Asset Based Lending
Chief Investment Officer
Commercial Loan Automation
it's strategic planning season again
Quotes of the
week: "The problem with socialism is that eventually you
run out of other people's money." Margaret Thatcher
legislate the poor into prosperity by legislating the wealthy out of
prosperity. What one person receives without working for,
another person must work for without receiving. The government
cannot give to anybody anything that the government does not first
take from somebody else. When half of the people get the idea
that they do not have to work because the other half is going to take
care of them, and when the other half get the idea that it does no
good to work because somebody else is going to get what they work
for, that my dear friend , is the beginning of the end of any
nation. You cannot multiply wealth by dividing it."
continue to pour in from the last two articles. Here's one of
note: "As we consider the media frenzy, it is also
important to note that journalists and readers are also influenced in
no small part by a continuing governmental diatribe. That
diatribe similarly paints with a broad brush the evils of bankers and
presents its reform efforts as a necessary intrusion to enable the
banking system to again carry out its proper role in society.
notion of governmental intrusion into heretofore private industry is
discussed, in a not-too-charitable manner, in an article by Amity
Schlaes in the August 3, 2009 edition of Forbes (p. 21). Ms.
Schlaes is a senior fellow in economic history at the Council on
In that article, she comments that
government reformers view themselves as morally superior, but it a
mere illusion as they succumb to the same drive of private business
to do that which is in their own interests rather than of society's.
One obvious result is "taking advantage of an economic
crisis to aggregate power for themselves and their offices."
Examples she notes include the AIG takeover and the exercise of
corporate management in the auto-industry."
Dave Holmes, VP at Whitney Bank: "Further to your spot-on
call to action: An article on the front page of last weeks
Mobile Register read: "Banker Convicted of Bribing local
official (in Birmingham, AL)."
1.It was not a
"banker" but rather an "investment banker";
2. He bribed a
local official to get the deal for some Jefferson County bonds;
3. He was also
the Head of the Democratic State something or other (I don't have the
article any more).
The headline (
which most readers don't get passed) make us Banks look like the
evil, cheating capitalists. Journalism is indeed in the tank."
And I'd say, the
reputation of the commercial banking industry is in the tank.
On the personal
side, Guy, Monica, Isabella (4) and Cecilia (1) spent two days at our
house for the very first time. We were very excited! My
good friend Hiroshi Ueno (who translates this column for our
Japanese readers) and his son Kohei came to visit and enjoyed Napa
winery tours with Liat and us; and Arik, Dick and I spent a few
character-building days in Utah in the wilderness. to be followed by
a couple of days in LA helping Gil set up his room at his fraternity
and go on a huge shopping spree at Costco for his supplies.
These were great two weeks for family time!
is the start of our Forum season, and I'm really looking forward to
it. I want to thank every one of our members for your continued
support and encouragement. Thanks to you we are celebrating
TWENTY YEARS OF FORUMS this month, and did not have to cancel a
single meeting for the fall season. Our members know that the
Forums produce great returns for their shareholders, and perhaps
even more so during these tough times. Again, THANK
Have a fabulous back-to-work (for
some of us is "still-at-work")
synopsis : Strategic planning can and should be a substantive,
not paper-intensive, process. Below are some thoughts on
the key environmental factors that need to be considered during this
IT'S STRATEGIC PLANNING SEASON AGAIN
Second quarter earning season is
almost over, and strategic planning season is upon us. The
financial analysis is almost done, peer information has been
prepared, and now comes the really tough part: what should we
plan for in 2010 and beyond, during these times of tumult and
I hope the thoughts below will help
you as you dive deeper into your plans.
Too many banks. The industry is bound to continue
reducing capacity, not only through FDIC assisted deals but also
through natural consolidation (such as the First Niagara-Harleysville
merger). We have not reduced capacity in our business for
years. Instead, we continued to build branches. Investor
capital flocked to deposed CEOs in hopes of getting yet again 3X book
after 5-7 years of ballooning the balance sheet with brokered CDs and
shared national credits. Those days are over, as we all know.
Discipline has returned to the markets, as well as hard times instead
of go-go days. The result is a welcome "ventilation of the
system" which will yield many opportunities for surviving banks
to prosper further by acquiring other banks, branches or branch
systems, lifting out banker teams and snagging customers from their
- Changing customer views. High rates used to be the main
attraction to retail customers. Today they are viewed with some
suspicion, as they imply to many a bank that is having difficulty
raising deposits. Perhaps I'm giving too much credit to the
market, but it is a fact that the megabanks have attracted more than
their fare share of deposits since they have been unofficially
declared "too big to fail." So today, high rates
might connote problems, not bargains. At the same time, how do
community banks combat this new market positioning that the largest
banks have attained with the government blessing? There are
significant differentiation implications following this shift in
market perception. Big banks might still be perceived as the
big bad banks, but they are safe...
- Balance sheet discipline. Second quarter earnings
clearly demonstrated to me that there is a bright line between those
banks with balance sheet discipline and those who temporarily put it
on hold to capture what they thought were irresistible
opportunities. Banks operating in the very same markets have
markedly different asset quality, funding and capital profiles,
depending upon their core strategy and the will to say "no"
when an asset category exceeds their risk-based-capital limits.
Those banks that put limits on commitments vs. outstandings; who used
fine categories vs. gross ones (e.g. office space vs. commercial real
estate); who did not leverage the balance sheet using borrowings and
wholesale funding sources beyond a small percentage; who included
deposits as a major category in their Relationship Managers'
incentive compensation more than two years ago; and who had little
tolerance for credit exceptions; those banks have done better than
others regardless to the market. The point is, community banks
reflect the communities in which they operate, and, as such, when the
market tanks, so does the bank (Michigan is a good example...).
At the same time, internal discipline is the differentiator for those
who turn around the earliest and who suffer the least. Refining
and intensifying this discipline is an important element to today's
strategic planning, one that should not be forgotten as the economy
turns around and times get better.
- Differentiation from the mega-banks. We should all
recognize that what's important to us is not necessarily relevant to
the big banks. This is not just a scale statement. It is a
market positioning and value proposition statement. Cross
selling is far more important to community banks than to their
largest brethren, for example. It goes well beyond business
tactics, though. Credit woes plague so many of us, but the
larger banks can handle them better because their balance sheets are
far more diversified across industries, geographies and also
businesses (beyond commercial banking). Similarly, when
consumers change their behaviors to reduce NSF incurring activities,
we all suffer, but community banks suffer more, since they do not
have as many sources of fee income as do the largest banks.
Understanding the differences and managing them are both risk
reduction tools as well as differentiation
- Equity markets are open for business again. This is true
not only for capital raises, both public and private. While this is a
momentous development that will facilitate consolidation and bank
growth, it also presents other opportunities. This is a great
tie for public banks to clean house, develop a story and start
executing on it. Analysts will listen. This isn't the
time to figure out how to "make the quarter." Not
that there is ever a good time for that, but the temptation is strong
at times. Right now the difference in stock performance across
the entire SuperCommunity Bank spectrum is generally small, and often
not directly related to performance. Analysts expect the worst
and indeed have their expectations met in most cases. However,
they are also looking for stories, for banks which might be seizing
opportunities even as the storm rages on, and who can fit those
opportunities within their strategic story and identity.
Showing the likelihood of future earnings is a great plus in every
environment, and especially today. Ironically, today's stock
prices are based more than ever on tomorrow's financial
In sum, this year's planning process
can be your opportunity to reinforce your strategic focus and sharpen
it, identify 2-4 strategic drives that will help your balance sheet
create future consistent earnings, make the investment necessary to
get there if you have the capital or can raise it, and then execute,