Motley Fool analyst Matt Koppenheffer sits down with Rick Engdahl for a side-of-desk interview about banks. Are they really that hard to understand? Can the big banks be trusted? Join us for a discussion that sheds some light on banks from Citigroup Inc. (NYSE:C) to Wells Fargo & Co (NYSE:WFC), as well as some of the smaller players.
Everyone has heard the horror stories about big bank behavior during the crisis, and the calls for consumers to switch to credit unions and smaller banks. In this video segment, Matt offers his views, including an explanation of how some of the abuses may have come to pass.
A full transcript follows the video.
Rick Engdahl: As someone who’s a consumer looking for a loan these days, it seems to me, just based on conversations I’ve had with neighbors and such, that people are more interested in getting loans from a credit union or from a small bank or a regional bank than from one of the big banks right now, just simply because of the bad PR and the bad taste from the bailouts.
Bank of America Corp (NYSE:BAC) is synonymous with evil right now. There’s just that perception out there that these banks are all bad. Certainly, a lot of it’s justified. There’s a lot of damage done, and there was a huge bailout of taxpayer money.
What do you make of the bad press? Is it lingering? Does it actually have an effect on… is it just my neighbors that are shopping at local banks and credit unions, or is it actually a sizable movement? Does it affect the banks at all?
Matt Koppenheffer: You know, big picture, I don’t think it’s had that much of an effect. I think for a lot of people there’s been a lot of talk about it, but a lot less action.
You had the — I forget exactly — I think it was called Bank-Switching Day or something like that, a couple of years back. It was going to be this whole big thing where people were going to, en masse, move their accounts from big banks to credit unions, and it was a blip. It wasn’t even a blip. People just didn’t do it.
Rick: Switching costs are very high, right?
Matt: Switching costs are very high. When you look at Wells Fargo & Co (NYSE:WFC), for example, one of the areas that it’s been so successful at — and a lot of the banks are focusing on this — it’s cross-selling. Wells Fargo says that its average household, the average Wells Fargo household, has six Wells Fargo products.
When you think about that, if you’ve got your mortgage, your bank account, maybe a college savings account, an IRA, credit card — you’ve got this all with Wells Fargo & Co (NYSE:WFC), and then you’re thinking, “OK, I’m going to unwind all of this and put it with a different institution” — that’s very difficult.
Then also I think to some extent there is a value proposition idea with this. There are a lot of very bad things that the big banks did. I think some of that was… yeah, there were terrible things that they did, in some cases.
In some cases, too, when we look at a lot of the headlines, some of that I think was just the idea that they got so overwhelmed. These are deposit-taking and lending institutions. They’re not businesses set up with the idea of handling massive amounts of foreclosure and default activity. Prior to the crisis, you had a fraction of a percent of loans at the banks that were non-performing, and you had an even smaller fraction that were getting charged off or foreclosed or whatever.