How long will it take before Los Angeles has only 10 locally headquartered banks?
I mean, banks keep merging and their number keeps dropping.
Four years ago, by my count, we had 71 banks headquartered in Los Angeles County. At the end of the second quarter this year, we were down to 56.
If we keep losing banks at this rate – 15 every four years – it’ll take us a little more than 12 years to get down to 10 local banks.
Why are they merging? The recession hurt, of course, but regulations approved since the recession have heaped new costs and obligations on commercial banks. Small- and medium-size banks especially are groaning under the weight; they don’t have the financial capacity to deal with those costs, so they merge.
If you’re a doubter, look at the story on page 6 of this issue. Simplicity Bancorp of Covina announced last week that it agreed to be bought by a larger Seattle thrift. Simplicity’s chief executive explained that the costs of complying with new regulations have made it prohibitively expensive to run a small lender.
Actually, Simplicity is not a bank but a savings and loan association, but the same dynamics apply. Four years ago, we had six S&Ls headquartered here. Now we’re down to four; after Simplicity’s buyout, three.
Also, the article, by Matt Pressberg, points out that Simplicity’s expected sale price will be just about equal to its book value. In other words, the sellers expect to get no premium. That’s astounding and tells you something about the downtrodden state of the banking industry when a financially sound lender decides to sell, dollar for dollar, in an economy that’s improving overall. What other business would do that?
In a broad sense, mergers are perfectly fine and natural and no cause for concern – so long as new startups are popping up to replace the merged companies. The problem is, we’re not seeing that.
In fact, the last bank that started from scratch in the county was in 2009 when Professional Business Bank got going in Pasadena. Think about that: America’s biggest county had one bank startup in five years. That’s a Depression-era stat.
Oh, and what happened to that bank? You can probably guess: It merged into another bank. And soon thereafter, the merged bank merged into another.
. . .
I’m particularly interested to see the Los Angeles Angels of Anaheim currently hosting the Kansas City Royals in first round of the baseball playoffs. I’m a native Kansas Citian and an erstwhile fan of the Royals.
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