Bank Director Education – Page 2

November 3, 2014November 3, 2014

Does Anyone Want To Work At A Bank?

Admittedly, the question driving today’s title is not the easiest to answer. Without the training programs once offered, without the cache of an Apple and without the stability of a career path, you might wonder why any smart, ambitious and talented professional would take a job in banking. Surprised I’d write this from Chicago and Bank Director’s annual Bank Executive & Board Compensation conference? Read on.

As I start to write today’s piece, it strikes me that without the help of LinkedIn, I don’t immediately know a single person my age (37) that works for a traditional bank — let alone operates at an executive level. This is a HUGE problem for the future when one considers the growing divide in public perceptions of banks with the actual business operations in place. Look, I’m not throwing stones. Heck, I would have loved to get into a management training program when I graduated from W&L in 1999. Its just that almost every big bank that historically trained the “next generation” of bankers had shelved their programs.

While I don’t work directly for a financial institution, I am lucky to spend days like today finding inspiration from bank executives, board members and services providers. Mostly, these are people who see the banking space as one that does need change, but does not deserve dismissal. So as the Swissotel starts to fill with “traditional bankers,” I anticipate three big themes; namely, the recruitment, development and compensation of a leadership team and the workforce of the future.

In Terms of Recruitment…

If you subscribe to the idea that “tone from the top” is key for building a culture of success, take heed of our editor’s opinion. Jack Milligan recently blogged on “The Bank Spot” that “the #1 best practice for a bank’s board of directors is to hire a high performance CEO.” In his words:

Of all the things that boards do, this might be the most obvious – and yet it’s also the most important. A good CEO works closely with the board to develop a strategy that fits the bank’s market and has the potential to create a high level of profitability. They bring in good talent and do a good job of motivating and leading them. And they have the ability to execute the strategic plan and deliver what they said they will deliver. Having a high performance CEO doesn’t guarantee success, but I think it will be very hard to be a high performing bank without one.

In Terms of Development…

In my mind, having the right leader in place dramatically improves the attractiveness of an institution to potential employees. Here, I look at what bankers like Ron Samuels and Kent Cleaver are doing in Nashville at Avenue Bank and Mike Fitzgerald at Bank of Georgetown in Washington, D.C. Creating a culture where one is pushed to contribute to the bank’s growth seems obvious. But I can tell you, putting people above products and financial profits isn’t always the easiest thing to do (right as it may be). Developing talented executives takes both patience and confidence. Indeed, one must be comfortable doing more than simply empowering others to be a team player. Here, a passage from L. David Marquet’s (a retired Captain in the U.S. Navy) “Turn the Ship Around” bears quotation. The premise: don’t empower, emancipate.

Emancipation is fundamentally different from empowerment. With emancipation, we are recognizing the inherent genius, energy and creativity in all people, and allowing those talents to emerge. We realize that we don’t have the power to give these talents to others, or ’empower’ them to use them, only the power to prevent them from coming out.

It might be easy in a highly regulated environment to see this logic and find excuses to it not applying to banking. But if a submarine captain can transform one of the worst performing boats into one of the most combat-effective submarines, perhaps these words might be re-read.

In Terms of Compensation…

Not to throw a wet blanket on the last two points, but as our team found in a recent survey, bank boards recognize the need to tie compensation to the performance of the bank in the long term, yet they continue to struggle with how to get the pieces in place to attract and reward the best leaders to meet the institution’s strategic goals. So I find it particularly interesting that less than half of the banks we surveyed tie CEO pay to the strategic plan or corporate goals, and more than one-quarter of respondents say that CEO compensation is not linked to the performance of the bank.

I’m checking back in tomorrow from the conference. If you’re on Twitter and interested in the conversation, feel free to follow @BankDirector, @AlDominick and #BDComp14.

October 24, 2014October 24, 2014

Innovating the Capital One Way: Do YOU Think This Is The New Normal?

bd8a817e833e9bb01ddf91949fce917b As shared in Bank Director’s current issue, peer-to-peer lenders, like San Francisco-based Lending Club, are beginning to gain traction as an alternative to banks in both the commercial and consumer loan space.

In the retail sector, well-funded technology companies like Google, Amazon and a host of others are swimming around like sharks looking to tear off chunks of revenue, particularly in the $300 billion a year payments business. These disruptors, as many consultants call them, are generally more nimble and quicker to bring new products to market.

