By RICHARD CLOUGH
The financial crisis is having an unexpected positive impact on a select few banks and thrifts, even as jittery customers are pulling their money out of others.
The financial landscape in Southern California is being reshaped as customers flock to what they perceive to be sounder institutions, redistributing billions of dollars of deposits,in advance of what may be a wave of bank branch closings and rebrandings.
“Customers are seeking safety,” said Henry Walker, chief executive of Long Beach-based Farmers & Merchants Bank, which has branches throughout Orange County and $2.2 billion in deposits as of June 30, according to the Federal Deposit Insurance Corp.
“When times are good, being a conservative bank isn’t exactly in vogue,” Walker said. “But in these times, everyone is constantly reassessing where they are and what they’re doing.”
In July alone, Walker said Farmers & Merchants, with 12 OC branches, gained $170 million in deposits. The bank followed that up with another $80 million in August and more than $100 million in September. All in all, third-quarter deposit growth has been about three times greater than normal, Walker said.
At the same time, more volatile institutions have lost deposits while struggling through a once-in-a-generation financial crisis. Already, a handful of high-profile institutions have collapsed or been acquired by larger competitors.
Mortgage lenders and bank operators Calabasas-based Countrywide Financial Corp. and Pasadena’s IndyMac Bancorp, which had lending operations in Irvine, succumbed to the financial turmoil. Countrywide was bought by Bank of America Corp., while IndyMac was seized by federal regulators.
Meanwhile, Seattle-based Washington Mu-tual Inc., Orange County’s No. 3 depository institution, was seized by federal regulators and then swallowed up by JPMorgan Chase & Co. And Charlotte, N.C.-based Wachovia Corp., No. 11 in OC deposits, is being acquired by Wells Fargo & Co.
Washington Mutual, the nation’s largest thrift, held more than 11% of all the deposits in OC as of June 30. JPMorgan Chase has not announced if it will close any of the thrift’s local branches. The other institutions also would not comment on their branch plans.
“Right now, a lot of people are afraid and don’t know if their bank will survive or not,” said Wade Francis, president of the bank consulting firm Unicon Financial Services Inc. in Long Beach.
Shifting Deposits
A redistribution of deposits began in earnest in early summer, as the mortgage market troubles began hitting local financial institutions particularly hard.
IndyMac became one of the most high-profile failures in the emerging financial crisis when it was seized by the FDIC in July. More than $1 billion in deposits were pulled from the thrift before the FDIC arrived, and most of the remaining deposits fled in the following weeks.
IndyMac turned out to be a harbinger of things to come as Newport Beach-based First Heritage Bank failed several weeks later, and Downey Financial Corp., also of Newport Beach, drew nationwide attention for liquidity troubles.
This left billions of dollars in deposits up for grabs, and Farmers & Merchants was not the only beneficiary.
Bank of America, the financial conglomerate that holds nearly 20% of OC’s deposits, has grown deposits faster than usual.
“Bank of America is one of the most stable and liquid banks in the world, so we are clearly benefiting from consumer and business flight to safety,” said Brad Dinsmore, a Bank of America regional executive.
City National Corp., the largest Southland-headquartered bank company, has won deposits as well. The Beverly Hills-based bank is one of the healthier local institutions, managing to remain profitable even in these tough times. In a recent research report, Michael Diana, an analyst with Noble Financial Capital Markets, called City National “the best and most desirable small-cap bank franchise in the nation.”
The bank has fortified its position by reaching out to customers to reassure them that their money is safe, Chief Executive Russell Goldsmith said.
“Whether it’s IndyMac or Countrywide or some of the other banks that have experienced difficulties and visibility in the press, we’re seeing a flight to quality in Southern California,” Goldsmith said. “City National has definitely seen an increase in clients and deposits as a result, as have a few of the other big banks.”
Of course, once banks get new deposits, they have the issue of putting that money to work. That can be more of a head scratcher today, given the turbulent economy. But Walker, of Farmers & Merchants, said his bank looks for safe investments, such as Treasury securities.
Clough is a staff writer with the Los Angeles Business Journal.
