Occupy Wall Street has persisted for far longer than many expected, with cities across the country joining the fight against major banking institutions on a daily basis. The original New York crew even has toilets now, but while portable bathrooms can be an effective measure of legitimacy, success in enacting change may be a more important metric for investors.
The goal of OWS from the beginning has been to topple the financial institutions they believe have poisoned the U.S. economy, and Bank Transfer day has been the most concrete example of measurable progress. While the exact number of customers that left their banks on Saturday and into the week will not be counted until the end of the month, the flood of individuals into credit unions and smaller banks was considerable according to many of the institutions.
So will Occupy Wall Street have achieved its goal and will major banks from Bank of America (BAC) and J.P. Morgan Chase (JPM) finally suffer the punishment many feel they deserve for their involvement in the 2008 financial crisis? The answer looks to be no, or at least not yet.
The fact of the matter is that the number of individuals choosing private credit unions over their traditional banks matters far less than the amount in their accounts. The large majority of customers who gravitated toward credit unions tend to be unprofitable for major banks as a result of their minimal balances and the limited number of financial products they purchase. Additionally, account maintenance expenses at banks like J.P. Morgan mean that the exit of these customers may actually be a boon for banks rather than bite into their bottom line.
Historically, banks attempted to recoup account maintenance costs with overdraft fees and other additional charges. The financial crisis; however, prompted a Federal crackdown on such charges that have put those costs back on the banks. The recent effort to lay a monthly $5 expense to debit card users in an attempt to mitigate some of those costs, was widely reviled, leaving banks to bear the burden once again.
While some are crediting the outspokenness of Occupy Wall Street protesters for the swift charge reversals, and citing it as an example of the movement’s impact, it actually detracts from the value of their Bank Transfer Day efforts.
Major banks spend an average of $400 annually on maintaining a single debit card account. The account transferring on the basis of the $60 annual fees doesn’t cost banks $60 but saves them as much as $340. While customers with higher account balances allow banks to make money by investing savings dollars or from spending on financial instruments Occupy Wall Street members in many cases are in the category of customer that keep relatively little in the account.
Investors considering whether it may be worthwhile to consider moving some money from the major banks to smaller, community banks from PNC (PNC) to Huntington Bancshares (HBAN), may also want to reconsider. It will cost the credit unions roughly $175 per year per account for the new customers, potentially biting into their bottom line. Additionally, the free checking services at these banks may not be able to continue if the burden of account maintenance costs becomes too high.
This perhaps answers the questions of whether Occupy Wall Street has had a notable impact on banks from Goldman Sachs (GS) to Wells Fargo (WFC). In the last month, Goldman has added over 13 percent to its share price. Bank of America, perhaps the most widely discussed and reviled by Occupy Wall Street, has tacked on 7 percent. All comparable major banks are on a similar trajectory.
The fact of the matter is that those customers whose exits would have a negative impact on banks are the same that employ the financial tools offered exclusively by mega cap institutions. While it’s difficult to call Occupy Wall Street a failure given the manner in which it has risen awareness about dangerous financial practices at the major banks, it may actually help the aforementioned banks cut costs in the coming quarter.
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