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Emily McCormick:

Less than two weeks until Acquire or Be Acquired! Bank Director President Al Dominick previews some of the issues that will be addressed in Arizona.

Originally posted on About That Ratio:

On Sunday, January 25, we kick off Bank Director’s 21st annual “Acquire or Be Acquired” Conference (@bankdirector and #AOBA15) at the luxurious Phoenician resort in Scottsdale, Arizona.  I am so very excited to be a part of this three day event — and am supremely proud of our team that is gearing up to host more than 800 men and women.  With so many smart, talented and experienced speakers on the agenda, let me share a primer on a few terms and topics that will come up.  In addition, you will find several links to recent research studies that will be cited before I share one example of the type of issues being both presented and addressed at “AOBA.”

Colorful Language

Just as M&A is a colorful — and complex — issue, so too are the words, terms and considerations used by attorneys, investment bankers and consultants in management meetings, in the boardroom…

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Best Banking Reads of 2014

steamed coffee

What a year it’s been for the banking industry! From threats from outside the industry by Apple and Wal-Mart, to questions on whether Colorado and Washington banks should work with legal marijuana businesses, to regulatory shenanigans at the New York Fed, 2014 has been memorable. As the holidays approach and I think back on the year that was, I thought I’d take a few minutes to share some of the banking-related stories I enjoyed in 2014.

Regulations

  • Banks given the go-ahead on working with marijuana businesses: Marijuana may be legal in some states, but that doesn’t mean banks are ready to work with marijuana businesses.
  • How to Punish a Bank: This is from National Public Radio’s Planet Money, so it’s more of a listen than a read, but delves into the problems of effectively punishing the big banks.
  • Bank of America Adds a Mortgage Settlement to Its Collection: Bloomberg’s Matt Levine (also cited in the NPR segment) provides the data on (at the time) Bank of America’s $68 billion in mortgage settlements, and asks how effective these penalties and fines are when they become business-as-usual.
  • Inside the Emerald City: Jack Milligan, editor of Bank Director, delved into the culture of the NY Fed following concerns that regulators got just a bit too cozy with the big banks they oversee.

NonBank Competition

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Emily McCormick:

Who would you add to this list of the top community bank CEOs?

Originally posted on About That Ratio:

We are getting close to that time of year when people start writing their top ten lists, providing year-in-review posts and taking out the proverbial crystal ball.  In this spirit, my post-Thanksgiving piece provides a list of bank CEOs I met this year that impressed me with both their bank’s performance & personal leadership styles.  From the outside looking in, I have to assume shareholders and employees alike appreciate what each has done for their organization.

Wait, this isn't Bank Director's news team... Look at this leadership

A few days ago, David Reilly authored a piece in the Wall Street Journal entitled “Wanted: Dance Partners for Bank Merger Ball” (sorry, registration required).  Citing Bank Director’s annual M&A research report, he reminded us that it takes two to tango — and “that is still the issue for investors expecting, or hoping for, a significant pickup in bank merger activity in 2015.”  As we showed in our survey of about 200 bank directors and executives…

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Are bankers dishonest?

Honest Abe is not impressed.
Honest Abe is not impressed.

A team of Swiss economists claim that the business of banking makes industry employees more dishonest.

“Our results suggest that the social norms in the banking sector tend to be more lenient towards dishonest behavior and thus contribute to the reputational loss in the industry,” says Michel Maréchal, Professor for Experimental Economic Research at the University of Zurich.

I take the conclusions of this study with a heaping dose of salt: Much of the results center on the employees of ONE BANK, and I have strong reservations about a study that is so influenced by the culture of one company. Frank Eliason, global director of the client experience team at Citigroup, expresses similar concerns–and makes an excellent point about the very real reputation damage the industry has witnessed due to some very bad eggs.

And that’s very true. According to Edelman, the financial services industry remains the least trusted industry globally. American sentiments trend with those worldwide–almost half say that there’s not enough regulation of financial services–but here’s a silver lining: Trust of financial institutions has grown in the past year.

One of the Swiss study’s authors, Alain Cohn, thinks some type of Hippocratic oath for bankers would address the issue.

If an oath like this were supported with a corresponding training program in ethics and appropriate financial incentives, this could lead bank employees to focus more strongly on the long-term, social effects of their behavior instead of concentrating on their own, short-term gains.

I’ve met bankers from all across the U.S., and I have a hard time buying that they’re inherently more dishonest than those in any other industry. But both Eliason, in his post, and the Swiss study’s authors (in a roundabout way), allude to the importance of culture. In Bank Director‘s own research, we’re seeing this more and more as a common theme, with the 2014 Compensation Survey underscoring the importance of culture in attracting talent and the 2015 Bank M&A Survey revealing the challenges bank boards and management face in integrating the purchased bank into the surviving institution–and this includes the bank’s culture. Bank Director Editor Jack Milligan wrote recently about the importance First Financial Bankshares CEO Scott Dueser places on culture, concluding:

And you can’t provide great customer service if your employees hate their jobs, which is why First Financial places so much emphasis on training, career management, empowerment, recognition and, yes, compensation.

