Mike Ginsberg

Last week, Bank of America told regulators that it may pull out from some U.S. metropolitan regions if its financial problems were to worsen.

Worsen?  The severe impact of the recession on the banking industry, mortgage lawsuits (hello, Countrywide Financial) and the inconsistent economic recovery has already taken a severe toll on the second-largest US bank.   How can it get worse?  Maybe I should not have asked that question.

Contraction in any particular region — or regions — is not yet imminent, and was only discussed as a potential option because of the intense regulatory scrutiny that Bank of America is under.   Such a dramatic move underscores the magnitude of problems confronted by one of the largest financial institutions in the world and one of only three institutions in the country with branches spreading coast to coast (for inquiring minds, the other two are J.P Morgan Chase and Wells Fargo and, at the time of this blog post, neither has expressed similar concerns).

A significant number of large and mid-size ARM companies focused on the banking sector generate a concentrated portion of their revenues and profits from the largest financial institutions that issue credit cards. So the following question has already been raised, “What impact will contraction at one of the largest financial institutions in America have on the ARM industry?”

The answer is very little.  The placement of accounts with collection agencies and collection law firms, and the sale of debt to debt buyers will not be impacted at all by contraction of branch locations.   The amount of loan originations and subsequent placement volumes and loan sales has already severely decreased as a result of the recession.  The most significant impact on ARM companies if Bank of America contracts will not come in the form of lost business.  The effect, if any, may be felt on the banking side for businesses that use Bank of America for that service.

Keep in mind this impact will not be limited to the ARM industry as other local businesses across other markets will also be affected.  Local ARM companies that bank with B of A should take note and may want to get ahead of a potential dilemma by shifting to a more stable banking or savings institution intent on staying in their region long term.

Mike Ginsberg is the president and CEO of Kaulkin Ginsberg Company. You should follow him on Twitter: @mike_ginsberg.

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