Wednesday, September 20, 2006

Sayonara NetBank

I have started the process of evacuating my money from NetBank. To make a long story short, I haven't paid a lot of attention to NetBank for a couple of years. I recently started to compare my various bank accounts, and I was shocked at how poorly the money market account I opened at NetBank was doing. Let me go back to the beginning.

I first opened my Net.B@nk (that is what they used to call NetBank) account six years ago. At the time, they offered interest rates of about 6% which was quite good at the time. I really wasn't so bothered by the fact that it was an Internet-only bank. True, deposits at NetBank took longer (usually over a week), and my checks were considered out-of-state. But that was only a slight inconvenience when you consider that the interest rate was about 2% more than what local banks were paying. To add to that they gave me a nice little bonus for opening my account.

Over the years, things have gone downhill at NetBank. They stopped sending me paper statements in 2001, and started to charge more fees. But, the interest rates still remained better because of their Internet-only model.

Fast-forward to today. NetBank is only paying 2.90% APY on my money market. Currently, I can get a 5.oo% APY return on money market accounts at either Citibank and WaMu (Washington Mutual). And these banks have real branches and ATMs. I was wondering why there was such a big discrepancy when NetBank does not even have to maintain the bricks and mortar branches and ATMs that these competitors do. As you will see later, the real answer is NetBank can no longer afford to pay good interest rates.

I could bore you with a laundry list of other reasons why I've decided to get out of NetBank, but it really comes down to poor interest rates and the inconvenience of having to deal with an internet only bank. I also think that there may be larger problems at NetBank.

The stock analyst side of my personality took a look at the overall company, NetBank (Nasdaq: NTBK), and I have some real concerns. NetBank stock has been steadily declining for over three years now. The company has posted significant losses for the first two quarters of this year. And NTBK has stopped paying its dividend. This is not good news for either NTBK investors or NetBank customers. NetBank's management has not adequately explained the reasons for these significant losses. In this era where the news is reporting one business scandal after another, I smell something fishy.

The worst case scenario for NetBank customers will be waiting for months to get their money back from the FDIC if NetBank defaults. More realistically, it is likely that NTBK will be acquired or merged into another bank. In any case, don't want to stick around long enough to see the fallout. I just hope that closing my account with them is not as difficult as putting money in with its long delays.



fin_indie said...

Is there anything official on the statement about netbank not being able to afford to pay good interest rates, or is that the deduction based on what has happened? I also have an account there, but haven't paid too much attention to the rate they are paying. Guess I need to go track that down...

pfstock said...

On August 8, NTBK announced earnings. Quoting the NetBank CEO in this release, "[NetBank's] Quarterly results remain unacceptable," and "The company's performance continues to be adversely impacted ..." He goes on to list a bunch of reasons that don't really make a lot of sense to me.

But to answer your question, no. NetBank hasn't outwardly said that they can't raise their interest rates, and I am doing some reading between the lines.

Here are the facts: (1) NTBK lost $11 million in Q1. (2) NTBK lost $31.4 million in Q2. (3) NTBK has stopped paying its shareholder dividend saying that they need to "to protect the company's capital base and tangible book value from further erosion." (4) Most PF bloggers know that money market interest rates have increased significantly in the past year. However, NetBank has not increased their MM rates since January.

You could also review their earnings statement on NetBank's corporate investor relations site, and see if you come to the same conclusion.