Rather than try to satisfy every need of every customer, Mercantile Bancorp.’s corporate banking division is working to spin industry specialties such as broker/dealers into a big business. It chose that particular industry because, despite the emerging confluence of brokerage services, insurance and commercial banking, Mercantile believes the dynamic industry will always be in need of old and new services it can provide.
The St. Louis-based company has been in the business of providing corporate banking services to broker/dealers since the early 1980s, but since 1996, when the manual clearing of funds moved to an electronic clearing through settlement banks, the industry opened up from its New York base. The result for Mercantile, one of about 50 banks with settlement powers, of which only about 30 are active, was a massive expansion–35% growth in the broker/dealer division every year since 1996. The section makes up 8% of the corporate banking revenues.
Of the two philosophies of getting as many clients as possible, or getting as much as possible from select customers, Mercantile is definitely in the latter camp. Joe Imbs, senior vice president and manager of service industries/public services, said all the specialty areas, also including beverage and communications, agribusiness, retail and government services (see related story on Mercantile’s joint venture with Bank One, p. 3), run in that vein. "The main idea is to bring value-added services and products to our customers by virtue of specializing in these industries. We can bring a better understanding of their industry to the table so that, hopefully, we can provide a higher level of service to differentiate ourselves from the rest of our competition." He added that the bank aims to serve not just St. Louisbased companies, with which it has a healthy chunk of market share, but to grow its business nationwide.
Mercantile is in the enviable position of being one of only about 15 settlement banks located outside of New York, and one of only about three actively accepting any new business. That makes it attractive not only to St.Louis-based firms such as A.G. Edwards, Edward Jones and Stifel Nicolous & Co., but to brokers all over the country which may not want to deal with the northeastern establishment.
Ann Vazquez, vice president and team leader of the broker/dealer section, stressed that Mercantile is a relationship bank which cares about small- to-mid-size brokers as well as larger ones which might have a higher volume of transactions. She said she anticipates doubling the client base to 20 settlement relationships in the next two to three years. The bank currently has some sort of banking relationship with 30 brokerage firms.
To illustrate her point that Mercantile is serious about getting more clients, Vazquez proudly told of a broker in New Jersey that Mercantile wooed away from the New York establishment by providing better service. The firm found that by sending off its paper checks to Mercantile, halfway across the country, it could get timelier lockbox service and have access to cash with only a one-to-two day float, instead of a four-day float provided by its previous bank in New York.
Although settlement isn’t really where the money is, it’s an open door to the profitable cash-management services, such as wire transfers–some clients can use as many as 5,000 per month–controlled disbursements, and lockbox collection. The bank also issues standby letters of credit, and lends money to clients to cover trades. Small clients might need from $5 million to $10 million a day, larger clients $60 million to $100 million.
Vazquez said her department is driven by the customers, who have helped develop new products. For instance, the bank established a back office system to support a large New Jersey Internet broker which wanted to offer its customers checking on its proprietary money-market accounts.
"Not everybody offers check-writing capabilities on their proprietary funds. This is something that now small- to -mid-size brokerage firms are interested in providing to their customers and Mercantile is able to assist them with this new product offering," she said.
Mercantile is ready to begin offering the service to other clients. The bank is already working on an upgrade to existing service which would allow imaging of check copies for the broker to verify signatures and return to the bank pay/return decisions. Those check clearing capabilities come from Mercantile’s correspondent banking expertise. It is one of the nation’s largest with 350 customers, providing more than $700 million in federal-fund liquidity lines.
The way Mercantile is competing with the New York establishment is by providing more "handholding" to smaller and medium-size firms. "They look to us for advice on managing their finances," Imbs said.
In addition, some of the northeastern traditional settlement banks have begun raising the bar on size of accounts they are interested in taking on. "We are interested in dealing with customers who the larger banks feel are too small, i.e. not profitable enough for them," Vazquez said