RUBENS/jb/39inches/1stjc/mark2nd

JOE BEL BRUNO Staff Reporter

In 1977, Barry Rubens founded Santa Monica-based California Research Corp. , a consulting firm for investors interested in starting their own banks or savings institutions.

Two decades later it appears Rubens is in the right line of work. With a flurry of bank consolidations, he says that his expertise in spotting trends is even more in demand. It’s an era where change is happening fast: with everything from new technology that’s reinventing the industry to savings and loans becoming more like banks.

In an interview with the Business Journal, Rubens talks about how the industry will make the jump into the next century.

Q: What will the future of banking be like in California?

A: We are set for a great future. The large, clever ones will succeed. Meanwhile, the small, clever ones will succeed because they can give more personal contact. Banks will be offering more services, from car insurance to annuities, which they haven’t before. There will be conveniences with the use of computers, ATMs, and other technologies. It will be a whole new way to do your business. It’s happening right now, and it’s going to happen with an even greater intensity for the future. For the industry, it means nothing but good things for those that survive the changes.

Q: The industry has been changing rapidly. Do you see the pace of change continuing?

A: Over the next few years, this wave of consolidations and mergers will continue and then level off. It will be followed by an era where numerous new independent banks will be established throughout California to provide a measure of local service that disappeared when all these mergers took place.

Q: What’s the reason for this trend?

A: The whole trend is for bigger and bigger institutions. Larger ones can supply the technology and equipment needed for the new type of banking. Computerized banking and home banking, in particular. It’s hard for the local banks to provide this kind of technology. Also, the largest banks can offer a wide range of products and services. For example, the largest banks have trust departments, and many are selling products like annuities and various investments. They are able to staff these departments with experts, while the smaller banks find it difficult to hire some of these specialists.

Q: What is the future of local banks?

A: Many local bankers that I’ve talked to say there will always be a need for a local bank. There will always be a need to talk to someone in person. When you call a big bank, you are put into voice mail and never talk to a real person. You’ll spend 20 minutes talking to a computer and never speak to a human. People want to talk to a live human, and that’s why I feel there will always be a need for small, community banks that can talk to you in person and can understand your business needs.

Q: How can these small community banks fend off future takeovers?

A: It’s difficult. Many of them have changed their charters to have poison pill requirements making it difficult for hostile companies to come in and take it over. Look at what’s happening now to Great Western. They are doing their best to keep Home Savings from taking them over, and at the same time trying to find a “white knight” to step in.

Q: Savings and loans are becoming more and more like conventional banks. What will be the future of S & L;’s?

A: They are becoming like a dinosaur. At one time in the mid-1980s, there were something like 200 S & L;’s in California. Now, we are below 70 and I fully expect by the end of the year to be at about 50. This trend will continue such that by three or four years there will be very few left. They are currently not very profitable. The regulators took away their ability to make money, so the only thing they can do is to make loans and sell it on the secondary market, or maintain it in their own portfolio. In addition, the whole bank regulatory scheme will be changed nationally in that these S & L;’s will become some form of a bank.

Q: How is this happening?

A: Phase One has already happened with this. The S & L;’s had to recapitalize their insurance fund, which is called the Savings Association Insurance Fund. Phase Two will enable them to eventually become specialized banks. Great Western, for instance, has gone very far into making itself over into the form of a bank. It used to be you’d put your money into a savings account at savings and loan, and they would use that money to make loans with. Now, they are offering different kinds of accounts money markets and other financial instruments. Meanwhile, on the asset side the S & L;’s have been wiped out by mortgage bankers who have caused a reduction in their market share of single-family loans. Mortgage bankers are now going into this, and have become very efficient and are able to quickly establish large shares of the mortgage market. S & L;’s haven’t been able to keep up.

Q: Why are all these changes happening?

A: The whole financial services industry has undergone a revolution. For the first time non- regulated institutions like brokerage firms and investment banks are competing with banks and S & L;’s. From GE Capital to Ford Motor Credit, they are all putting a challenge against the way things used to be done. So, in response, the banks have to move into other areas. Now, they are making mortgage loans, which they didn’t do before. The consolidations mean they are trying to grow, and keep their market share.

Q: How will technology impact doing banking?

A: Already, many large lending organizations have given their loan agents computers and modems so they can hook up to a main frame and do the work quickly. It speeded up the whole cycle. Many of these companies are outsourcing their loan servicing. When I first came into the business, we did things by hand. Now, it’s very rapid and quick and we can get more information at less of a cost. Meanwhile, people are going into banking at home via the computer. My wife pays all of our bills on her computer through electronic checks. Only a small proportion of banking customers are using it now, but I expect that’s going to grow very rapidly.

Q: How will this change a bank’s structure?

A: More and more they are making these services more convenient, and making the traditional branches obsolete. Many of the large S & L; and bank branches will be reconverted into other uses. There will be more supermarket banks. It is all about convenience. It’s a good thing in the sense that they are taking banking where the people go. It’s changing the necessity of having very expensive brick and mortar installations at high frequency traffic points. Soon, you’ll only need a regional office and replace all the branches with ATM locations and supermarkets.

Q: What services will banks be offering that they haven’t in the past?

A: Banks will sell more financial services, like a wider variety of annuities and investment products. Banks will also be selling insurance. Regulations are being more relaxed, and banks are going to have the ability to provide services they couldn’t in the past. These banks will also move into underwriting, and earn as much as 25 percent of their income on this. By their doing, this will create additional sources of revenue. The investment bankers have been becoming banks, and now the wheel is turning full circle.