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Monday, Aug 15, 2022

Lenders Left at a Loss

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.

You may have heard that the Royals’ playoff drought lasted 29 years – the longest of any professional team in North America. But you may not have heard this: That drought was caused, in no small part, because they changed the stadium. Let me explain.

Ewing Kauffman bought the baseball team as a civic gesture. He didn’t know much at all about the sport, but he loved a business challenge, and his was immediate: How can you make a small-market team competitive? He quickly concluded that it was folly to try to be like other teams; he figured he could manufacture a low-cost competitive edge.

First, he decided to forego the expensive home-run hitters and build a team of slick-fielding, fast-running spray hitters. In other words, inexpensive players.

Then he decided the stadium would be the big difference, especially the surface. It was described as artificial turf but players complained it really was like a parking lot covered with thin outdoor carpet. It was the only such surface in the major leagues, and Kauffman’s spray hitters saw their batting averages soar, thanks to the bouncy surface. The outfield fences were deep and high, neutralizing visiting home-run hitters.

Kauffman (who remains the best human I ever met) wanted his players to run. And they did. Bases were stolen and doubles became triples. For a span, the Royals had more inside-the-park home runs than regular ones. Even one of their catchers, John Wathan, stole 36 bases in 1982 – still a record for catchers. And Wathan fractured his ankle that July.

The Runnin’ Royals were nearly unbeatable at home for a glorious span from the mid-1970s through 1985, the year the team won the World Series.

But alas, things change. Kauffman (who endowed the Kauffman Foundation) died in 1993. The team replaced the hard artificial surface with real grass in 1995 and for time, moved fences in. The team’s long swoon has many causes, but one big reason was that it lost what Kauffman gave them, tried to be like other teams, and suffered for it.

It’s good to see the Royals have embraced the running game again. Now, if they’d only pave over their stadium surface again and get a few more fast-running spray hitters, the Royals would hector the Angels for years to come.

Charles Crumpley is editor of the Business Journal. He can be reached at ccrumpley@labusinessjournal.com.


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