The accompanying quote by Rahm Emanuel provides words to live and act by for bankers facing an unprecedented environment of uncertainty and volatility. Companies can and must challenge themselves to act differently than in the past. We are experiencing a once-in-a-lifetime crisis that may also provide a once-in-a-lifetime opportunity for senior bankers.

Opportunity One: Reorganize
Many banks have too many managers and not enough doers. The current environment offers a chance to change that. For example, many banks are slowing their commercial loan growth, choosing to emphasize quality over growth. Bankers who were once supposed to be focused on marketing (many did not) are now meant to focus on risk management, an expertise that eludes many of them.

 

Why not centralize more of the portfolio risk assessment function, giving increased responsibility to credit experts? This reduces the load for many RMs and allows banks to cur front line staff. Our point is that mediocre salespeople can be cut near term, freeing up dollars; as the economy straightens out (in late 2009?) the bank can begin to rehire in this area and up tier to better staff. Banks never should have allowed mediocre performers to stick around; now, they really cannot afford it.

 

Most banks have multiple areas that they can explore for restructuring/rationalization opportunities that can reduce costs without harming client relationships.

 

Opportunity Two: Reposition The Bank with the Customer
A UK-based study discussed in Tuesday’s Financial Times underscores the need to change the customer/salesperson relationship. They quote the study: “The average sales person is a pleasant individual who knows a lot about their products, but fails to position themselves in such a way as to distinguish either their company or product from the competition, or to solve the customer’s problems.” The FT writer goes on to comment: “Sellers get beaten up on price. They cease being an agent for their own company and instead act as an agent for the customer, giving up profit margin just to close a deal.” Sound familiar?

 

Versus the above passive/reactive sales stance, consider a contrasting situation offered by a Wells Fargo regional executive at a Chicago meeting of commercial bankers held a week ago. At least in some cases, Wells is approaching its commercial customers and asking for an increase in loan margins for existing two-three year deals. We know many banks that are raising rates at loan renewals (by the way, typically by too small an amount) but this is the only instance we have heard of a bank increasing rates mid-loan. The Wells exec stated that customers go along with this increase, even though they are not obliged to do so. Why? Partly because of the existing relationship and partly due to the view that if the customer agrees to Wells’ request, in the future Wells will be there for the customer.
Lenders may have a once-in-a-generation opportunity to reprice while making the customer feel good about them. In our view, most banks are too tentative in pursuing loan repricing; in our view, borrowers want to be assured of availability and, within reason, are willing to pay anything for it.

 

Opportunity Three: Have the Fortitude to Pick a Path and Stick with It
At the same Chicago meeting, a BB&T banker described his bank’s evolutionary approach to commercial banking. He discussed the bank’s various sales and sales management initiatives, leading to its relatively recent focus on positioning the bank as a trusted advisor to its clients. Two points: first, the trusted advisor initiative comes after 20 years of other activities to enhance the banker’s knowledge base, focus, and capabilities. Too many banks seem to wake up one day and try to declare themselves as advisors to the customer, while lacking the mind set and customer relationships to make that work.

 

Second, BB&T could outline and present each of the initiatives it had introduced over the past 20 years and show both linkages and transitions from one to another. Most banks could not even list all the initiatives and programs they have pursued over the last 20 years; most certainly, they could not offer a coherent theme running through them. FIC’s recent situation with two banks is more typical. These companies approached us about doing work in an area in which we had previously completed an engagement for them, without knowing we had even been there. They had no institutional knowledge to leverage. Throughout the commercial banking space we find too much turnover among key managers. The development of a BB&T culture demands continuity in personnel and in strategic focus. Too often, bank management flits from one strategy to another, losing focus and failing to encourage the development of a unified culture.

 

Concluding Thoughts
Most analysts believe that the current environment of volatility will be with us for quite awhile. Management has many challenges in maneuvering through tough times. However, many of the best banks we know are using this time as one in which to rethink and challenge themselves and their staffs. Better you proactively challenge and change yourself rather than wait for the external environment to force you to change.