While being “attacked by aggressive competitors from outside the industry is certainly not a new phenomenon for traditional banks,” it is fair to ask what a bank can do today. For inspiration, take a look at what Richard Fairbank, the Chairman and CEO of Capital One, had to say on a recent earnings call.

Ultimately the winners in banking will have the capabilities of a world-class software company. Most of the leverage and most of our investment is in building the foundational underpinnings and talent model of a great digital company. To succeed in a digital world (you) can’t just bolt digital capabilities onto the side of an analog business.

I thought this was particularly interesting given our editor’s take in this quarter’s issue: “if you’re a traditional banker, it’s time to recognize (if you don’t already) that a growing number of consumers — many of them young, well educated and upwardly mobile—can get along just fine without you.” Clearly, it would be foolish for any bank CEO or director to operate with a false sense of security that their institution won’t need to adapt.

So is Capital One’s “approach” to business the way of the future for many big banks?

Drop me a line or send me a tweet (@aldominick) and let me know what you think. Aloha Friday!

September 8, 2014

Today is FinTech Day at NASDAQ (here’s what you need to know)

The who, what, when, where and why of FinTech Day at NASDAQ, a collaboration between the exchange and my company, Bank Director, that celebrates the contributions of financial technology companies — fintech for short — to banks across the U.S.

Who: Bank Director, a privately-held media & publishing company focused on issues fundamental to a bank’s CEO, senior leadership team and board members, teams up with the NASDAQ OMX to showcase various technology-driven strategies and tactics successful banks use to fuel profitable, sustainable growth.

What: FinTech Day at the NASDAQ

When: Today, September 8

Where: The NASDAQ MarketSite (4 Times Square – 43rd & Broadway)

Why: Because who says there is no innovation in banking? During this day-long event, we keep our focus on a board’s level, exploring growth opportunities made possible by various technology products and services.

To Watch: We will welcome a number of executives from the Fintech community throughout the day, along with one of the country’s biggest (and actually, oldest) institutions: BNY Mellon. Personally, I’m looking forward to chatting with their Managing Director – Strategic Growth Initiatives, Declan Denehan, at 2 PM ET for an hour-long session focused on innovation, competition and staying relevant. Thanks to our friends at NASDAQ, you can watch the live feed for free (click here to register and watch). At 3:55 ET, I’ll join our publisher, Kelsey Weaver, to ring the closing bell. A webcast of the NASDAQ Closing Bell will be available (click here or here) if you are keen to see how we wrap up FinTech day.

Of Social Note: To follow the conversation, let me suggest these twitter handles: @bankdirector, @nasdaqomx, @bankdirectorpub and @aldominick. For photos from the ceremony and event, you can visit NASDAQ’s Instagram Page or Facebook page later today. As we are all about being a part of the community and broader conversations, Bank Director will use #fintech for its tweets.

August 22, 2014August 21, 2014

Bank Mergers and Acquisitions

Before I head out to California to speak at Moss Adams’ annual Community Banking conference, a look at the principal growth strategy for banks: mergers and acquisitions.

Over the last few years, bank advisers have made the case that consolidation should increase due to significant regulatory burdens, lack of growth in existing markets and aging boards and management teams that are “fatigued” and ready to exit our industry. So as I see prices to acquire a bank on the rise, it is interesting to note that demand for a deal hasn’t slowed. According to Raymond James, there were 136 acquisitions announced in the 1st half of the year versus 115 announced in the first half of 2013. Moreover, total deal value is reported at $6.1 billion versus $4.6 billion in the first half of 2013.

Taking this a step further… While activity in the first quarter of 2014 was only slightly ahead of prior years, the second quarter saw a dramatic increase — 74 deals were announced, which is the highest of any quarter since the credit crisis of 2008. According to this piece by Crowe Horwath (Will 2014 Be the Year of M&A?), annualized, the total number of announced transactions will exceed 260, which is on par with many of the pre-crisis years of the 2000s.

When is a “Deal Done Right?”

As competition to acquire attractive banks increases, so too does the short and long-term risks incurred by the board of an acquiring institution to find the right fits. In many ways, the answer to “what makes a good buy” depends on the acquiring board’s intent. For those looking to consolidate operations, efficiencies should provide immediate benefit and remain sustainable over time. If the transaction dilutes tangible book value, investors expect that earn back within three to five years. However, some boards may want to transform their business (for instance, a private bank selling to a public bank) and those boards should consider more than just the immediate liquidity afforded shareholders and consider certain cultural issues that might swing a deal from OK to excellent.

