Banks: It’s Over When I Say It Is

November 4, 2009

Yesterday, I found this cartoon at Calculated Risk:

recessionover

It’s a good reminder that—regardless of what the government, economists, or the media say—the bottom 98% of Americans will decide when the recession is over.

Which means that, until employment heads toward pre-recession levels, until there is reasonable access to credit, and until there are day-to-day proofs that the worst is behind us, most Americans will remain in a recession mindset.

What can banks do to scatter the clouds?  Here are a couple of suggestions:

  • Employment Loans
    Grant qualified business (especially qualified small businesses) loans for the express purpose of  hiring workers.  Many businesses are struggling to operate with too few employees.  Enable them to increase their rosters to functional levels and make a dent in unemployment rates.
  • State Vacation Loans
    Support the state(s) you do business in and help your customers take a much-needed vacation.  Offer small, low interest loans not secured by home equity for vacations taken within their own state as an alternative to credit card financing. You get loan income and customer loyalty, while more vacation money get spent in-state.

I just pulled these out of the air, so feel free to dismiss them.

It’s not specific suggestions I’m pushing—it’s the process of developing ideas that will:

  1. Directly profit the bank
  2. Help speed a recovery

Despite the seemingly contradictory nature of the two goals, the process does work.  A great resource is The Opposable Mind by Roger Martin.  It’s about not abandoning either 1 or 2 (or settling for compromise), but coming up with a third solution that gives you the best of both worlds.

The process requires some serious out-of-the-bank thinking—you may even need to bring in outside brain power—but the returns will be worth it.

For most Americans, claims that the recession is over prompt either rage or derisive laughter.

By acknowledging their reality and doing something about it at the community level, you’ll earn their trust in the most fundamental way—by doing instead of talking.

Cartoon from Eric G. Lewis

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Posted by tombrzezina

Its a Bird. It’s a Plane. It’s a Bank. (The Prequel)

October 15, 2009

brooklyn-superhero-supply-co

I just thought of something that should have preceded my last post, so please read this first:

There’s been a lot of talk over the past few months about whether the recession has permanently changed consumer spending habits; I’ve yet to hear anything about corporations permanently changing their spending habits.

They’ve been working very, very hard at doing more with less (i.e. with fewer employees).  Why would they return to doing less with more?  Most of those jobs may be gone for good.

Which means that millions of workers may have to look elsewhere for employment.

The majority will be sending their resumes to small businesses. Unfortunately, they may be better off saving the postage.  The hope of small business absorbing a meaningful percentage of our unemployed workers is getting dimmer by the day.

Is it time for banks to don their tights and capes for America?

Continued in my previous post.

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Posted by tombrzezina

It’s a Bird. It’s a Plane. It’s a Bank.

October 14, 2009

The market hit 10,000 today, banks are paying out record bonuses, and at least one writer has declared that, for banks, the recession is over.

In a post about JP Morgan Chase, JJ Hornblass wrote that focusing on credit losses distorts the real picture:

“The mark of the end is in net-interest margins, originations, relative stabilization of loss reserves, and elsewhere. Again, JPM’s credit card unit offers a fine example. JPM’s cards produced net-interest margins 9.10% last quarter, up a hefty 47 basis points from the second quarter. That’s a notable jump in margin. You see similar positives sprinkled throughout JPM’s earnings, such as appreciation in the bank’s leveraged loans portfolio. In all, JPM reported net income of $3.6 billion on revenue of $28.8 billion.

“What these factors imply overall is that the banking business today and going forward is healthy.”

Does this mean that banks will finally start loosening up some lending money for small business?  Unfortunately, that doesn’t seem likely.  Since the bailout, banks have reduced lending at the fastest rate on record.

MW-AC114_capito_MD_20091008132538

Here’s what William C. Dudley, president of the Federal Reserve Bank of New York, had to say in a recent speech:

“For small business borrowers, there are three problems. First, the fundamentals of their businesses have often deteriorated because of the length and severity of the recession—making many less creditworthy. Second, some sources of funding for small businesses—credit card borrowing and home equity loans—have dried up as banks have responded to rising credit losses in these areas by tightening credit standards. Third, small businesses have few alternative sources of funds. They are too small to borrow in the capital markets and the Small Business Administration programs are not large enough to accommodate more than a small fraction of the demand from this sector.”

Atlanta Fed research economist, Dr. Melinda Pitts, is equally pessimistic:

“Looking ahead, it’s not clear whether small businesses will continue to play their traditional role in hiring staff and helping to fuel an employment recovery.”

Small businesses have typically been responsible for about 45% of all U.S. employment.  It’s doubtful they can take that on again without access to credit.

Banks with courage to do so have an unusual opportunity to be heroes here. That’s right, I said heroes. By jump-starting small business, they could actually help end the recession for those outside the banking industry.

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Posted by tombrzezina

One Movie Every Banker Should See

October 5, 2009

Picture 1

Even if you despise Michael Moore and everything he stands for, you need to see Capitalism: A Love Story.

Leave your politics, ideology, and industry pride at the door, and try to view the film as an outside-in exercise.  Watch it to gather intelligence about how people feel toward big banks and why they feel that way.

If you’re a community bank, watch closely for strategic clues.

This is a dispatch from the real world.  The overdraft rage we’re currently experiencing is the tip of an immense iceberg.

Pay attention.

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Posted by tombrzezina

The Post-Recession Bank: Business as Usual?

June 11, 2009

recessionPeople’s attitudes about banks have changed.  They’re angry, more skeptical, and increasingly less loyal.

These attitudes many not be permanent, but they’ll likely be around for a quite a while.  A recent TNS survey, covering the period 10/08 through 4/09, reveals how customers feel about their regional and community banks:

  • My bank is an institution I can trust – down from 41% to 36%
  • My bank makes me feel safe about my money – down from 35% to 33%
  • My bank is reliable in dealing with my money – down fro 42% to 37%

According to Ron Shevlin, senior analyst with the Aite Group:

“Banks have deceived themselves for a long time about the extent to which their customers trust them. Consumer perception of trust is shaped by the degree to which banks are easy to do business with, the extent to which they respond quickly to requests and inquiries, and banks’ ability to make their rates and fees clear—all of which banks score poorly on.”

It’s clear that banks are going to have to change.  Unfortunately, many banks have no intention of doing so. Lawrence Summers, the president’s chief economic advisor, recently told banking chiefs that they were failing to grasp “the depth of public anger.”

To be fair, politicians and the media are responsible much of this anger.  But that doesn’t make it any less of a reality. And it doesn’t mitigate the need for change.

According to Elizabeth Warren, chair of the Congressional Oversight Panel, many banks are wearing blinders. “Instead of arguing that they are not in bad shape and that they are secure,” she says, “why not make changes now that display the recognition that the future is not going to be anything like the past?”

There is opportunity here for banks that are open to change.  Those that aren’t may be in for an unpleasant surprise.

“Recovery,” says Warren, “does not mean a return to 2007.”

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Posted by tombrzezina