Big banks target Twin Cities in a small way, for now

Banks today branch out without branches.

An industry that appears to be one of the most calm and mature in the American economy is actually in quiet upheaval. Technology allows consumers and businesses to do more financial work without directly working with bankers. With capital abundant, interest rates low and regulatory scrutiny still relatively high, the competition among bankers to win the right business is as intense as ever. But reaching out for that business no longer requires putting a branch in every neighborhood or suburb.

In the Twin Cities — a market served by three large banking firms, a few midsize ones and dozens of small family-owned or community-focused banks and credit unions — the entry of two of the nation's biggest banks, Bank of America and PNC, over the past year illustrates not just the tactical change but also a broader push for national reach.

"What is new for us is the answer to 'do we need a branch network to launch our corporate and wealth services into a new market?' " William Demchak, PNC's chief executive, said on a recent visit to Minneapolis. "And that answer is no."

Bank of America's presence in the Twin Cities has evolved over the past two years from a couple of ATMs to a handful of branches, two of them with no people, only videoconferencing, inside. But from an office in IDS Center, the company has also built up commercial banking services, aiming at the same market opportunity that PNC has targeted.

Katie Simpson, the company's Minnesota president, said the company is committed to a long period of establishing itself in a market dominated by Wells Fargo and U.S. Bank. "There is a trust you have to build," she said. "We're going to have this intensity around growth for what could be 20 to 25 years."

Until the 1980s, American banks were confined to offering services within states, rules that left every metro area and state with a handful of big banks that were part of their hometown or regional identity.

Interstate banking started in the late 1980s when regulators in a few states started allowing out-of-state banks to acquire institutions in their state. A 1994 federal law allowed it across the country, triggering waves of mergers that brought U.S. banking to where it is today, with four giant banks, roughly a half-dozen so-called "super-regionals" and thousands of smaller banks.

In some ways, all the deals over the two decades changed names and signs, but not the complexion of local banking scenes. Big firms that were hometown champions before interstate banking remained big. For instance, Wells Fargo and U.S. Bank are descendants of the companies, Norwest and First Bank, that led Twin Cities banking in the 1980s.

Now those hometown champions, like PNC was in Pittsburgh or Bank of America was in San Francisco, are moving into cities they didn't reach during the deal-making waves of the last 20 years. And they are mainly doing it with lines of business that ordinary consumers don't see, such as commercial and corporate lending, wealth management and investment services.

Minneapolis-based U.S. Bancorp, parent of U.S. Bank, the largest of the super-regionals, has retail bank branches in 25 states but offers other types of services in all 50. Over the past year, the company expanded its middle market commercial banking operations by adding teams in Dallas, Charlotte and Orlando. Its wealth management business has also grown.

Banks around the country have pruned their branch networks as customers began visiting them less often as deposits and withdrawals became automated and even some complex dealings, such as arranging a mortgage, were simplified by online and mobile technology. Wells Fargo, for instance, has said it will close about 450 branches this year and next; it now has 8,500 branches and other offices.

That's left banks to juggle the role of branches and retail banking as they move beyond their traditional territories organically rather than through acquisitions.

Ten years ago, Demchak said, banks may have needed the marketing boost that a retail presence provides in order to build commercial services in a new market. But there are now other ways to become known.

For instance, the nation's biggest bank, JPMorgan Chase, has no retail presence in the Twin Cities. But its top executive, Jamie Dimon, visited corporate customers here in August during a heavily promoted bus tour of the Upper Midwest.

For PNC and Bank of America, the Twin Cities entry began with a lift from affiliates that were already operating in the market. PNC owns Harris Williams, a deal advisory firm with a local office. Bank of America also owns Merrill Lynch and U.S. Trust, firms that have long had offices here.

Bank of America tapped Larry Kloth, who led the Minneapolis office of Merrill Lynch, as Minnesota president when it started banking services here last year. Simpson arrived from Chicago to start the commercial bank, then succeeded Kloth when he retired earlier this year.

PNC hired Kate Kelly, a former top executive at U.S. Bank, Bremer Bank and Minnesota Bank & Trust who is also on the board of the Federal Reserve Bank of Minneapolis.

Kelly said she was drawn in part by the chance to build something from the start.

Both PNC and Bank of America also relied on philanthropic work to introduce their brand and bankers in the Twin Cities. PNC nationally focuses on early childhood development issues and Bank of America has worked on environmental matters, specifically those involving water scarcity and quality.

"It's not flashy. It's not big advertising," Demchak said. "But you do it long enough and people realize we're serious about the community. And gradually, we get invited in."

The two banks already have Minnesota-based companies as customers in other parts of the country. Executives at both portrayed opening local offices as a natural progression with modest expectations.

"We have a huge emphasis on responsible growth," Simpson said. "We always ask ourselves, 'What is sustainable?' "

"We have perfect willingness to bide our time, choose the right clients, prove our worth to them through time and get business," Demchak said. "That's worked for us throughout the country."

Evan Ramstad • 612-673-4241