My Thoughts on CIT’s Acquisition of OneWest

No two deals are alike — and as the structure of certain deals becomes more complex, bank executives and boards need to prepare for the unexpected. The sharply increased cost of regulatory compliance might lead some to seek a buyer; others will respond by trying to get bigger through acquisitions so they can spread the costs over a wider base. So as I consider this summer’s CIT deal for OneWest, I see a real shift happening in the environment for M&A. I see larger regional banks becoming more active in traditional bank M&A following successful rounds of regulatory stress testing and capital reviews. Also, it appears that buyers are increasingly eyeing deposits, not just assets. This may be to prepare for an increase in loan demand and a need to position themselves for rising interest rates.

A “Delay of Game” Warning

While M&A activity levels are picking up in the bank space, the amount of time from announcement of acquisition to the closing of the deal has widened significantly in some cases. As noted by Raymond James earlier this week, “this has been particularly notable for acquirers with assets greater than $10 billion where there have been notable delays in several instances given the greater regulatory scrutiny for banks above this threshold. M&T’s pending acquisition of Hudson City was originally expected to close in 2Q13, and through August 18, 2014, was 722 days from the original announcement on August 27, 2012. This case stands out as a prime example of issues surrounding Bank Secrecy Act (BSA) and Anti-Money Laundering (AML) compliance. A more recent example is the delay in the expected closing of BancorpSouth’s two pending acquisitions (Ouachita Bancshares and Central Community Corporation) that have both been pushed out due to similar issues.”

When it comes to bank M&A, I sometimes feel like everyone has an opinion. I’d be interested in your thoughts and welcome your feedback. To leave a comment on this post, simply click on the white plus sign (within the grey circle at the bottom of this page). I invite you to follow me on Twitter (@aldominick) where you can publicly or privately share your thoughts with me too.

Aloha Friday!

August 15, 2014August 15, 2014

A Pop Quiz on the Future of Banking

I was not planning on a sixth consecutive column focused on non-bank competition; however, as I prepare to present at Moss Adams’ 14th Annual Community Banking conference in Huntington Beach, California on August 26, a “bonus” post on this topic. As you will see, today’s piece builds on the premise that many community bank leaders have real opportunities to expand what banking means to individual and business customers by offering services that go beyond a traditional business model. So to wrap up this week, sharpen your pencils for this pop quiz.

Are WE the generation that has learned how to live without a bank?
So much has been written about millenials learning to live without a bank… but ask yourself: have you learned how to live without your bank? If you could not direct deposit your paycheck, do you have ready alternatives? I thought so. Financing for your house? Your business? I am simply pointing out the inconvenient truth that it is not just the wet-behind-the-ears customers that might already know how to live without a bank. That said, just because many have learned to live “without” a traditional banking relationship doesn’t mean most want to. I will let a thought from Diebold support this thought, but before I do, have to ask:

Who’s getting that Kabbage?

As a platform for online merchants to borrow working capital, Kabbage fills a small business lending gap that I have to imagine many community banks should desire (h/t Mitchell Orlowsky @ Ignite Sales). As I learned this week, Kabbage works with small businesses that are unable to obtain credit from traditional sources. According to TechCrunch, “the startup has closed a $270 million credit facility from Guggenheim Securities, the investment banking and capital markets division of Guggenheim Partners. Atlanta, Georgia-based Kabbage will use the funds to build out its financing business both in the U.S. and beyond. This is one of the largest credit facilities ever issued to a small business lender, and possibly the biggest in the online lending space.” Since opening for business almost three years ago, Kabbage has advanced more than $250 million to small businesses, the company says Just another example of competition facing many business-oriented banks today.

If Diebold can change, why can’t you?
From the outside looking in, one can make the case that the last truly disruptive technology for banks was the ATM. And when you think ATMs, Diebold has to be top-of-mind. So when the technology company acknowledges the following, why can’t more banks course correct and be where people are going (and not where they might appear to be)?

The retail financial services industry is in the midst of an epic change and will soon look very different than it did just a few years ago. Consumers are changing what they want out of their banks. Our research proves that consumers want additional convenience to access their bank anytime, anywhere, anyhow, all while maintaining a personal connection with their bank.

Regardless of how you did on this pop quiz, please feel free to leave a comment below by clicking on the white plus sign (within the grey circle at the bottom of this page). I invite you to follow me on Twitter (@aldominick) where you can publicly or privately share your thoughts with me.