It’s probably an axiom that only happy employees can provide great customer service, just like the best milk comes from contended cows. So if customer service is one of your core business strategies, make sure your bank is providing an environment where people enjoy coming to work every day and love what they do.

Eliason, I think, makes a similar point:

…it has to do with experiences we, as an industry, have created for Customers. Change must happen, and it must happen now! Stop worrying about studies, or even these headlines, but instead focus on your Customer, and they will return the favor. The fact is Customers are people and our business has always been about relationships. It is time we concentrate on those relationships.

Banking isn’t evil, and many bankers aren’t dishonest. But negative public perception of the industry is very real. Positive customer experiences–the result of an ethical, client-friendly and employee-friendly culture– will go a long way in restoring trust in the banking system.

Growth Driving Hires, But Many Banks Still Don’t Tie Pay to Performance

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What’s going to be the primary driver for executive hires at the nation’s banks in 2015? Growth and strategy, say a whopping 80 percent of the 175 bank CEOs, human resources officers, chairmen and board members participating in an audience survey at Bank Director’s 2014 Bank Executive & Board Compensation Conference yesterday at Chicago’s Swissôtel. Meyer-Chatfield Compensation Advisors sponsored the survey. Just 4 percent expect regulations to drive hires.

This lines up with what we saw in the 2014 Bank Compensation Survey earlier this year. And it looks like competition for lenders will remain tough in 2015–62 percent expect to see the strongest demand for lending executives next year, an increase of 41 percent from lending hires in 2013 (also according to the 2014 Bank Compensation Survey). And despite the banking industry’s struggles to keep up with innovation, just 14 percent expect technology executives to be in high demand.

One-quarter of respondents expect at least one key executive departure in 2015. Departing talent may prove difficult to replace, as 41 percent say a lack of talented candidates in their market is the most challenging aspect in attracting executive hires.

Almost half of the respondents cite corporate culture as the primary factor that makes their bank attractive to potential hires, while just 4 percent cite the bank’s compensation program. That said, tying compensation to performance, at 59 percent, remains the top compensation challenge facing bank boards, and 40 percent say that the development of competitive compensation packages is the most challenging aspect when it comes to attracting and retaining talent. There’s no doubt that aligning pay with long-term strategy continues to challenge bank boards: In an audience survey later in the day, 68 percent revealed that tying pay to performance is a bigger challenge for compensation committees than dealing with regulation.

Despite these challenges, almost 40% don’t believe that CEO pay should always be directly tied to the bank’s performance, as revealed in an audience survey later in the day.  Previously, the 2014 Bank Compensation Survey found that less than half of respondents tied CEO pay to the bank’s strategic plan, and more than one-quarter said that CEO compensation was not linked to their bank’s performance.

Interested in more highlights from the 2014 Bank Executive & Board Compensation Conference? Al Dominick, Bank Director’s president, provides his perspective on About That Ratio, and highlights why banks must reward creativity and innovation HERE. Editor Jack Milligan explains the importance of corporate culture HERE.

Access for All?

Lock

The 2013 FDIC National Survey of Unbanked and Underbanked Households was released yesterday, and the number of unbanked and underbanked households in the U.S. hasn’t budged much in the last two years (the total percentage has declined slightly, to just under 28 percent, since 2011). Just under eight percent are unbanked–almost 1 million households. Of these:

  • Almost half (46 percent) have had a bank account in the past.
  • Seventeen percent currently don’t have a bank account due in part to their credit history.

Not surprisingly, the unbanked are highly reliant on alternative financial products:

  • 27 percent of the unbanked used prepaid cards, compared to 12 percent of households overall. Two-thirds of those that used prepaid cards in the last 30 days are unbanked or underbanked.
  • More than half used money orders in the last 30 days, versus less than 10 percent of all households.
  • Thirty-nine percent used checking cashing services, compared to just three percent of all households.

The FDIC and and the Consumer Financial Protection Bureau have been pretty vocal about the fact that they want to decrease consumer use of alternative financial services. Will these regulators make a move to ensure that more Americans have access to a bank account? Last summer, New York Attorney General Eric Schneiderman convinced Capital One Financial Corp. to amend its use of ChexSystems, a database used by many banks to screen applicants for fraud and credit risk. A 2009 report from the FDIC found that almost 90 percent of banks use a credit-screening database like ChexSystems, and one-quarter reject an account application due to a negative result. Earlier this month, Richard Cordray addressed the CFPB’s areas of concern on the matter, which boil down the three areas:

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Emily McCormick:

What are your thoughts on the future of banking? Al Dominick wants to know.

Originally posted on About That Ratio:

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…

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