Big banks enter race for deposits

By MADLEN READ | the Associated Press • Published October 13, 2007

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NEW YORK - Amid all the noise about mortgages going sour and the difficulties banks are having unloading corporate debt, it can be easy to overlook their core business - plain, old-fashioned deposits, the kind Grandma drives to her local branch to make.

They're a huge source of profit, and the battle over them is heating up.

Deposit growth isn't an item banks break out specifically in their quarterly earnings reports, even though it's a big profit pool. Oliver Wyman estimates that last year, $45 billion to $55 billion, or about half, of U.S. bank profits came from individual and small business deposits.

"Given how important deposits are to bank earnings, it's a little surprising," said Aaron Fine, director of the retail and business banking practice at Oliver Wyman, a firm that researches and consults for the banking industry. He noted that Bank of America Corp. is the only major bank that files how much deposits contribute to its financial results.

Big banks such as Bank of America Corp., Citigroup Inc. and JPMorgan Chase still, Bank of America's filings last year indicated that deposits brought in more than a third of its income.

The large banks aren't losing actual deposits, but they've been losing market share to smaller competitors such as Commerce Bancorp, Signature Bank, First Republic Bank and Umpqua Bank, according to Oliver Wyman data. These regional banks have been especially successful in attracting wealthy people and small businesses by offering specialized services and better rates.

In response, the large banks have been ramping up efforts to capture and retain customers. Citigroup last year teamed up with 7-Eleven to put its ATMs in convenience stores, and has been using kiosks in its own bank branches to conduct customer service surveys.

And just recently, Bank of America built a Web site aimed at small business owners, who are particularly sought-after depositers because of how much money they bring in.

Nationally, deposit growth is slowing. It grew 4 percent between the second quarter of 2006 and the second quarter of 2007, after growing 8.6 percent the previous year, according to the Federal Deposit Insurance Corp.