NEW YORK ( TheStreet) -- JPMorgan Chase ( JPM) appears to be halfway done with implementing new fees on depository accounts to make up for lost revenue - ahead of big-bank competitors, according to an analysis released on Monday. But, ultimately, the industry at large may only be able to recoup 35% to 40% of
an estimated $25 billion in fees it once collected from debit and credit card use. Additionally, the implementation of new fees will take time, with Nomura analysts led by Glenn Schorr and Brian Foran characterizing fee recovery as a "slow burning issue" in 2011. In a report on Monday, the Nomura team performed some back-of-the-envelope calculations to assess how much of that revenue the industry could recover by adding new fees and how far along some big banks are in the process. The analysts noted that JPMorgan executives said at its investor day last month that the bank has already converted 8 million free checking accounts into new terms with fees of $10 to $12 per month. This represents revenue of about $1.5 billion to $2 billion a year, about 75% of the impact of two provisions known as Durbin and Reg E that stymie bank fees on card users as well as merchants who accept card transactions. "This would suggest JPM has already progressed more than halfway through our total revenue recapture estimate," the analysts said. "However, these conversions were likely late 2010 events and may not yet be fully reflected in 4Q10 results. Bank of America also outlined plans to charge customers $6 to $25 per month, the analysts noted, though it's not clear how far along in the process of implementation the bank is. Nomura thinks it's "generally plausible" that Bank of America's new fee revenue could top $2 billion. That would be about 42% of the revenue lost from Durbin and Reg E. Schorr and Foran said that figure is "roughly in line" with the estimate that U.S. Bancorp ( USB) provided when saying it could recoup about half of fee revenue lost from financial reform. The analysts concluded that regulators don't seem to be pushing back against banks' decision to implement fees on once-free checking accounts - a good thing for banks' bottom line, but perhaps counter to what lawmakers and regulators intended with the Dodd-Frank legislation and other anti-fee rules.
But the other issue that might hinder revenue is that banks are placing fees mainly on accounts related to "low-quality" customers - those who have low incomes, low balances in deposit accounts and few other banking products, like loans, on which lenders can earn income. As a result, some of those customers may leave a bank because it isn't worth paying $10 or $12 a month for a checking account that contains just a few hundred dollars or less. In other cases, customers with several accounts at different banks may consolidate all the funds at just one to avoid penalties. The fees are therefore likely to push low-income customers out of the traditional banking sphere and give industry leaders more market share in areas where they are already dominant. The analysts came to their conclusions using estimates from a Bank of America presentation last year that indicated about half of its depositors were "low-quality" and assuming that roughly 15% would leave the franchise because of new fees. That left 13.7 million low-quality accounts with Bank of America that were fee assessable out of a total 48 million accounts. Using the same assumptions for JPMorgan, that would mean 13.6 million of its relationships were "low-quality." With over 8 million accounts already converted, it's more than halfway done with the process. "While there are many moving parts to this equation, we anticipate the level of revenue these incremental fees may generate to be substantial," says the Nomura team. "For example, we estimate 30-45% of universal bank customer accounts may be eligible for bank re-pricing. However, the timing differences of increased fees offsetting revenue and cost pressures is an issue as banks are already facing these hits while ramping up fee generation has just begun and will likely be a slower burning issue for 2011." -- Written by Lauren Tara LaCapra in New York. >To contact the writer of this article, click here: Lauren Tara LaCapra. >To follow the writer on Twitter, go to http://twitter.com/laurenlacapra. >To submit a news tip, send an email to: firstname.lastname@example.org.