[roymurdock]

This is fascinating - I had never thought about commercial banks making obfuscated investments in real estate by opening branches in hot markets before.

Whatever money they lose on wages, construction, depreciation, amortization, overhead, etc. they make up on the appreciating underlying value of the land, increased brand presence (read: expensive advertising), and increased ability to secure federal funds due to higher assets as collateral on their balance sheet.

This could make for an interesting leading indicator for a real estate cooldown, and even a recession if extrapolated out:

When commercial banks start closing down commercial branches, we can conclude that either a) value generated by the appreciation of the real estate is slowing down or b) the value of the deposits in the area is not growing fast enough (people are not saving, with banks at least).

Also, it's worrying to see the that the true value of a branch is that of an investment and an asset against which to secure cheap federal loans. That these unprofitable branches exist for these purposes implies a huge misdirection of resources and energy from sustainable demand creation to rent-seeking, speculation, and poor fiscal policy that incentivizes banks to prop up hot real estate markets in order to secure Fed funding.

The Citibank branch that I use will be closing in January...

[RockyMcNuts]

No reason to obfuscate AFAIK. A bank can just as easily buy a building and rent it out at a profit instead of putting a money-losing branch there.

I don't think banks are generally prohibited from investing in real estate, subject to other risk-based capital and liquidity requirements. If there's some loophole that results in an owned branch being treated differently from investment real estate, I'm not aware of it.

In NYC anyway, banks typically rent branches. They don't want to be in the real estate and property management business, although they often end up in it involuntarily after foreclosures.

[ghaff]

The wireless carriers are the other industry that have retail branches of a size seemingly out of all proportion to what they need to transact business. The contrast to many locations overseas, especially in Asia, where cellphones are often sold over a small counter in an electronics store is striking. I assume it's some combination of the big branches acting as advertising and being part of what's effectively a sort of arms race between carriers.

[pyre]

They also upsell you on third-party accessories for your phone.

[ghaff]

I assume that those are pretty minor compared to getting the contract though.

[dredmorbius]

I don't know. Electronics retailers are getting few and far between. Some of that's moved to drugstores or hardware stores, some to office supply stores. But the most obvious place to go for many phone accessories is a phone store, particularly if you need it right now. Otherwise, Amazon seems to be the retailer of choice. I suppose Target and Walmart also carry some items, and of course, Apple.

What surprised me in a recent road trip was the selection of electronics-related items for sale at highway stops, particularly Loves. If it goes with an Android or Apple device, or CB radio, or uses USB power, there's a surprising selection of items. Prices are not unreasonable either.

This is a fairly high-volume market, with specialised interests, and a captive (or at least easily captured) market. The one thing Loves hasn't sorted out is that free WiFi trumps paid, by a long shot. After a few highway stops, you figure this out pretty quickly.

[roymurdock]

You're right - it's less about obfuscation, and more about figuring out the strange incentive structure behind many bank's decisions to open a ton of branches in hot real estate markets.

I'm not sure how bank investments in real estate work, but as long as a branch is bringing in a steady flow of deposits it would be much more attractive than a standard real estate investment.

Those deposits bolster the bank's reserve requirement [1] and the banks then earn interest (0.25%) on these reserves as of 2008.[2]

In a world of zero and negative interest rates on short-term, safe debt, [3] I would imagine deposits would be an attractive revenue stream for a commercial bank with guaranteed upside and little downside, and that the major cost of leasing/buying the real estate to set up a branch would be negligible, especially if the land was increasing in value.

So branches will be shut down when the land starts decreasing in value, or when the flow of deposits into the banks slows down due to a lower propensity to save (not likely in a recession), or due to people earning less disposable income in the first place (more likely in a recession + stagnant wage growth). Both are very bad signs for the economy.

[1] https://en.wikipedia.org/wiki/Reserve_requirement

[2] http://www.federalreserve.gov/monetarypolicy/reqresbalances....

[3] http://www.wsj.com/articles/u-s-treasury-bonds-pull-back-144...

[yxhuvud]

Branches can also be shut down when the use of physical cash in society tapers off. This is already happening here in Sweden - bank offices here is increasingly only used for managing accounts and lending money.

[WalterSear]

San Francisco is littered with giant Wells Fargo locations with 30ft+ ceilings, and dozens of employees just hanging around, waiting for a customer to help. In the financial district, it feels like there's one on every block.

[zeckalpha]

> Wells Fargo & Company is ... headquartered in San Francisco, California.

https://en.wikipedia.org/wiki/Wells_Fargo

[WalterSear]

And how does that explain why they have an oversized retail branch on every corner of the financial district?