1 Preserve capital and liquidity.
We don’t know how bad the economy is going to get, so 2009 is about survival. Make sure the basics are covered. You need the right capital levels and the right liquidity. You must manage both in order to survive.
2 Manage credit.
Earnings are correlated to the quality of credit on the balance sheet, so managing that risk is central to an institution’s survival in 2009. Focus on testing your portfolio for credit stresses, underwrite more selectively, and emphasize diversification and pricing efficiently. And continue to focus on gathering inexpensive deposits, particularly checking accounts.
3 Define your value proposition.
It’s not about rates; it’s about service and value. Banks and credit unions must decide where they derive value and what it means to the marketplace. Can you articulate that value and execute the value proposition? Can you protect it from competitors? Simply offering high CD rates doesn’t build value and banks won’t have the margins for that in 2009. Instead, focus on building your brand. Does it mean shorter teller lines? More specialized products? Staying open seven days a week? PNC Bank’s “Virtual Wallet” and Bank of America’s “Keep the Change” programs are excellent examples of how to define a value proposition. The financial industry has typically been very traditional in its marketing, but you can’t excel in defining value if you don’t walk the walk.
4 Slash overhead.
Examine your branch structure and close those that are not efficient, which will boost your institution’s overall profitability. As of August 2008, some 28 percent of branches were not profitable, and regional banks and smaller institutions especially need to put systems in place to know which branches must go. Otherwise, the marketing budget is the first to get cut, which is usually a mistake because building a brand is so important today. Instead, quantify your marketing tactics and support the programs that get a good return. Both efforts will go far to improve profitability.
5 Take advantage of technology.
Expand cash management products (such as sweep accounts), online tools and, for business account holders, remote deposit capture. Technology is an efficient and inexpensive way to get closer to the account holder. It doesn’t involve a huge capital outlay. Yet financial institutions have not been as forward-thinking as technology companies and retailers in this regard.
6 Think like Wal-Mart and Target.
Bankers are good at managing credit and deposits, but not as good at selling them. That’s because they don’t tend to hire based on sales skills. The sales stream for bank officers pales in comparison with those of pharmaceutical reps. Even Starbucks baristas are likely to get more sales training than many bank employees do. Just as Target sells consumer products, banks and credit unions sell financial products and advice. So, think like a retailer. Hire not for financial expertise, but for superior sales ability, because it’s easier to teach banking knowledge than it is to teach sales skills. In addition, offer sales training, and put systems in place to track the sales process and identify profitable account holders.
7 Limit your metrics.
Focus on a limited number of metrics to measure in 2009, such as earnings per share or credit quality. And make sure the whole organization knows it. With resources stretched to the max, it is better to identify two or three categories to measure, and make those a priority, than to spread your focus thin with too many goals.
8Segment your account holders.
Determine which account holders are profitable and design marketing strategies to reach them, rather than segmenting only by territory and radius. Instead of a one-size-fits-all approach, tailor products and price accordingly. For example, “platinum level” accounts for small to midsize businesses are highly profitable, with higher balances, more fees and less rate sensitivity. In fact, business accounts can be a route to profitability in 2009 because they often require more loans and present less credit risk than retail accounts. Targeting specific industries, instead of trying to be everything to everyone, is a valuable strategic initiative during tough times. Then, your value proposition is that you understand the needs of that industry better than your competitors. The strategy is to wean account holders away from rate sensitivity and make them more service sensitive.
9Focus on account bundling.
This is a fairly new concept that large banks have done well, but which small to midsize banks and credit unions have not fully embraced. It means identifying profitable products and selling more of them by bundling them as customized solutions. This requires training your representatives to probe for the financial goals of the account holder. For instance, account holders may think they want to open a checking account, but what they really want is to manage money for a new business or save for their children’s college education. Banks and credit unions need to be proactive in suggesting which bundled solutions would be appropriate. This requires a high level of customer service.
10Market hope, not fear.
Account holders understandably are worried. Bolster them with your confidence. And remember that now is the time to take advantage of market conditions.
Chris Nichols is president and CEO of Banc Investment Group LLC.