Chase bucks branches trend

Chase, the US’ largest bank by market cap and deposits, is set to become the largest bank by branches for the first time.

Chase will expand its branch network by up to 400 new outlets in the next five years, in direct contrast to its local and international retail banking peer group.

These new branches will directly employ about 3,000 people.

Chase currently operates around 5,200 units across 23 states, serving 61 million US households across its Consumer & Community Banking franchise.

“The heart of our company is our retail branches,” says Gordon Smith, CEO of Consumer & Community Banking, Chase. “We are a leader in 23 states, but aren’t yet in major markets like Washington DC, Boston, Philadelphia, and many others. Now that we are planning to expand into new markets, we will hire thousands of new employees and help consumers and small businesses in these areas.”

The branch expansion programme forms part of a $20bn investment programme announced after release of Chase 2017 full year earnings.

The $20 billion investment will focus on a number of areas:

  • Investing in employees with further increases to wages and benefits. Wages will increase 10% on average—ranging from between $15 and $18/hour—for 22,000 employees;
  • Small business lending and philanthropic investments, and further support for local low-and moderate-income communities;
  • Increasing community-based philanthropic investments by 40% to $1.75bn over five years;
  • Increasing small business lending by $4bn, and
  • Accelerating affordable housing lending by increasing mortgage lending in low-and moderate-income communities and accelerating commercial lending to build affordable housing.

In the fourth quarter of fiscal 2017, Chase’s retail focused Consumer & Community unit generated $2.6bn of net income and an ROE of 19%. It continued to grow core loans, up 8% year-on-year, driven by Home Lending, up 13%; and Business Banking, Card and Auto loans and leases were each up 6%. Consumer deposit growth was strong, up 7%.

CEO Jamie Dimon told analysts: "We're a bank. We're supposed to help support and grow communities. And it will enhance our growth in the future, too, by the way."

Of the major US retail banks, Chase has consistently been the most vocal in support of the branch channel. Last October, Chase CFO Marianne Lake, told analysts:

"Branches still matter. 75% of our growth in deposits came from customers who have been using our branches. I know that all sounds like old news, but it’s still new news or current news, so the branch distribution network matters."

Customer preferences are changing and we are not being complacent to that. So net for the year, we’ll be down about 125 branches. We’ve closed more than that, consolidated some and added some, so we’re not being complacent to the consumer preference story, but branches still matter a lot and we’re building out all of the other sort of omni-channel pieces, as you know, so that we have the complete offering.

Around one-quarter of Chase’s branches are in lower-income communities. Smith said each such branch supports about 6,000 families and about 450 small businesses.

Wells Fargo remains the largest US bank by branches, with just over 6,000 outlets, down from over 6,500 in 2010. Chase’s network in the same period has remained broadly flat.

Bank of America axed 150 units in 2017 and has closed over 1,400 branches, almost one-in-four if its units, since 2010.

Regions, PNC and Capital One all reduced their branch networks by at least 100 branches in 2017.

Capital One has been the most aggressive, axing 146 units last year reducing its network by 18% from 811 to 665 units.

One in three Capital One branches have closed since its network peaked at 991 outlets in 2010.

Georgia-headquartered SunTrust has shuttered 8% or a net 114 outlets in the past year, reducing its network to 1,311 outlets.

Since the financial crisis, SunTrust branch numbers have declined by 25% from a peak of 1,759 branches in 2008.

Alabama-headquartered Regions also ramped up its branch rightsizing, with a net reduction of 107 units or 7% of its outlets.

It now operates 1,492 branches, down from a peak of 2,087 units in 2007.

In total, there are now 80,638 FDIC-insured commercial bank branches in the US, down from a peak of 83,600 as recently as 2012.