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Are Banks Experiencing Hard Times Like The Rest Of Us?

March 10, 2012 | About:

Just like U. S. consumers are experiencing the pain and suffering from the terrible domestic and international economy, so are the big banks. Just like households and individuals are tightening their belts and looking for any way to earn a few dollars, the large banks are looking for any excuse to raise new revenue and will look at their customers as their easiest target. For example, large banks like Bank of America (NYSE:BAC) is looking at new ways to increase its bottom line through tactful customer service.

According to numerous reports, Bank of America is getting squeezed by the United States government's new financial rules. These rules limit the amount of money that banks can charge retailers for credit and debit card transactions. Because the banks are able to make less money through retail transactions, they have to find other creative ways to make their stockholders happy through revenue gains. However, Bank of America is not the only large, multinational bank raising its fees. Other similar sized banks are doing this because of the same exact reason.

In my opinion, I don't see these fees as anything new because the consumers are already paying for them in one way or another. For example, your “free checking” is not free at all because the bank is using your money to make interest on it. Similarly, when you use your debit or credit card, the retailer already factors in the cost of its credit card processing fees and simply charges you more for their product and/or service. Now, because the retailer won't be able to pass on the bank's fees to your through their prices, the banks are now passing on the retailer's fees directly to you. In essence, the consumer has always paid the bank processing fee, now the consumer will actually see it.

Based on Bank of America's current stock fundamentals and statistics, there seems little room for growth and profit sharing. According to Bank of America's bid price, which is $8.15 at the time of writing, and its 52 week trading range being $4.92 to $14.70, I would think it to be a good deal. I would think it be be an even better deal with the automatic collection of near 100% profit bank fees. However, even after the analysts take into consideration the bank fee, the 1 year estimate only has the stock at $9.04. Based on these figures I would seriously think that Bank of America's decision along with Chase, TD Bank (TD), and many other large banks to institute new fees might not be good for their stock price or their customer service.

Subsequently after Bank of America instituted its $5 debit card fee, it reconsidered and reversed the $5 debit card fee in 2011. It did so mainly because of the onslaught of unhappy customers and poor media attention it received from the policy. Yet, while Bank of America backed down this time, it still said it was going to reinstate the charge sometime in 2012. Similarly, even though large banks like Wells Fargo (NYSE:WFC) and JPMorgan Chase claim they are not going to impose similar credit card fees, both companies are still trying the fee out in limited, test markets. In my opinion, I know the banks are looking to recover the fees lost from the newly passed legislation. Also, the banks still want to impose fees similar to the $5 debit card fee, but do not want the negative publicity that was garnered from the Bank of America scandal.

In comparison to Bank of America, JPMorgan Chase (NYSE:JPM) took a more tactful approach to imposing fees upon its customers. Like Bank of America, JPMorgan tested a $3 debit card fee program. However, after its test run, JPMorgan decided to scrap the program entirely. However, it did not scrap new fees. It simply changed all of its checking accounts to fee based accounts. Then, it ran new promotions for customers informing them that they could pay no fees if they either met a threshold for enough direct deposits or simply kept enough money in their JPMorgan accounts. In my opinion, this strategy is brilliant because JPMorgan saw how Bank of America had a customer service disaster through its debit card fees and learned from that by discounting its own debit card fee. However, JPMorgan was very smart because it most likely will receive the same or more fees because it will attract customers from Bank of America and retain its own customers. Plus, because most people have at least a few hundred dollars, they will feel they are able to participate in the program. Moreover, JPMorgan will be able to make interest from its current and new customer accounts through investing and mortgage interest income. In my opinion, this program makes people want to become a customer and helps JPMorgan with its customer service and earnings goals.

Moreover, according to news reports, one can also see how Bank of America will fare worse against its competitors such as JPMorgan. News reports from the day of this writing credit the bank's recent successes with their ability to lose less money, but not because they had increased revenues. The report cites Bank of America and JPMorgan as some of the banks doing better. The report credits that although some of the big bank's fees were voluntarily stopped, a lot of the fees remained. In my opinion, this article is right that the big banks did drop their fess, such as the debit card fees. However, what the article fails to mention is that some banks were able to re-introduce other banks fees which generated the same or more bank fees than the unpopular debit card fees. The only difference is that the new bank fees were hidden by attaching deposits to the fee waiving. The money customers deposited with the bank enabled the bank to make much more money through investment gains and revenue on mortgage interest fees.

Banks were actually able to make customers pay more money through hidden and questionable practices, even though people believed they were fighting against some blatant fees. Some customers are unknowingly enriching the banks through their voluntarily participation with the bank's promotions and hidden fees.

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