Edward Jones Applies for Bank Charter, Hires Former UBS Banker
Jones Financial Companies, the parent company of Edward Jones, said on Wednesday it has applied for a bank charter that will allow it to offer more services and moderately help it keep brokerage account cash sweeps in-house.
The St. Louis-based partnership, whose more than 19,000 Jones brokers are the largest sales force in the brokerage industry, applied for an industrial bank charter with the Utah Department of Financial Institutions. The state permits firms to own banks without being supervised by federal regulators as bank holding companies, although Jones will be subject to Federal Deposit Insurance restrictions.
Ray Dardano, a 25-year banking veteran and former president and CEO of UBS Bank USA, will be president of the Jones bank if the charter is approved, according to Matt Burkemper, a Jones principal who said more than 50 employees have been working on the banking venture.
Dardano, most recently CEO of Marlin Business Bank in Utah, has worked at Merrill Lynch and Harris Bank, and been examiner-in-charge at the Illinois Commissioner of Banks.
The bank, which Jones said is unlikely to be operative because of a long approval process until late 2021, would help meet client demand for savings and credit products, Burkemper said.
“One of the things that this bank will enable us to do, or provide the additional optionality to do, is to expand our offerings with securities-based lending,” he said, referring to portfolio-backed general-purpose loans. Jones now offers traditional margin loans that can be used only for buying securities.
Jones, which currently sweeps cash in client brokerage and advisory accounts to third-party banks, could theoretically increase net interest margin by sweeping client cash into its new bank. However, the relatively small asset size of the bank would limit the deposits it could take.
“We will have the current structure stay in place,” Burkemper said. “If we get approved and when we do operationalize the bank, we will be able to take deposits, so we’ll have some of our clients’ cash swept into the Edward Jones bank. However, there’ll be a minimal change in our structure because of the size of our bank compared to the cash that we would have.”
Brokerage firms in recent years have booked significant revenue from net interest margin, reflecting the difference between what they pay in deposits and earn from deploying the cash into loans and investments. Current rock-bottom interest rates, however, have hurt the business.