Mercantile's good name won't be traded away

February 13, 2002|By Jay Hancock

THEY DON'T gamble on currencies at Mercantile Bankshares.

Sure, they know how. They would be extremely good at it, unlike Allfirst Financial, which just flushed $750 million into the Inner Harbor.

But why trouble? For Mercantile, foreign exchange trading is a frivolous bother that would subtract more in risk and distracted management than it would add in prestige and profit.

Mercantile makes enough money as a traditional bank to have to set up a George Soros fantasy camp in its basement.

Grizzled industry veterans may have heard of Mercantile's quaint methods. The company collects cash from depositors and then lends the money to creditworthy borrowers, who eventually repay the loans with interest.

As one of the top three or four consistently profitable banks in the nation, small, focused Mercantile shames an industry that has been obsessed with mergers, new products and gimmicks.

Other financial companies say they make money the old- fashioned way. Mercantile really does.

Mercantile has no discount stock brokerage. It avoids foreign loans, financial derivatives and other flammable risk.

While it is possible to obtain a Mercantile credit card, your dinner will never be interrupted by telemarketers flogging Mercantile plastic, and the card's debt is actually issued by another bank.

Mercantile's Web page is endearingly clunky, and the bank's Internet banking operation is coming on line years after those of most competitors.

But its forte, after all, is eye-to-eye dealing, not electronic interface. Other companies say the key to their business is "relationship" banking. At Mercantile, it really is.

Founded in 1864 to protect Baltimore valuables from Robert E. Lee's army, Mercantile has done business with the same families and companies for generations. It lends almost exclusively in the Maryland, Delaware, Pennsylvania and Virginia towns where it has branches. It refuses invitations to national loan syndicates.

To Mercantile's credit and wealth, its managers have rejected almost all trends and fads that have hit U.S. banking in recent years.

In a world of Allfirsts, Citigroups and SunTrusts, Mercantile has kept its musty, 19th-century vintage name, and that's only part of its identity problem.

Mercantile just doesn't get the whole branding thing. You're supposed to slap your corporate label on every vehicle and piece of real estate you own plus various sports stadiums and Olympic sponsorships, but Mercantile doesn't even keep its name straight from one town to the next.

Go to a Mercantile branch in northern Baltimore County and the sign says Sparks Bank. On the Eastern Shore it's St. Michaels Bank, and in Laurel it's Citizens National Bank. What kind of synergy is that? (The company does put a discreet Mercantile symbol on the buildings.)

While other financial services firms are consolidating, cutting administrative jobs and closing branches, Mercantile operates 21 separate banking operations on its little patch of planet, each with a separate board of directors and management.

That's not what banking consultants teach you to leverage your efficiencies. But Mercantile finds that knowing its customers provides a little advantage that may not have occurred to the merger experts: The loans tend to get paid back.

Last year Mercantile once again booked some of the best results in the industry, recording another year in a quarter-century of consistent dividend and earnings growth and posting the second-best efficiency ratio - which measures cost against revenue - among the country's top 50 banks.

Mercantile's amazing success belies the cliches of consolidation that have driven the banking industry for two decades: Bigger is better. Buy or be bought. Multi-product supermarkets rule. Technology is key.

The people who bought into the Pac-man strategy of banking have often earned mediocre or poor returns while those who invested in high-quality regional banks have done very well.

Until its disastrous, big-league flop last week, Allfirst looked like a promising member of the latter group - a solid concern that focused on customer service, built its Maryland deposits and rejected bigness for bigness' sake. Obviously Allfirst, which is owned by Allied Irish Banks, didn't stick closely enough to its knitting.

But in addition to its regional peers, Mercantile has also smoked the giant Franken-banks assembled from corporate appendages and torsos.

It wasn't a foregone conclusion. As the 1980s drew to a close, two regional bankers, each a former Marine, held differing visions of what was best for his shareholders.

"You need to be very large to survive," Hugh L. McColl Jr., chief of a North Carolina bank called NCNB, said at the time. "In today's dollars, $100 billion plus" in assets.

H. Furlong Baldwin, Mercantile's recently retired chief executive, was having none of it.

"We're not for sale," he told an interviewer in 1987, adding that Mercantile would do fine as a niche bank doing "some little slices of business at narrow volume and great margins."

Each pursued his vision. NCNB went on to become huge NationsBank and even huger Bank of America as it kept buying rivals, including Maryland National Bank. Mercantile stayed more or less the way it was.

In the past decade Bank of America has lost market share in Maryland, as measured by deposits, grown to $623 billion in assets worldwide and seen its stock price triple - trailing the Dow Jones industrial average. Mercantile has gained Maryland deposit share, holds $10 billion in assets and has seen its stock price quadruple, beating the Dow.

Who was right?

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