Two Banking Models Emerge Post-Meltdown

(MoneyWatch)  Two distinct banking models seem to emerging from the mess of the financial meltdown. Neither one is particularly new.

One model, followed by Citigroup, JP Morgan Chase & Co. and Bank of America, is to be a behemoth that is all things to all customers -- retail, commercial, investment, global and so on.

The second model that seems to be forming is one advocated by some strong, healthy and powerful regional banks such as Wells Fargo & Co. and U.S. Bancorp. It might as well be defined as the old Waylon Jennings country song that urges us to "get back to the basics of life." Outlines of this model include making customers king, drawing in deposits, avoiding glam investment schemes and being very conservative in making loans.

To be sure, there appear to be problems with the first approach. As Citi's woes have shown, it is hard to manage a huge, far-flung, multi-faceted organization. Bank of America, for example, already was a major banking power when it agreed to acquire troubled Countrywide Financial and Merrill Lynch. As any analyst can tell you, mega-mergers such as these are hard to swallow and come with lots of negatives such as BofA's announced 35,000 layoffs.

And, you can't run sensitive financial operations as if you are making lightbulbs or train locomotives like General Electric. I know a former BofA bank official who quit because he could not stand BofA CEO's Kenneth Lewis's aping General Electric intense focus on quality through "Six Sigma" management. That's fine if you are making widgets, my friend told me, but it's not so good when you are dealing with personal business relationships.

To be sure, the U.S. finanical community needs mega-players, but someone the ones that seem more likely to see success are the healthy regionals. The model in this case involves doing basic banking well and not trying to be all things to all people.

A few examples: Wells Fargo is a sturdy player in the West and MidWest and parts of the Northeast. By snaring away Wachovia from Citi, it will gain plenty of new markets in the South and will take over Wachovia Securities, the North Carolina bank's investment arm. But that's as far as it will go, according to John G. Stumpf, Wells' CEO. He won't be buying any other investment banks.

Reflecting its strong Midwestern sensibilities, Minneapolis-based U.S.Bancorp wants to grow but is more interested in depth than breadth, according to chairman and CEO Richard K. Davis. Add to the list PNC Financial, which is taking over National City in Cleveland. Here is another regional player so strong that it has been shunning federal bailout aid.

And there are community banks, many of which are plenty powerful in their small markets. They, too, wonder why there's all the hullabaloo about bank failures when they have simply done their jobs and done them well. They easily fit in the "back to the basics" category as well.