Chase plans growth while others fight cuts - Interest rates add to industry's struggles

Chase plans growth while others fight cuts - Interest rates add to industry's struggles
By Becky Yerak
Copyright © 2007, Chicago Tribune
Published February 14, 2007

Maybe Chicago's bank-branch bubble isn't bursting after all.

In a sign that Chicago remains one of the nation's most vibrant big-city retail banking centers, market share leader JPMorgan Chase & Co. said Tuesday that it expects to open 15 to 20 branches in the area this year, up from the 14 it cut the ribbon on in 2006.

Chase, whose 340 area branches have helped give it deposit market share of 15.3 percent, also said it plans to hire 170 personal bankers here by March 31. At least a third will be new jobs, with turnover accounting for the rest.

It's an uncharacteristically bullish move at a time when at least five other Chicago-area banks have cut jobs or closed branches during the past six months in a market that a Federal Deposit Insurance Corp. study shows is the nation's most competitive major metropolitan area.

"Among the 25 largest metropolitan areas, the Chicago area is the least concentrated, with deposit market share widely dispersed among a large number of banks," said Richard Gilloffo, an FDIC regional manager.

But institutions here find themselves torn between jostling for market share while trying to become more efficient, particularly in an unfavorable interest-rate environment. So long-standing predictions that the local banking scene was due for a shakeout have finally been coming to fruition.



`Tremendous growth'

"In the past several years, there has been tremendous growth in bank branches in the Chicago area," said Linda Koch, chief executive of the Illinois Bankers Association. "With that comes significant overhead, and given the interest-rate environment and competitive environment, some banks are forced to cut expenses, and, unfortunately, that includes personnel."

Late last month, Bank of America Corp. announced 49 technology layoffs in Chicago as part of 550 U.S. job cuts.

Harris Bank, the market's third-biggest bank, said last month that it was cutting 250 U.S. jobs, mostly in the Chicago area, as part of a plan by its Canadian parent, BMO Financial Group, to reduce its workforce by 1,000. The cuts include an undetermined number of branches, though Harris said it still plans to add six to eight locations in the market in 2007.

About 500 Chicago-area workers at LaSalle Bank Corp., the area's second-biggest bank, and other ABN Amro Bank NV units will lose their jobs as its Dutch-owned parent cuts costs in North America.

And in September, Washington Mutual Inc. said it was closing 16 percent of its 172 Chicago-area branches. Charter One has pruned its local network too.

But while layoffs appear to be all the rage at some players, Chicago expansion is hardly grinding to a halt.

To be sure, the city lost its bragging rights last year as the metro area with the most branch openings, with New York moving into the No. 1 spot.

And expansion has slackened. The growth rate of new bank branches in the Chicago area was 5.4 percent in the 12 months ended June 30, down from an 8.2 percent growth rate in the previous 12 months.

That placed Chicago 79th in the latest FDIC ranking of the fastest-growing markets, a far cry from its 19th-place ranking for the previous period.

But 5.4 percent growth was still good enough to put Chicago in the top quartile of 369 markets, and its 161 new branches were surpassed only by New York's 207.

Chase isn't the only one doing the growing.

Fifth Third, which entered the market in 2001, when it inherited 88 branches in an acquisition, has grown to 152 area branches and plans to open 15 to 20 in 2007.

"Last year, we added more than 200 jobs in this market, and my guess is we'll match that this year," said Terry Zink, an executive vice president for Fifth Third Bancorp.

Three-fourths of the hiring is due to branch expansion. "We're not cutting back anywhere," he said.

Zink said he wasn't surprised to hear about the cuts at LaSalle or Harris, noting that their operations need to become more efficient. But he was surprised that Bank of America is cutting jobs because it's traditionally a cost-conscious outfit.

"Maybe it had some roadblocks in Chicago that I'm not aware of," Zink said. "The market is still competitive, and the end game in Chicago is going to be consolidation."



Other banks growing

National City also is expanding here. An accounts receivable processing center near Midway Airport, one of the two it has nationwide, has about 175 employees and is in the process of hiring about 100 more.

National City, which has 67 branches in the area, is planning to open six new branches this year. It recently cut ribbons on locations in Wheaton and Downers Grove, and plans to break ground within the next month on a branch at 35th and State Streets in Chicago.

TCF Bank is expanding its retail footprint in Illinois and Wisconsin by eight to 11 branches this year, up from only three last year, but it declined to comment on its overall staffing policy.

The bank finds its profit margins under pressure by an abnormal interest-rate curve.

"Normally, with a steeper interest-rate curve, if you take in a deposit, you can lend it out for a larger spread with minimal interest-rate risk," said Mark Dillon, executive vice president for TCF Bank.

But with long-term interest rates nearly equal to short-term rates, those spreads are being squeezed, resulting in lower margins.

Said Dillon: "There's not a bank in the country that's not affected by that one."

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byerak@tribune.com

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