Last week I purchased a basket of bank stocks because I thought the market was underestimating the benefit to the banks from the Federal Government's Paycheck Protection Program.

Small businesses collectively leave a lot of money in their bank accounts for day to day expenses like payroll, rent, etc. The banks can use this free money to lend to others at a profit - and it is not money that will be swept away if a competitor offers a slightly higher interest rate.

Plus small business have very little negotiating power when borrowing money or paying for a variety of bank services in comparison to a large corporate.  

My business banker (Chase Bank) contacted me last week before the program was launched to give me a heads up on what I needed to do, so I would be ready to apply as soon as the program launched - the money was being doled out on a first come first served basis. I felt very good about this call and felt it was one of the benefits of being a long term faithful customer.

With small businesses desperate for cash flow during this Covid-19 shutdown, I felt other small business people would feel the same sense of loyalty as I did, if their bank executed their applications quickly and efficiently. I decided it would be the big banks rather than the community banks that would be best placed to process these applications - after all they have the money for technology and scale.

That is why this basket of banks I purchased tilted heavily to the big banks:

  • Bank of America $BAC
  • Citigroup $C
  • First Horizon National Corp $FHN
  • JPMorgan Chase $JPM
  • People's United Financial $PBCT
  • Wells Fargo $WFC

I think my theory was sound - but I backed the wrong horse. It looks like the community banks have served their customers much better during the launch of the Paycheck Protection Program in helping their clients quickly get their applications filed.

By comparison here is my experience with JP Morgan Chase:

  • Phone call form Business Banker - made me feel great about Chase
  • Chase emailed info I needed to collect. Gave me the link to click on as soon as the program launched so I could get my application filed quickly - still feeling great about Chase.
  • On the day the program launched - I click on the link Chase sent me - it says Chase not accepting applications that day. TV is saying money is going fast - get in quick. No longer feeling great about Chase.
  • Check the link again later that day - and the message has changed. The first screen has some basic info that I complete, I click submit. The next page tells me to complete a paper form and wait for somebody from Chase to call me and then I will have to scan and email them the paper form. Talk about "Old School".
  • Nobody from Chase called.
  • All weekend nothing. Monday nothing. Monday night the Chase page changes again and I am able to start filling it in to complete the application. The Chase process had 4 or 5 pages you had to click through to complete it - the problem was it kept crashing - kicking me out of the system and asking me to do it again. Tried a dozen times over the course of the night till about midnight - always kicked out before I was able to complete.
  • Tuesday morning - I tried again. It kept crashing. A few hours later I successfully completed the application and was given an application number
  • Tuesday night an email from Chase saying they need more info. Sent me a link to click on. Takes me to the same blank page I had filled out this morning - did they really want me to do this again?
  • I check  the email to see who to call. Chase says in the email - do not call us, we are too busy.

As a long term business customer and a shareholder - I was totally disgusted. How could such a big bank - supposedly the best run bank in the world, be so inept technically? Any goodwill and loyalty I felt to the bank had evaporated.

Meanwhile I was hearing positive stories from clients of community banks - the ones I thought that would not be able to execute as well as the big banks.

Trust me - I was not thinking how much I loved Chase - but weighing up the pros and cons of switching to a community bank some time in the future.

And from Twitter I see I was not the only person disappointed in the big banks:

I am sure you get the idea. The big banks have really dropped the ball with this Paycheck Protection Program and have done lasting damage to their relationship with their small business clients.

For now, I am holding onto the shares in the basket of banks I purchased - but my strategy for buying them is no longer valid.

Oh well - back to the drawing board.