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Amazon will own the world


bostonangler
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America’s regional banks are preparing to defend their turf.

Amazon.com Inc., already a lender to small businesses, is now in early discussions to create a product for retail customers similar to checking accounts. The tech giant’s ambitions could prove especially challenging for regional lenders, which rely more heavily than larger Wall Street firms on providing basic banking services to consumers.

Amazon is getting more active in “areas of focus for us and our investment,” U.S. Bancorp Chief Financial Officer Terry Dolan said in a telephone interview. “We anticipate that in the payments space we are going to have to be even more digitally focused,” said Dolan, whose company is the biggest U.S. regional bank.

 

In interviews about the industry’s first-quarter results, Dolan and his counterparts at other banks say they’re also getting ready for Amazon by beefing up partnerships with financial-technology startups or pursuing outright acquisitions.

Ohio’s KeyCorp has a technology-investment budget of a “couple hundred million” dollars, and will deploy it in areas such as payments and financial wellness, Chief Executive Officer Beth Mooney said.

Fifth Third Bancorp, based in Cincinnati, has been using its venture-capital arm to make investments in fintech startups such as those that connect teens with debit cards or help finance student loans.

 

Here’s a look at other major themes from the quarter:

Lending Growth

Total loans at the 15 largest U.S. banks climbed 2.8 percent in the quarter compared with a year earlier, the fastest growth in a year, according to data compiled by Bloomberg. That’s a departure from recent quarters, when regional lenders had lamented that corporate customers were paying down more of their loans.

“We see demand for working capital, inventory builds, additional receivables as well as property and planned equipment,” said Stephen Steinour, CEO of Columbus, Ohio’s Huntington Bancshares Inc. “There’s a lot of underlying positive economic impact, and tax reform just widened the lens."

 

Capital Markets

Regional banks also saw a pick-up in capital-markets fees during the quarter, led by gains in equity and debt underwriting. That differed from the five biggest Wall Street banks, where combined investment-banking revenue slipped 3 percent during the first three months of the year, according to data compiled by Bloomberg.

“In real America, companies are buying and selling in that middle-market space, and that’s where we’re positioned,” said KeyCorp’s Mooney, whose firm posted investment-banking and debt-placement fees that were the highest for any first quarter in the bank’s history. “When we look at our regional peers, they tend to have one or two capabilities, not the whole set of capabilities that we have.”

Big Banks

The activity from middle-market companies is attracting another new competitor for regional banks -- Goldman Sachs Group Inc. Wall Street’s top-ranked merger firm is sending bankers to smaller towns across the U.S. and in Western Europe to expand that business. Bank of America Corp. and JPMorgan Chase & Co. have also said they have a renewed focus on smaller corporate customers.

Executives at regional banks say they’re confident they’ll continue to win business, citing their sustained presence in local markets and longstanding relationships.

“If we do a great job with our customer, then it’s very hard for someone else to come in between us and that customer,” said Bruce Van Saun, CEO of Citizens Financial Group in Providence, Rhode Island. That holds true “whether it’s a tech company trying to disrupt that relationship or a money-center bank opening offices” in our markets, he said.

More from Bloomberg.com

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