Three Observations From Bank Director’s 2015 Acquire or Be Acquired Conference (Tuesday)

News and notes from the final day of Bank Director’s annual Acquire or Be Acquired conference.

Key Takeaway

As always, the one constant in life is change.  Right now, with deflation in the Eurozone (is it time to bid Greece goodbye from the EU?), declining oil prices and the sluggish growth of the U.S. economy, optimism about banking’s future is tempered by present uncertainties.  As we heard from KBW, a handful of factors have contributed to the slower pace of our economic recovery:

  • Resetting of global GDP growth expectations;
  • Europe nearing closer to deflation;
  • Japan expanding its stimulus spending;
  • Modest wage growth; and
  • Conservative consumer and small business confidence.

Nonetheless, there is a true sense of optimism permeating the conference here at The Phoenician… especially in terms of the future of community banking.

Trending Topics

A spirited half-day of conversations and presentations that ranged from capital raises to digital growth opportunities.  With respect to trending topics, I made note of the following: to drive growth, the biggest banks are exploring opportunities in three areas: (1) deals for smaller product/technology/capability based companies, (2) analytics and (3) digital; as I noted on Sunday, bank M&A deals per year (as a % of total banks) are at historically high levels — and we see banks with strong tangible book value multiples dominating the M&A space; finally, there is a widening gap in terms of buyer valuations meeting seller expectations.

Picked Up Pieces

I made note of the following this morning:

  • Google’s partnership with Lending Club came up early and sparked quite a few sidebar-type conversations;
  • New skills, better analytics is where bigger banks are struggling the most.
  • Per Josh Carter at PwC, mobile phones, wearables and integrated devices (car, shopping cart, item RFID tags) have barely scratched the surface in terms of how they will shape our lives.
  • Several presenters noted the multi-charter bank model is under pressure.
  • Looking ahead, bank stocks may struggle to outperform the broader market if unable to meet earning-per-share (EPS) expectations.
  • By extension, if the Federal Reserve does not raise interest rates, EPS estimates will be at risk for negative revisions.

I will post a recap video tomorrow morning on About That Ratio and you can use the hashtag #AOBA15 to read through the last three days tweets.  Now, it is time for me to head out to the golf course to shake off the rust at our annual golf tournament.

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

bd8a817e833e9bb01ddf91949fce917bAs 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!