Aloha Friday!

July 25, 2014July 21, 2014

The Bank of Facebook

Part three of a five piece series on emerging threats to banks from non-financial companies. For context on today’s piece, take a look at “For Banks, the Sky IS Falling” and “PayPal is Eating Your Bank’s Lunch” (aka parts one and two).

As banking becomes more mobile, companies that power our mobile lifestyle have emerged as real threats to financial institutions. While common in Europe — where Google, Vodafone and T-Mobile already compete head-to-head with traditional banks by offering mobile and web-based financial services — let me play out a scenario where Facebook decides to enter the banking space in order to remain relevant to its vast U.S. audience.

The New Math?

I recently shared the results of a TD Bank survey — one that shows millennials are banking online and on their mobile devices more frequently than in a branch. In fact, 90% of survey respondents said they use online or mobile tools for their everyday banking activities, such as checking balances or paying bills, and 57% said they are using mobile banking more frequently than they were last year. So add this idea to Facebook’s voracious appetite for views, visitors and preference data at a time when users are dialing back on status updates and not sharing candid photos on the site. The sum of these two parts? It might not be a matter of will; rather, when, Facebook stands up its own online bank in the U.S.

From Concept to Reality?

What I lay out above isn’t a radical thought; indeed, Fortune magazine ran a story on this very topic (Facebook Wants to be Your Online Bank). The authors opine:

Someday soon, Facebook users may pay their utility bills, balance their checkbooks, and transfer money at the same time they upload vacation photos to the site for friends to see. Sure, the core mission of the social media network is to make the world more connected by helping people share their lives. But Facebook knows people want to keep some things — banking, for example — private. And it wants to support those services too.

In a separate piece, Fortune shares “there remains a huge untapped market for banking services, including the exchange of money between family and friends living in different cities, and international money transfers between family in developed and developing countries.”

In fact, Facebook recently made the news when it announced plans to enable commerce from its social networks. According to a post on Pymnts.com (Is Yelp + Amazon the Mobile Commerce Game Changer?), Facebook is testing a “Buy” button that can enable purchasing directly from a promotion inside a user’s news feed. Now, I’m not getting into the social commerce conversation; simply pointing out that Facebook’s dive into traditional banking may not be as far off as some might think.

Banks as the New Black?

Facebook is already a licensed money transmitter, enabling the social media giant to process payments to application developers for virtual products. As much as it has the technological chops — and financial clout — to enter the banking space, its Achilles heal may be the very thing that banks are built on: privacy. Facebook relies on its members seeing and responding to their friends (and acquaintances) activity and updates. Noticing a friend make a deposit to the “Bank of Facebook” or take a loan from said institution might not precipitate your own business. The one thing I can see is an attempt by Facebook to acquire an online bank to jump-start its efforts to reach a specific demographic. In that case, it might be as simple as “the Bank” powered by Facebook. Regardless, I’d keep an eye on Facebook’s disclosures and press releases when it comes to payments, social commerce and financial services.

To comment on this piece, click on the grey circle with the white plus sign on the bottom right or send me your thoughts via Twitter (I’m @aldominick). Next up, a look at the threats posed to a bank’s business by retail giant Wal-Mart.

June 20, 2014June 20, 2014

Know Your Tribe

So… I initially planned to dive into interest rate risk this morning. Prevalent in most M&A conversations taking place in bank boardrooms today, I thought to focus on banks working to protect their equity value as interest rates rise. However, in reviewing the outline for today’s piece, I realized a different kind of risk inspired me: the risk of becoming something you are not. While I do anticipate posting a piece on interest rate risk in the near future, today’s column parallels the thoughts of Seth Godin. Specifically, a blog he authored this week entitled “In Search of Meaningful.”

In his piece, Seth looks at online media and how “people have been transfixed by scale, by numbers, by rankings… how many eyeballs, how big is the audience, what’s the pass along, how many likes, friends, followers, how many hits? You cannot win this game and I want to persuade you… to stop trying.” It strikes me that he could just as well be writing about financial institutions competing for relevance in today’s competitive and crowded environment. While I’ve linked to his post above, see if you follow my logic based on this representative quote:

It’s no longer possible to become important to everyone, not in a reliable, scalable way… But it is possible to become important to a very-small everyone, to a connected tribe that cares about this voice or that story or this particular point of view. It’s still possible to become meaningful, meaningful if you don’t get short-term greedy about any particular moment of mass, betting on the long run instead.

