JPMorgan Chase & Co.'s push into California is a blessing or a curse, depending whom you ask, but it is definitely having a competitive impact.

Some community bankers say the New York financial giant's post-Washington Mutual expansion is fueling price wars, mostly in small to midsize business lending involving real estate, that could make it hard for them to survive.

JPMorgan Chase, some analysts and even some rivals argue the opposite: that the country's second-largest bank by assets will exert a stabilizing force on the region's loan and deposit rates. JPMorgan Chase competes hard but not recklessly, something that could not be said of Wamu, the failed Seattle thrift company it took over in 2008, they say.

One point of agreement: JPMorgan Chase's California ambitions cannot be ignored. It lacked a retail presence in the state before buying Wamu. Now it is opening branches at a remarkable pace and recruiting new private, business and relationship bankers to staff them.

"It is going to increase competition. It's good for borrowers — that's clear," said William Schwartz, senior vice president of financial institutions for the ratings agency DBRS.

"It's good for [JPMorgan Chase]. Whether it will be good overall for the banks? That's a good question. Maybe not. It could lower [loan] yields."

The 5,300-branch lender's growth plans hinge on taking business and consumer customers away from smaller institutions, as well as from Bank of America Corp. and Wells Fargo & Co. B of A is the state's deposit leader, with about 26% of the market, and Wells is No. 2, at 19%. JPMorgan Chase has 7%.

Smaller institutions say they are feeling squeezed as another megabank enters the fray.

"I see all the ads. …They can put up as many branches as they want," said Russell Colombo, president and chief executive of Bank of Marin Bancorp, a community bank with 17 branches and headquarters in Novato. "It will have an impact. There is no question about it."

Late last year, JPMorgan Chase opened a branch about a block away from a Bank of Marin office in downtown San Rafael. Is it making his life more difficult?

Declining to finger JPMorgan Chase specifically, Colombo said stiffer competition from big banks in general is hurting his institution's bread and butter: extending mortgages, working capital or other loans of about $500,000 to $3 million each to small companies north of San Francisco.

Advance rates on real estate loans are being increased, Colombo said, and terms are being extended — in some cases to unreasonable lengths like 20 years. That kind of term was unheard a year or two ago, he said.

"It is larger organizations that are being undisciplined," he said. "You can come up with a list. … They're all here."

B of A, Wells and U.S. Bancorp are also courting small businesses in California. Wells is the state's leading provider of Small Business Administration loans. B of A recently recruited 110 small-business bankers in the southern part of the state and said it plans to hire another 70 this year.

JPMorgan Chase has been pegged by in-market rivals as particularly aggressive, a reflection of its hard-charging sales culture as well as the fact that in California it has been establishing a huge business bank from scratch. Wamu was primarily a home lender, though it had begun dabbling in commercial lending two years before it collapsed.

JPMorgan Chase in the past year began offering lower rates to small businesses that promise to hire people. It hired 250 new business bankers in Wamu territory in 2010, and intends to hire just as many this year. It aims to have 900 offices in the state by yearend; Wamu had 700.

Small and midsize businesses still use branches frequently, though consumers are visiting them less often because of mobile and online banking. The steady corporate traffic is a key reason it keeps investing in new offices.

"They're still going to have to drop off their coins, and their currency," Jamie Dimon, JPMorgan Chase's chairman and CEO, said at a conference in New York on June 2. Later he said: "We're building a commercial bank [in California]. They didn't have one."

Donald P. Johnson, president and CEO of American Business Bank in Los Angeles, said his company has not competed directly with JPMorgan Chase for business loans. The stiffest competition from big banks involves unsecured and real estate secured credit lines of at least $10 million, and his institution focuses on smaller loans, he said.

Large banks are winning the bigger business because they can afford to offer lower prices, Johnson said, since their priority is acquiring a new client that will buy other services. "Once you cross a certain threshold and they're in there, it doesn't matter what the price is," he said. "They will come in with guns blazing and do whatever it takes."

He predicts JPMorgan Chase and other big banks will eventually retreat from business banking because they can only lower prices for so long. Eventually the spread disappears.

Johnson said there is a constant tug-of-war between large and small banks that tends to intensify during downturns.

"I've been doing this for almost 40 years and I have seen — every so many years — pick a big bank: 'We're going after whatever it is.' Then they disappear," Johnson said. "There is this big flurry and you never see them again — it just has been happening ever since I've been in banking."

Charles Scharf, head of JPMorgan Chase's retail bank, said his company is winning new business clients because its scale and breadth of services are attractive to customers. It is not just about price.

"We compete on the quality of the products and services and advice that we can give people," Scharf said in an interview. "There are times when because of the economies of scale we might be able to pass on a better price to customers."

A lot of small-business owners do their personal banking with the company, Scharf said, so it has a natural opening for deepening the relationship. "We can offer a lot more to those customers than a smaller bank can," he said. "We can deliver all of JPMorgan's products."

His take on what JPMorgan Chase's expansion means for the state is that "It's good for everyone, it's good for the economy. In any industry if a quality player enters the marketplace it's a good thing."

Brian Foran, a managing director and banking analyst with Nomura Securities International Inc., said most institutions he covers "actually like having Chase being in the market."

"When it was Wamu, you always had to worry about irrational pricing," Foran said. "With Chase, at least you can always count on them as being very rational."

He hears gripes about the New York company's pricing, particularly from smaller institutions. But it is exploiting its competitive edge, he said. "Chase can usually be a little bit more aggressive on loan pricing, because they have so many other products they can make money on," Foran said. "Chase is pricing the relationship, whereas the small bank is just pricing the loans."


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