,601, about 175 percent of the national figure. AOL Inc. and Nielsen Holdings NV (NLSN) have corporate offices in the neighborhood, also home to the Union Square Greenmarket, one of the nation’s largest farmer’s markets.
“They’re everywhere,” Stephanie Bealert, 33, said of the banks while selling cheese in the square for Consider Bardwell Farm, a dairy based in West Pawlet, Vermont. A trio of national banks — Citigroup Inc. (C), JPMorgan and Bank of America — rings the southern end of the park.
The trend is obvious in Bealert’s Williamsburg, Brooklyn, neighborhood, she said. The area along the East River across from Manhattan, once known for its concentration of Hasidic Jews, is now also home to many artists and hipsters.
“There was one local bank when I moved there” in 2008, she said, “and now, it’s gotten a bunch of the big national banks.”
JPMorgan, the nation’s largest financial institution by assets, increased its bank branch count by 78 percent to 5,586 during the five-year period, according to FDIC data. The majority of the growth occurred as a result of its 2008 purchase of Washington Mutual Inc.
The percentage of JPMorgan branches in higher-income postal codes grew to 63 percent in 2012, up from 61 percent in 2008, census and banking data compiled by Bloomberg show.
Charlotte, North Carolina-based Bank of America Corp., the nation’s second-largest bank, has 30 percent of its branches in federally defined low- and moderate-income neighborhoods, said Tara Burke, a spokeswoman.
The company had 5,635 branches on June 30, down from its 2008 tally of 6,042. The percentage of branches in neighborhoods with incomes higher than the national median rose less than a percentage point to 58 percent, according to the banking and census data.
Wells Fargo, which has 6,293 branches, the most of any U.S. bank, has closed 425 brick-and-mortar buildings during the last five years. About 75 percent of the closures were related to the company’s 2008 takeover of Wachovia Corp., said Mary Eshet, a spokeswoman for the San Francisco-based bank.
“The decision to close any store goes through rigorous analytics, including in-depth evaluation by our community development group which looks specifically at impacts to low-and moderate-income neighborhoods,” she wrote in an e-mail.
Seventy percent of closed Wells branches were within a mile of another bank location, and 90 percent within two miles, Eshet said. The banking and census data show the bank’s percentage of branches in higher-income postal codes stayed essentially the same in 2012 at 55 percent, with about 3,489 high-income branches out of 6,293.
“We love affluent customers,” Eshet said. “But we’re a mass-market bank.”