Citigroup (C) Retreats From Retail Branches

It may be a decade or more from now, but the time will come when there are no bank branches at all. Broadband will be in 90% of American homes. Banking will be done online to save customers time and the banks will cut the cost of maintaining tens of thousands of people who work at small locations around the US.

The movement toward virtual banking will cause a lot of layoffs and will hurt local real estate prices in many communities. Some small towns have three or four banks branches in prime real estate locations. When those close, the inventory of the best retail space will rise.

Citigroup (C), in a move almost certainly designed to save money, will focus much of its brand network in six cities: New York, Washington, Miami, Chicago, San Francisco and Los Angeles. According to The Wall Street Journal,” The smaller-but-smarter approach is the latest attempt by Citi to mend a business dogged by underinvestment, strategic miscues and management turnover.” With just a little over 1,000 branches nationwide, it is dwarfed in the retail location category by large rivals.

The decision could backfire on Citi and do real damage to its retail banking operation. Many individual customers and small businesses expect to do their business at bank branches despite the availability of online options. The Internet is still not trusted as being entirely secure by many people who shy away from giving out personal information for financial institutions or e-commerce sites.

Citi may end up losing a great deal of its retail client base to Wells Fargo (WFC) and Bank of America (BAC) which will support huge branch networks. Citi may not care. It is unclear how much money it makes by having bricks-and-mortar operations. The bank may have taken on so much water over the last two years that it is willing to make short-term decisions that will hurt it in a year or two.

Douglas A. McIntyre