At most banks, it's axiomatic: regulatory reform means higher fees and prices for their customers.
But at least two lenders — Popular Inc. and Huntington Bancshares Inc. — and possibly a third, U.S. Bancorp, are planning to cope with the high cost of regulation a different way. These banks plan to go easy on new fees, outprice competitors on loans and deposits and keep popular giveaways like free checking.
By not nickel-and-diming people, and by publicizing that, the banks expect to ultimately profit.
"Squeezing more fees from customers … there is going to be a backlash," said Manuel Chinea, senior vice president of retail banking with Popular, a San Juan, Puerto Rico, lender with 97 branches in the mainland U.S. "We're moving in the opposite direction."
Popular is sticking with no-fee checking even as others phase it out to replace lucrative overdraft fee revenue, Chinea said. It hopes to take customers from banks that stop offering free checking.
Huntington said earlier this month it is pushing to become one of the most forgiving banks in the country when it comes to overdraft fees. It is waiving charges on small overdrafts while giving customers an extra day to cover balances at no extra cost. It is also undercutting its competition on deposit rates and maintenance fees.
U.S. Bancorp has been coy about if and when it plans to raise prices to offset the impact of regulatory reform, which market watchers say looks like the early stages of a contrarian strategy, too.
The crux of that strategy is to absorb short-term losses, eating the costs of regulatory reform, in order to capture long-term profits.
Go after customers, not revenue. A free checking account is not a big money-maker per se, but a customer relationship can be. Someone is more likely to take out a loan or credit card from the place that cashes their checks. And let others charge the monthly checking account fees, or fees for things consumers have been used to getting for free, like monthly banking statements.
A number of banks have decided to replace "lost fees with new fees. You are seeing it," Stephen Steinour, Huntington's chief executive, said during the Columbus, Ohio, bank's investor day Sept. 17. "We're not."
It is a gamble; reform is going to be expensive. Huntington said it expects to lose $45 million annually in revenue from new restrictions on overdraft fees.
U.S. Bancorp, of Minneapolis, projects $170 million to $190 million in lost revenue from new credit card restrictions alone. But it said during its investor day in September that it wants to study the situation before rushing in with potentially unpopular price increases.
One analyst, Richard Bove of Rochdale Securities LLC, said U.S. Bancorp may be readying a "price war" across the Midwest. It has more loans than deposits. So it has an incentive to raise deposit rates to improve its funding mix, he said.
U.S. Bancorp is already competitive in deposits in its home market of Minneapolis, charging lower insufficient fund charges than big-bank rivals like Wells Fargo & Co. and TCF Financial Corp., according to Bankrate.com, which tracks rates banks offer on loans and deposits. It offers a better rate on interest-bearing accounts than Wells Fargo in Minneapolis.
Bove said it has the financial strength to undercut its rivals on loan prices.
Anthony Davis, managing director with Stifel, Nicolaus & Co. Inc., said investors and analysts are becoming comfortable with the "certainty" that regulatory reform will translate into more expensive banking services. That has been the message coming from leading industry executives such as JPMorgan Chase & Co. CEO Jamie Dimon. In discussing the impact of regulatory reform costs on banks, he said on Sept. 14 that banks were "going to have to charge" for other things to "earn it all back."
Davis said banks like Huntington are shaking things up by indicating that they may take another approach.
He said some institutions may use "price" as the "weapon of choice now as we get into the next phase of the recovery."
"That opens the question: Is this going to be a shoot-out?"
Huntington, for one, seems ready for a fight, Davis said. It does not charge a fee for overdrafts of less than $5, which is unusual. It is also still offering free checking in its home market of Columbus, while big rivals like JPMorgan Chase do not. Its insufficient fund charges for new accounts in Columbus are also lower than those of JPMorgan Chase and another big rival, PNC Financial Services Group Inc., according to Bankrate.
Mary Navarro, who runs Huntington's business and retail bank, said the company is trying to bring in more customers by charging them less. "It will further distinguish us from other banks, many of whom will have to raise fees, cut rewards programs and make unfriendly customer moves," she told investors Sept. 17.