Wells Fargo's impending purchase of Wachovia is the latest proof that the country's roster of major banks is shrinking. And consumer advocates worry that fewer competitors will translate into higher prices for consumers.
In the last few weeks, banks that were already giants have gotten even bigger. Charlotte's Bank of America signaled its intention to buy investment firm Merrill Lynch. New York's JPMorgan Chase bought up Washington Mutual, which was the country's largest savings and loan, after snapping up brokerage Bear Stearns in March. And as the credit crisis continues, more banks large and small are bound to shut down or merge to survive.
“Obviously, this hyper-consolidation … is going to result in higher prices for consumers – that's antitrust law 101,” said Matthew Lee, of New York-based watchdog group Inner City Press/Fair Finance Watch.
For example, Wells Fargo and Wachovia were both known for offering relatively high interest rates on deposits as a competitive tactic. In an earnings call Monday, Bank of America chief executive Ken Lewis noted how he was pleased that his bank won't have to compete on that front any more. WaMu and Wachovia, he said, were “a huge outlier” on rates. Chase and Wells, by contrast, are “very rational pricers.”
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“We have fewer and fewer national banks controlling the banking services that are offered to Americans,” said Travis Plunkett, legislative director of the Consumer Federation of America. “They might argue that they can offer lower prices because of economies of scale, but we haven't seen that happening.”
Plunkett added that Wachovia's being bought out is better than its failing. And Nancy Atkinson, a senior analyst at the Aite Group, says that consumer rates will be impacted more by market turmoil than by industry consolidation. Wells Fargo doesn't want to drive away Wachovia's customers, she added.
Lee is wary of Wells Fargo's request that the Federal Reserve expedite the approval process for its purchase of Wachovia.
The Fed usually holds hearings to allow for public comment for such major deals, but Lee wondered Friday if the Fed would dispense with that step.
“I wouldn't put it past the Fed to try to cut off public process,” Lee said. “They did it on Morgan Stanley's and Goldman Sachs' ‘applications' to convert to bank holding companies.”