A banker for 32 years, Walter E. Grady has seen big changes in the industry, from peers giving depositors free toasters to computers allowing consumers to transfer money from one account to another from home.
But Grady, president and chief executive at Seaway National Bank of Chicago (No. 2 on the B.E. Banks list) now faces a far more dramatic industry change. As a result of recent banking legislation, he and other executives at black-owned banks must now compete in a newly deregulated environment.
Called the Gramm-Leach-Bliley Act, the reforms, which President Clinton signed into law in November 1999, lifted Depression-era barriers between banks, insurance companies and stock brokerage firms, allowing each to freely expand into the others’ businesses (see “More Bank for Your Buck?,” May 2000). The new law repealed the Glass-Steagall Act, which had separated the functions of commercial and investment banks since the Great Depression.
The historic overhaul is expected to drastically change the financial landscape for black-owned banks, which now serve millions of individuals and hold billions of dollars in assets and deposits in major cities nationwide.
NEW WAVE OF MERGERS
The removal of laws that blocked banks, investment firms and insurers from entering one another’s domain is expected to fuel a new wave of mergers, accelerating the brisk pace of deals seen in the past decade.
For example, from 1995 to 1999, there were 2,236 bank and thrift mergers and acquisitions worth nearly $579 billion, vs. 1,963 such deals worth about $89 billion from 1990 to 1994, according to SNL Securities, a Charlottesville, Virginia-based financial research firm. The deals’ values rose significantly in the past four years as larger banks gobbled up each other, setting the stage for more consolidation and a transformation of traditional banks into full-service financial companies.
“This new law will spur numerous new business combinations as financial services companies vie to become one-stop financial providers,” says Joe Gladue, an equity analyst at The Chapman Co., a black enterprise investment bank based in Baltimore. “Most of the attention will fall on the giants in the three industries and mirror the Citicorp-Travelers combination, but there also will be numerous combinations among the smaller players as well.”
Black bankers and industry experts expect the law-along with more financial providers going after the same customers, changing demographics and the surge in Internet banking-will prompt them to form alliances with insurance companies and investment banks, expand their offerings and possibly combine operations in some form to survive and become more competitive.
STIFF COMPETITION AHEAD
But black-owned banks better get with the program. Already they’re beginning to face stiff challenges from larger institutions taking advantage of the law. For example, in February, E*Trade Group, a Palo Alto, California, online stock-trading service, completed its $1.8 billion stock acquisition of Arlington,
Virginia-based Telebank, an Internet-only bank with $2 billion in assets. That deal is the first merger of its type to combine an online broker with an online bank. It also will provide E*Trade with an opportunity to offer one-stop shopping to millions of U.S. consumers electronically. It’s these