Executive Summary: More banks are beginning to think about growth, whether organically or through acquisitions. Over the past 18+months, many banks have ignored growth, operating with an understandable focus on survival. These banks may find themselves without the organization, culture, leadership, and market positioning necessary to grow. Management should look back at some of the best banks of the past as it moves forward.

Is the banking crisis over? Analysts such as Tom Brown say it is, and the recent rise in the stock prices of many banks supports such a view. On the other hand, every Friday the FDIC closes more banks (perhaps this Friday, Good Friday, being an exception).

In a recent newsletter we wrote about the challenges of achieving growth in an environment in which the customer is conservative, regulators are increasingly aggressive, and bank management is gun shy and seems incapable of building a growth path.

Further, it is not hard to make the claim that the near-term outlook for the banking industry is negative at best and disastrous at worst. Some factors: Reg. E, expected higher capital levels, restrictions on credit card fees, requirements for increased truth in lending and transparency in multiple consumer areas, low deposit rates, and quality borrowers reluctant to borrow, among others reasons. The worse may be over, but few believe that a rebound will occur without some hiccups.

Growth Emphasis is Returning

That said, a focus on growth is coming. A relative handful of top performing banks are already there, trying to exploit the weaknesses of their bank brethren and take share from the weak or unaware. FDIC shared-loss transactions provide a dramatic example of this approach.

Historically, banks have been notorious for operating with a management style that swings between two extremes. In turbulent times, bank management emphasizes credit and risk management and operates like a fighter in a crouch, trying to avoid getting hit. That continues to be the operating style of many banks today. As times improve and the memory of bad loans disappear, banks often switch into a wide open stance, moving into an extreme sales mode, as per the sub-prime mortgage and commercial real estate disasters.

This time, how do banks move into a growth mode without repeating the same mistakes and reliving a bad loan cycle? One of the benefits (few) of aging is that one has the opportunity to witness many different organizational approaches and assess what works and what tends to fail. Based on that, my view is that most banks today are organized to encourage up and down cycles rather than avoid them. Banks need to look at some of the industry’s all time best players as they consider how to go forward.

Revisit Wachovia and Norwest

Heritage Wachovia, pre-First Union purchase, provides one model for future success in commercial banking. So, too, does the pre-Wells Fargo Norwest. While neither bank was perfect (although some employees of each may disagree with that view) each operated with clear fundamentals and executed effectively day after day.

* Cross-silo cooperation leading to cross-sales. Better than at most banks, these institutions managed to work across internal boundaries to support the client and generate cross-sell income for the bank. Wachovia may have been the first bank to really understand the value of commercial cash management and operated with an early focus on fees rather than loans only.

Dick Kovacevich stated time and time again that Norwest needed to work together and that silos would not be tolerated. Of course, silos continued to exists but not to the extent of most other banks. He pushed his bankers to operate out of their comfort zone. In one speech he compared loans to low cost toothpaste kept at the back of a drug store. Customers walking through to get the bargain were likely to buy other items. His point was that loans were often viewed as a commodity and received commodity pricing. The greater opportunity was in selling the other items, such as cash management, investments, etc.

* Credit as partner. Wachovia personnel often discussed how each corporate account had two bankers assigned to it, a credit officer and a relationship manager. The credit officer was the inside person who seldom met with the client but would direct the credit approval process; the relationship manager (RM) served as the face of the bank and chief sales contact. During the course of a career personnel might shift from one function to the other. While described as equals, the credit person seemed slightly more equal than the RM, as that person was risk management-focused.

Norwest appeared to give greater prominence to the RM, but each unit’s credit head acted as counselor to the lenders and ensured a rigorous approval process. Credit personnel helped to set industry and loan type limits, creating upfront guidance for the sales staff and reducing the tendency for bankers to cut corners.

* Consistency from the top. Much of the above depends upon culture and culture requires consistency and time to become established. These banks did not travel down one strategic direction for a year or two and then veer off into another. Most banks do the opposite, pushing small business for awhile, then, wealth management, then, cash management, etc. all the time losing their focus and, frequently, confusing their customer.

I think it is fair to say that Wachovia and Norwest customers knew whom they were supposed to focus on and what they were supposed to emphasize. Those foundations seldom changed and when they changed the reasoning behind it was clear. This resulted in a fourth characteristic: self-confidence. By that I do not infer wild egoism; rather, these bankers exhibited a positive self-assurance and even calm based on their bank’s focus and capabilities.

Concluding Thought

Unfortunately, but inevitably, the above fundamentals hinge on leadership. In this era, leadership may in part require a willingness to emulate past winners rather than forging a new path to growth.