Over the past six months, I have been fortunate to hear how numerous bank CEOs and Chairmen plan to position their institutions for long-term growth. As I process Godin’s perspective, let me pay his perspectives forward with three of my own specific to community banks:

#1 – You Don’t Have To Be BIG To Be Successful

By this I mean smarts trumps size any day of the week. While more banks put their liquidity to work, fierce competition puts pressures on rates and elevates risk. While easy to frame the dynamics of our industry in terms of asset size, competing for business today is more of a “smart vs. stupid” story than a “big vs. small” one.

#2 – You Don’t Have To Be Everywhere

Nor can you be — so stick to what you know best. I know that margin compression and an extra helping of regulatory burden means times couldn’t be more challenging for growth in community or regional banking. But that doesn’t mean you have to be all things to all people. Case-in-point, I was lucky to spend some time with Burke & Herbert Bank’s CEO in Northern Virginia earlier this week. As they say, “the world has changed quite a bit since 1852 (*the year the bank opened its doors) – that you may be conducting most of your life from your computer, smartphone and/or whatchamajiggy. That’s why we constantly adapt to the way you live and bank.” Today Burke & Herbert Bank has more than $2 billion in assets and 25 branches throughout Northern Virginia. Still, they remain a neighborhood bank, choosing to “stay local” as Virginia’s oldest bank.

#3 – You Don’t Have To Do What Everyone Else Does

As Godin writes, the “problem with generic is that it’s easy go as well as easy come.” Just because USAA rolls out a new mobile offering doesn’t mean you need to — and if BofA decides to reprice a product, can you really compete with them on price? So which community banks are doing it right in my opinion? Well, if you’re in Nashville and focused on the medical and music & entertainment industries you probably know Avenue Bank, if you’re a business in the Pacific Northwest, you most likely work with (or at least respect) Banner Bank. And if you are in the oil and gas business in Texas, First Financial is a big player. The common thread that binds these three banks together: they have a laser-like focus on their ideal customer base.

To comment on this piece, click on the green circle with the white plus (+) sign on the bottom right. If you are on twitter, I’m @aldominick. Aloha Friday!

June 13, 2014June 12, 2014

Guest Post: Variety is the Spice of Life

As promised, a special guest author for this Friday’s column: Bank Director magazine’s Managing Editor, Naomi Snyder. Having shared my key takeaways from our annual Bank Audit & Risk Committees conference on Wednesday and Thursday, I invited Naomi to share her post-conference thoughts on my blog. So this morning’s title is as much about truth in advertising as it is an invitation to learn what my friend and colleague deemed timely and relevant.

At Al’s request, I’m going to step in and give a quick recap of Bank Director’s Audit and Risk Committees Conference in Chicago this week. As you can tell from this picture, nearly 300 people attended our conference at The Palmer House hotel and they got a lot of frightening news about risks for their financial institutions, including cyber risk, interest rate risk, compliance and reputation risk in the age of social media. I’m going to address three of those points today.

Interest Rate Risk

Many banks are extending credit at a fixed rate of interest for longer terms in an effort to compete and generate much-needed returns. This will be a problem for some of them when interest rates rise and low cost deposits start fleeing for higher rates elsewhere. You could assume the liability/asset equation will equal out, but will it? Steve Hovde, the president and CEO of the investment bank Hovde Group in Chicago, is worried about a bubble forming, saying he has seen credit unions offer 10- or 15-year fixed rate loans at 3.25 percent interest. “I’m seeing borrowers get better deals with good credit quality than they have ever gotten in history,” he says.

Reputation Risk

In an age of social media, anyone can and does tweet or post on Facebook any complaint against your bank. Cyber attacks, such as the one that befell Target Corp., can be devastating and cost the CEO his or her job. Rhonda Barnat, managing director of The Abernathy MacGregor Group Inc., says it’s important not to cater to TV news, such as telling a reporter that your employee’s laptop was stolen at a McDonald’s with sensitive customer information, prompting a visit by the camera crew to the McDonald’s. Not disclosing how many customer records were stolen could keep you off the front page. Focus on the people who matter most: your customers and investors and possibly, your regulators. They want to know how you are going to fix the problem that impacts them.

