Several big banks have reported their earnings over the past week, and the results aren’t pretty: JP Morgan Chase & Co. had a 23% drop in profits, Citigroup’s fell 11% and regional bank PNC Financial Services Group suffered a 40% drop. While this kind of news primarily gives heartburn to investors and bank executives, consumers also have cause for concern: They may have won a significant victory over fees in last year’s disastrous attempt by Bank of America to implement a $5 debit card fee, but will banks’ poor earnings turn 2012 into the Year of the Fee?
“A lot of the earnings problems are coming from weak revenue on the investment banking side of the business,” says banking consultant Bert Ely. “I don’t think much of the pain there is going to transfer over to the retail side of the business.”
That’s the good news. The flip side of that is that banks are at the same time grappling with a continued streak of record-low interest rates, which impacts the side of the business that handles customer deposits. “They will attribute value to those deposits that bears a relationship to market interest rates. The problem is that it’s not going to end anytime soon,” Ely says.
This could drive banks to raise fees, says Mike Moebs, CEO and economist at financial research company Moebs $ervices. ”We are going to see and we have already seen in our research that prices for fees have gone up, in some cases appreciably,” he says. Overdraft fees are one example. After rising steadily for the last several years, overdraft fees shot up by $2.50 in the space of just five months last year, an unprecedented rate of increase, Moebs says.
Overdraft fees now average $30 a pop, and other fees are on the rise, too. Moebs says costs for less-visible services like cashiers checks and safe-deposit boxes have recently climbed.
“We’ve seen application fees for loans get to where they’re mandatory, and nonrefundable in some cases,” Moebs says. In some cases, he warns, these fees are folded into the loan processing documents, a strategy designed to earn more for the bank without ratcheting up the APR — and potentially scaring off customers. In this case, a consumer just focusing on the interest rate could miss an expensive part of the picture. Moebs says consumers are going to have to be extra vigilant to avoid these fees and read the fine print of their loan documentation to unearth fees buried in the paperwork.
Both analysts say banks will be continuing to explore tactics some began implementing last year, such as raising minimum balance requirements or requiring customers to have more than one deposit or loan account in order to have fees waived. They’re more likely to charge for higher-priced options such as paper versus electronic delivery of statements.
Ely says banks also will respond with cost-cutting measures such as closing branches. In fact, the Wall Street Journal reported last week that Bank of America might pull out of some markets, calling the move a “possible geographic retrenchment” in light of the lower earnings potential of smaller towns or cities compared to larger metropolitan areas.
“The number of branches has dropped a little bit over the past couple of years, and I think we’re going to continue to see that,” he says. So even if you manage to avoid being nickel-and-dimed by your bank this year, you might have a longer trip to get to a branch.