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The debt crisis in the financial services sector, which has come to a head in recent weeks, has claimed retail banks as well as some of Wall Street’s biggest investment houses. Last month, JPMorgan Chase acquired Washington Mutual for the fire-sale price of $1.7 billion after the latter had the dubious distinction of suffering the largest bank failure in US history. Wachovia, which also incurred heavy exposure to the subprime mortgage market, was to be sold to Citigroup in a deal arranged through the FDIC. However, as this was written, a Wells Fargo/Wachovia merger announced on Friday seemed to obviate that deal—although not if Citigroup can help it. Regardless, the spate of high-profile M&A activity—not to mention some of the regional banks that have gone out altogether—does suggest that we may see fewer bank branches by 2010. A decisive 78% of respondents to last week’s online poll agree that a big wave of branch closings is in the not-too-distant future, and New York retail expert C. Bradley Mendelson, executive director at Cushman & Wakefield, feels the same way. Here, he explains how this is likely to play out:

“How many branches close depends on who ends up with these banks. You have these two mergers, for lack of a better term; one is WaMu and Chase and the other is Wachovia and Citibank, or maybe Wachovia and Wells Fargo. But Citibank is saying Wachovia didn’t have any right to make a deal with Wells Fargo and the FDIC is saying they’re going to back the deal they originally backed, which was with Citibank. We’ll see what happens. But certainly among all these banks, there is redundancy in the New York area. There are a number of locations where they’re across the street from each other or on the same block. Chase has 148 branches in New York City and WaMu has 35 to 40 branches in the city—they’re all in competitive locations. If Wells Fargo ends up with Wachovia, there are no Wells Fargo branches in New York City. So they’ll have an instant expansion. Citibank and Wachovia, on the other hand, are redundant in certain places.

“There are different kinds of bank branches. If you’ve visited Chase or WaMu, you know those are two different types of businesses although they’re both banks. I don’t know if Chase can effectively re-brand a lot of those branches. Certainly, there will be a number of bank branches on the market. There’s no doubt about it. They’re not going to close branches and let them sit, because it’s too costly for them to do that. Some of the leases don’t allow them to go dark, so they’ll have to either stay open until they replace their bank or sublease. But banks are famous for not subleasing to other banks. If I have a branch near my office, and it changes to a different bank, I’ll probably switch to that bank. There’s not a lot of loyalty in the bank business today.

“As far as other banks taking over these spaces when the leases run out, there aren’t many other banks. You’re going to see some more bank mergers, and the numbers of different banks will dwindle. The space will go back to the landlord, and he can lease it to whomever he wants. If there’s another bank, maybe they’ll take it. But there really is no more bank business at the moment. That’s pretty much dried up.

“What comes into that space next could be anything—whatever is active in the marketplace at that time. It also depends on the location. It could be a pharmacy; if it’s on Madison Avenue, it could be a fashion tenant. If it’s on Sixth Avenue, it could be a financial company like Charles Schwab. A space in a residential area like the Upper East Side or Upper West Side will appeal to a different kind of tenant.

“This will all start playing out in six months to a year. These bank deals haven’t closed yet, and you have to give them time to close and digest. These deals were made more quickly than anyone could have anticipated. One day, there’s a bank; the next day, it‘s not there anymore.”

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