Compliance Risk

Regulators are increasingly breathing down the necks of bank directors, wanting evidence the board is actively engaged and challenging management. The official minutes need to reflect this demand, without necessarily going overboard with 25 pages of detailed discussion, for example. Local regulators are increasingly deferring questions to Washington, D.C., where they can get stuck in limbo. When regulators do give guidance, it is often only verbal and can cross the line into making business decisions for the bank, says Robert Fleetwood, a partner at Barack Ferrazzano in Chicago. In such an environment, it’s important to have good relations with your regulators and to keep them informed.

About Naomi: Prior to joining our team, she spent 13 years as a business reporter for newspapers in South Carolina, Texas and Tennessee. Most recently, she was a reporter for The Tennessean, Nashville’s daily newspaper. She also was a correspondent for USA Today. Naomi has a bachelor’s degree from the University of Michigan and a master’s degree in Journalism from the University of Illinois. To follow her wit and wisdom on Twitter, follow @naomisnyder.

June 12, 2014June 13, 2014

The Bank Audit & Risk Committees Conference – Day Two Wrap Up

With all of the information provided at this year’s Bank Audit & Risk Committees conference(#BDAudit14 via @bankdirector), I think it is fair to write that some attendees might be heading home thinking “man, that was like taking a refreshing drink from a firehose.” As I reflect on my time in Chicago this week, it strikes me that many of the rules and requirements being placed on the biggest banks will inevitably trickle down to smaller community banks. Likewise, the risks and challenges being faced by the biggest of the big will also plague the smallest of the small. Below, I share two key takeaways from yesterday’s presentations along with a short video recap that reminds bankers that competition comes in many shapes and sizes.

Trust, But Verify

To open her “New Audit Committee Playbook” breakout session, Crowe Horwath’s Jennifer Burke reinforced lessons from previous sessions that a bank’s audit committee is the first line of defense for the board of directors and shareholders. Whether providing oversight to management’s design and implementation with respect to internal controls to consideration of fraud risks to the bank, she made clear the importance of an engaged and educated director. Let me share three “typical pitfalls” she identified for audit committee members to steer clear of:

Not addressing complex accounting issues;
Lack of open lines of communication to functional managers; and
Failure to respond to warning event.

To these points, let me echo her closing remarks: it is imperative that a board member understand his/her responsibility and get help from outside resources (e.g. attorneys, accountants, consultants, etc.) whenever needed.

Learn From High-profile Corporate Scandals

Many business leaders are increasingly aware of the need to create company-specific anti-fraud measures to address internal corporate fraud and misconduct. For this reason, our final session looked at opening an investigation from the board’s point-of-view. Arnold & Porter’s Brian McCormally kicked things off with a reminder that the high-profile cyber hacks of Neiman Marcus and Target aren’t the only high-profile corporate scandals that bankers can learn from. The former head of enforcement at the OCC warned that regulators today increasingly expect bank directors to actively investigate operational risk management issues. KPMG’s Director of Fraud Risk Management, Ken Jones, echoed his point. Ken noted the challenge for bank executives and board members is “developing a comprehensive effort to (a) understand the US compliance and enforcement mandates — and how this criteria applies to them; (b) identify the types of fraud that impact the organization; (c) understand various control frameworks and the nature of controls; (d) integrate risk assessments, codes of conduct, and whistleblower mechanisms into corporate objectives; and (e) create a comprehensive anti-fraud program that manages and integrates prevention, detection, and response efforts.”

A One-Minute Video Recap

To comment on this piece, click on the green circle with the white plus (+) sign on the bottom right. If you are on twitter, I’m @aldominick. P.S. — check back tomorrow for a special guest post on AboutThatRatio.com.

June 11, 2014June 12, 2014

The Bank Audit & Risk Committees Conference – Day One Wrap Up

Fundamentally, risk oversight is a responsibility of the board. One big takeaway from yesterday’s Bank Audit and Risk Committees conference (#BDAudit14 via @bankdirector): the regulatory framework has changed considerably over the past 12 to 18 months — with less focus being placed on things like asset quality and more on operational risks and new product offerings. To this end, I get the sense officers and directors cannot always wait for the Federal Reserve or other agencies to release guidance to get a sense of the potential impact on their institution.

photo-13 — Frank Gehry’s Chicago masterpiece

Good is the Enemy of Great

Jim Collins once wrote “good is the enemy of great,” opining that the vast majority of companies “never become great, precisely because the vast majority become quite good – and that is their main problem.” I have heard many use the title of today’s piece to explain the unexpected; most recently, while talking with a friend about Jurgen Klinsmann’s decision to exclude Landon Donovan from his 23-man World Cup roster (hence today’s picture c/o USA Today). While I’ll steer clear of any soccer talk until the U.S. takes the field against Ghana in a few weeks, Collins’ statement sparked the three thoughts I share today. Indeed, being “just good” will not cut it in our highly competitive financial industry.

