The GonzoBanker Take: Five Realities for Building a More Valuable Banking Franchise
My colleagues Steve Williams and Scott Sommer attended Bank Director's Acquire or Be Acquired conference recently, and came away with some thoughts on the new realities facing bankers as they cope with a changing industry. In Steve's and Scott's words (with some editorial license taken by yours truly)....
At the conference, US Bank CEO Richard Davis fired up his fellow bankers by exhorting them to “play offense after eight years of playing defense.” He did warn them, however, that the fundamentals of saving, borrowing and spending don’t look that great when compared to bank stock prices, and that many banks are lagging in technology and can’t stay in this position forever.
So, while happy (or happier) days may be here again, this is NOT the time to get cocky. This is the time to use the daylight to go after the tough strategic re-gutting that banks have to undertake. Here are five realities bankers who want to build a more valuable franchise must face:
Reality #1: Today’s Valuations Mean Big Pressure Tomorrow. It’s great to see bankers beaming from rising stock prices, but the fact is nothing has drastically changed with bank earnings fundamentals in the past six months.
Reality #2: The Real Branch Day of Reckoning is Approaching. Too many banks are undervaluing and under-investing in their retail franchises. They're seeking comfort by using the term “branch light” as their future distribution strategy -- a line of thinking about to expire like a Blockbuster membership card.
Reality #3: Digital Readiness Sucks. Bankers intuitively sense that funding is about to become much more difficult than it has been for the past eight years. However, these same bankers operate with digital customer acquisition and cross-sell capabilities that look more like a government bureaucracy than an agile innovator.
Reality #4: Technology Execution Cannot Be Outsourced to the Cloud. Banks are struggling to inject more technology mojo into their organizations. While there was plenty of vendor-bashing going on a the conference, there wasn't enough discussion about how banks, technology providers and FinTechs can work together productively to drive future value (for more on the harsh realities of this, see The Foolish Fantasies of Fintech/Bank Partnerships).
Reality #5: Value Will Flow to Those Who Get Better as They Get Bigger. Consolidation is gearing up rapidly for bankers, especially in the mid-size segment, where new regional players are being birthed by rapid-fire serial acquisitions and jaw-dropping mergers of equals. The real creators of value in the next five years will be the banks that use these brief good times as cover to execute on the more wrenching fundamental changes that need to occur to create highly-focused, knowledge and technology intensive modern banking players.
To read the full article, go to GonzoBanker.com