Business

Bank of America drops some small towns and cities

Cost of new regulations may be a key factor

Large banks have been warning corporate clients over the past year that the cost of some deposit accounts is rising.
Chuck Burton/Associated Press
Large banks have been warning corporate clients over the past year that the cost of some deposit accounts is rising.

The banker went to see Fitchburg Treasurer Calvin Brooks at City Hall early in September with surprising news: Bank of America no longer wants the city’s $11 million in business.

The Central Massachusetts city had kept its deposit accounts with Bank of America and its predecessor institutions since 1964, starting with Worcester County National, Brooks said.

Now, it has 90 days to move on.

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“They are no longer looking for our business,’’ Brooks said, echoing a message sent to treasurers of smaller cities and towns and even school systems across the state — and perhaps the country — as the Charlotte, N.C., banking behemoth focuses on larger customers.

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The bank’s Sept. 3 break-up letter is to the point. Giving three months notice, it says, “We hope this period gives you sufficient time to rearrange your banking needs before the accounts are closed and these services are terminated.’’

Bank of America Merrill Lynch spokeswoman Kristen Kaus declined to comment on the decision to drop the municipalities.

“We are committed to the public sector,’’ Kaus said.

The changes come at a time when large banks are facing new regulations that make some deposit accounts less lucrative. Others affected in Massachusetts include the City of Fall River and Blue Hills Regional Technical School in Canton.

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Fall River Treasurer John Nunes said the 90-day notice was barely enough time to interview a handful of other banks and make a switch. The city has about $4 million in deposits with Bank of America, he said, including accounts for retirement payments and certain school expenses.

“It’s very much a hardship for the municipalities,’’ Nunes said. He said his Bank of America representative told him “this was a nationwide issue.”

Several treasurer groups contacted around the country had not yet heard of the bank’s cutbacks among municipal clients. But many said they were anticipating changes by large banks because of the new regulations.

Gerard Cassidy, a banking analyst and managing director with RBC Capital Markets in Portland, Maine, said the nation’s largest banks are scaling back their less attractive businesses.

“Businesses that pre-financial crisis were profitable or marginally profitable are in some cases much less profitable, because of these new regulations,” he said.

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Large banks have been warning corporate clients over the past year that the cost of some deposit accounts is rising. Regulators are requiring banks to set aside more reserves for certain deposits, in order to have sufficient funds on hand in case of large withdrawals in a time of crisis, as happened when financial markets collapsed in 2008.

‘It’s very much a hardship for the municipalities.’ John Nunez Treasurer of Fall River

Bank of America says on its “public sector” Web page that it has “relationships” with 96 percent of state governments, 88 percent of the top 50 US cities, and 82 percent of the top 50 counties.

With smaller municipalities, Cassidy said, Bank of America may simply be making a calculated decision about a low-margin business.

“It’s disruptive in that it’s rather abrupt,’’ said Brooks, the Fitchburg treasurer. Fortunately, he said, several other banks are interested in bidding on the city’s business.

He’s reviewing proposals from other banks for the city’s business and expects to decide by the end of this week. He asked Bank of America for an extension beyond the three months because transitioning all the city’s accounts — for payroll, expenses and the retirement system’s operating account — to a new bank will take four to six weeks, he said.

At Blue Hills Regional, Superintendent James Quaglia said the bank’s decision was a surprise to the school system, which has an annual budget of about $18 million.

“It didn’t come with any warning,’’ Quaglia said. But Blue Hills has now hired a local institution, the Bank of Canton.

“It allowed us to establish a relationship with a more local entity who was more than happy to have our business,’’ he said.

Beth Healy can be reached at beth.healy@globe.com. Follow her on Twitter @HealyBeth.