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THE SORT-OF-FREE LUNCH. American banks are finding it harder to grow, so many are looking for ways to cut costs. Help comes from U.S. depositors, whose willingness to lend funds for little or nothing is driving a rush to the retail-banking buffet.
Take the merger between two lenders announced on Monday. New York Community Bancorp’s (NYCB.N)bid for $2.5 billion Flagstar Bancorp (FBC.N) is partly motivated by the smaller bank’s non-interest-bearing deposits, which are cheaper than its own funds. Those balances will make up 21% of the merged company’s liabilities, versus 10% at New York Community now.
The larger bank’s chief executive, Thomas Cangemi, isn’t alone in chasing an almost-free lunch. Goldman Sachs (GS.N) and Morgan Stanley (MS.N) have both been loading up on low-cost customer balances, through their retail bank read more and brokerage businesses respectively, with happy results for their profitability.
The sweet spot comes when a firm swaps expensive funding for the cheaper kind. For banks already awash in retail balances, inflows bring new headaches, like deciding where to invest it all. But with thousands of small banks in the United States, and some big retail franchises coming up for sale read more , there’s a feast to be had for those whose plates aren’t already full. (By John Foley)
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