Bank competition heats up but isn't forcing mergers yet

One of the battles for the financial-services market in Georgia is being waged next to the cookie counter at a Sears, Roebuck store in Atlanta's North Lake Mall.

That is where Sears has set up one of its newest in-store financial-service centers. In a stylish area near the store entrance, sales people peddle insurance from Allstate, real estate from Coldwell Banker, and securities from Dean Witter.

''We are doing a good business out here,'' says John M. Raterman, one of two Dean Witter salesmen on duty across the aisle from a display of specially priced pillow shams.

Sears is only one of many financial institutions battling for a place in the fast-growing Southeastern economy. Insurance companies and brokerage firms, as well as out-of-state and foreign banks, are challenging local-bank preeminence in financial services.

Local bankers say the increased competition has not seriously hurt them in the short term. Longer term, tougher competition is expected to force smaller banks to seek merger partners. And even banks that expect to stand on their own after the projected shakeout are offering new services or trying to boost the return from existing business lines.

''We say (out-of-state banks and other competitors) don't represent a major challenge, because we are all doing well,'' says Robert Strickland, chairman of the Trust Company of Georgia, the state's No. 3 bank, with assets of $4.3 billion. ''But there may be a lot of business we are not getting and don't know about. Competition is fierce, and we are already feeling it in areas . . . such as price and service.''

The new competition has come from a variety of sources. ''There are lots of signs of interest by other banks,'' says John S. Poelker, president of Citizens and Southern Georgia Corporation (C&S), the largest bank holding company in the state, with assets of $6.2 billion. He notes that 17 foreign banks and 22 money-center US banks have opened loan offices in the area in the past four years.

Contestants are coming from outside the banking field as well. For instance, Prudential Bache, a subsidiary of the Prudential Insurance Company of America, recently acquired Hapeville's Capital City Bank, located near the Atlanta airport. The firm will use the bank charter to handle banking and mortgage loan activites. Meanwhile, out-of-state institutions continue to arrive. Anchor Savings Bank of New York recently purchased a local savings-and-loan and also bought First National Bank of De Kalb County.

The lure is both the Georgia economy itself and a location near Florida, perhaps the fastest-growing state economy in the nation. ''The Southeastern market is one of the most attractive markets in the nation,'' says Donald L. Koch, senior vice-president and director of research at the Federal Reserve Bank of Atlanta. ''There is a recognition that this is becoming an international financial center.''

Most of the major contestants in the financial-services battle have already arrived. ''But when interstate banking comes on a nationwide basis, there will be a lot more,'' Mr. Strickland predicts, ''because (out-of-state firms) will be coming in here and buying banks.''

At the moment most of the competition among banks is for corporate customers. ''Retail (or individual) customers want the convenience of local offices where they can make deposits and withdrawals,'' notes Paul Hill, executive vice-president and chief financial officer of the First National Bank of Atlanta , which has assets of $4.9 billion. The local banks have responded by trying to improve existing services and launch new products. ''In the commercial-banking side of things, we have to become more skilled . . . at the kind of things New York banks have done exclusively,'' Mr. Poelker says. An example: helping with leveraged buyouts of companies.

Banks are also trying to step up their service to correspondent banks, the smaller banks for whom they handle check clearing. Mr. Poelker says his C&S bank holding company now provides more financial advisory services, investment-banking advice, and help with mergers and acquisitions.

New services for individuals are also being launched or expanded. For instance, First National is stepping up its sales of insurance products. ''We have been expanding at the rate of 10 to 15 percent a year on existing insurance'' lines and developing new products, Mr. Hill says.

Discount-brokerage service is an even more popular area for expansion. ''Banks could become the dominant players in the discount-brokerage business,'' given their access to customers, says Mr. Poelker of C&S. The company's year-old brokerage operations ''have been very successful,'' he adds.

Meanwhile, First National has joined an experiment in which 20 banks will jointly own a discount brokerage to achieve greater economies of scale.

Long-term survival will probably require some banks to merge. ''We are into a period that will involve a lot of consolidation,'' Mr. Hill says. Two key reasons: Large banks can acquire funds to lend at a lower cost than smaller banks, and the technology needed to compete in the changing environment is expensive.

''My estimate is that $5 billion (in assets) is not large enough as we go forward. Whether the number you need to get over is $8 billion or $10 billion, I don't know,'' Mr. Hill says. In January of 1982, Trust Company of Georgia and two other Southern bank holding companies each purchased $2 million of the others' stock as a ''tangible expression'' of their interest in consolidating if and when laws allow.

But Mr. Strickland, the Trust Company chairman, cautions: ''We will probably have to be larger. But we don't want to be larger without being more profitable. Size is not the most important factor to our shareholders.''