Let’s Be Real — Times Remain Tough

In yesterday’s Wall Street Journal, Robin Sidel and Andrew Johnson began their “Big Profit Engines for Banks Falter” with a simple truth: “it is becoming tougher and tougher being a U.S. bank. Squeezed by stricter regulations, a sputtering economy and anemic markets, financial institutions are finding profits hard to come by on both Main Street and Wall Street.” Now, the U.S. financial sector and many bank stocks have “staged a dramatic recovery from the depths of the financial crisis;” as the authors point out, “historically low-interest rates aren’t low enough to spur more mortgage business and are damping market volatility, eating into banks’ trading profits.” While I’ve written about the significant challenges facing most financial institutions – e.g. tepid loan growth, margin compression, higher capital requirements and expense pressure & higher regulatory costs — the article provides a somber reminder of today’s banking reality.

Still, for Banks Seeking Fresh Capital, the IPO Window is Open

Given how low-interest rates continue to eat into bank profits, its not surprising to hear how “opportunistic banks capable of growing loans through acquisition or market expansion” are attracting investor interest and going public. To wit, our friends at the Hovde Group note that seven banks have filed for initial public offerings (IPOs) already this year, putting 2014 on pace to become the most active year for bank IPOs in a decade. Based on the current market appetite for growth, “access to capital is becoming a larger consideration for management and boards, especially if it gives them a public currency with which to acquire and expand.” If you’re interested in the factors fueling this increase in IPO activity, their “Revival of the Bank IPO” is worth a read.

Mobile Capabilities Have Become Table Stakes

I’m on the record for really disliking the word “omnichannel.” So I smiled a big smile while reading through a new Deloitte Center for Financial Services report (Mobile Financial Services: Raising the Bar on Customer Engagement) that emphasizes the need for banks to focus more on a “post-channel” world rather than the omnichannel concept. As their report says, this vision is “where channel distinctions are less important and improving customer experience becomes the supreme goal, no matter where or how customer interactions occur, whether at a branch, an ATM, online, or via a mobile device.” As mobile is increasingly becoming the primary method of interaction with financial institutions, the information shared is both intuitive and impactful.

To comment on today’s column, please click on the green circle with the white plus sign on the bottom right. If you are on twitter, I’m @aldominick. Aloha Friday!

May 16, 2014May 16, 2014

Time To Sell The Bank?

From the the appeal of spreading into new geographies to the attractiveness of acquiring exceptional talent to drive new sources of revenue, the need and desire to grow exists at virtually every financial institution. For those pursuing another bank, a merger or acquisition (M&A) provides an avenue to drive earnings while improving operating leverage, efficiency and scale. I have written about M&A from a potential buyers point-of-view (e.g. Acquire or Be Acquired – Sunday Recap); today’s piece flips the script and highlights three issues that may precipitate a sale.

2006

2011

2013

Compliance Costs

Banks are facing some very significant challenges in the years ahead — and not just from consolidation. As KPMG shared in its An Industry At a Pivot Point, “the costs and time stresses created by the regulatory environment are not going away, and will continue to affect four areas for banks: strategy and business models, interactions with customers and client assets, data and reporting structures, and governance and risk capabilities.” Certainly, the sharply increased cost of regulatory compliance might lead some to seek a buyer; others will respond by trying to get bigger through acquisitions so they can spread the costs over a wider base.

Capital Concerns

Some banks will have to raise capital just to meet the Basel III requirements, while others will have to raise capital to do an acquisition or support their organic growth. The required levels are so much higher now that banks will have to manage their capital much more closely than they did before. (*If you’re looking for a central resource for the many ongoing regulatory changes that are reshaping bank capital and prudential requirements in the United States, take a look at Davis Polk’s excellent Capital and Prudential Standards Blog.)

Earnings Pressure

As the attractiveness of branch networks and deposit franchises dwindles, lack of top-line growth will lead to further industry consolidation. With little overall changes in our economy, in-market mergers between banks with significant overlap in branches and operations offer tremendous cost-saving opportunities when done skillfully.

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