To hear some tell it, the decision by Bank of America (NYSE:BAC) to cancel its planned $5 debit card fee was a consumer victory. But while an outcry over the Bank of America fees led to backpedaling, don’t think for a second that banks aren’t going to get theirs.
A recent New York Times article does a great job explaining in detail some of the nickel-and-dime fees that are being added right under your nose. “Banks would need to recoup, on average, between $15 and $20 a month from each depositor just to earn what they did in the past,” according to research and interviews conducted by the Times.
Getting to that $20 mark is going to involve a host of kinky methods. Take a 50-cent charge for mobile phone deposits, courtesy of U.S. Bancorp (NYSE:USB). Or Bank of America charging $5 for replacement debit cards — a clever workaround. Canadian financial giant TD Bank (NYSE:TD) has announced a steep $9 transaction fee for anyone who withdraws money from their savings account too frequently.
The list goes on — and that’s on top of overdraft fees, ATM fees and other charges that are creeping up at banks everywhere.
The trouble is, many of these moves aren’t as high profile as the BofA debit card fee, so you may not know about them unless you read the fine print. Also, most are specific to one bank or another and don’t garner the publicity like the Bank of America fee that was planned alongside other attention-getting debit card charges from JPMorgan Chase (NYSE:JPM) and Wells Fargo (NYSE:WFC).
Setting off alarm bells
The reasons for the moves aren’t a mystery: Financial stocks are rushing to prop up profits lost due to sluggish lending, the continued drag of bad mortgages and business limits, thanks to stricter regulations. The result has been a push to drum up new revenue streams via fees and to raise capital — the highest-profile move of late being a $5 billion buy from Warren Buffett and Berkshire Hathaway into preferred shares of BAC stock.
The most disturbing thing is that the recent rash of fees may be only the beginning. The continued dumping of assets to raise capital should set off plenty of warning bells as a sign financial institutions are only going to get more aggressive.
Consider that Bank of America announced on Monday that it will sell most of its remaining holdings in China Construction Bank to raise $1.8 billion. That’s on top of a previous sale of some of its stake in the Chinese bank that raised $8.3 billion. Citigroup (NYSE:C) also recently agreed to sell EMI Group’s recorded music and publishing businesses in separate transactions for a combined $4.1 billion.
True, divesting so-called noncore assets is a decent strategy for banks as they try to move away from tangled operations and back into the world of savings accounts and lending. But the bottom line is that bank leaders will not let wildly profitable noncore operations fade away without something to replace the lost revenue and profits.
Dumbest move ever?
Adding to the trouble is that you simply can’t trust bank earnings these days, after last quarter’s accounting tricks to show profits even while revenue remained very weak. It also remains difficult to see what the sovereign debt woes in Europe — and in the U.S. for that matter — will do to financial stocks with exposure to government debt. I personally think the congressional supercommittee will fail and markets will crash after Thanksgiving. Banks like Citi and BofA are verging on panic as they rush to stop the bleeding, prepare for hard times ahead and hopefully right their struggling operations.
You may think that gouging customers with fees is the dumbest move ever, and that customers will simply defect to local credit unions or other low-price options. That may be true. But the MF Global bankruptcy continues to prove that financial firms are still willing to blow themselves up in pursuit of bigger profits and better-looking quarterly reports to show Wall Street.
Unfortunately, bank customers are just more meat for the grinder as they wind up forking over higher fees.
Jeff Reeves is the editor of InvestorPlace.com. Write him at editor@investorplace.com, follow him on Twitter via @JeffReevesIP and become a fan of InvestorPlace on Facebook. As of this writing, he did not own a position in any of the aforementioned stocks.
