Hmmm, I suppose lower interest rates by the Fed are really going to help those corporate customers when Bank One decides the relationship isn't "profitable" enough. The anal ysts keep on deluding America as to the value of lowering interest rates. Sure a few people get to refinance there mortgage but if you save any money at all whats the point of earning 2% in your money market. On top of that mortgage rates have risen since the last 2-4 interest rate cuts. Real useful for the consumer. Tuesday July 3, 9:47 am Eastern Time Bank One dropping corp customers that only borrow NEW YORK, July 3 (Reuters) - Bank One Corp. (NYSE:ONE - news) , in a move to improve profitability, is ending ties with large corporate customers that don't bring the No. 5 U.S. bank holding company business other than loans, a spokesman said on Tuesday.

Bloomberg News, citing an internal document, said earlier on Tuesday the Chicago-based bank will stop lending to 318 companies and notify 636 others it might drop them or lend them less unless they give Bank One additional business.

Bank One would not give specific numbers, but spokesman Thomas Kelly said the bank has gone through its list of 1,800 large corporate customers over the past six to eight months to determine which ones bring in the most money.

``We've been very open about it,'' Kelly said. ``There are some relationships that need to become mutually beneficial for us to continue it. If it's a credit-only relationship, there may not be enough return on the relationship for us.''

Other big U.S. banks are also severing relationships with companies that only borrow, unless they they also provide such business as money or cash management. Lending alone is not that profitable for banks because it ties up capital.

Bank One has plans to reduce the $100 billion in large corporate loans and lines of credit it had on its books as of late last year by as much as 15 to 20 percent, Kelly said. Large corporate loans were down to $44 billion by the end of the first quarter from $48 billion at the end of last year.

-- Guy Daley (guydaley1@netzero.net), July 03, 2001

Answers

If a bank is chasing off good loans, it's foolish for the long term, because the jilted companies will think twice about going back when the bank wants to up its volume. And it will, eventually. I suppose the fallout will be good for medium size banks and local lenders. I also suppose it would be unthinkable for bank boards to consider retaining some earnings to build capital, instead of paying out dividends to themselves or hefty bonuses to senior officers.

Reducing the capital-based business makes me wonder if the big boys are getting hammered by their regulators. Given the state of the economy, it seems to me that their loan losses would be up.

-- Margaret J (mjans01@yahoo.com), July 03, 2001.