BHCA seminar offers solutions for success in banking

Northwestern Financial Review, Nov 1-Nov 14, 2003 by Bengtson, Tom

Anat Bird, the fast-talking industry consultant, economist Preston Miller and others gave 200-plus bankers an upbeat overview of conditions in the banking industry at the 45th semi-annual conference of the Bank Holding Company Association, Oct. 6-7 in Bloomington, Minn. J.L. Glass, in two presentations dripping with emotion and creativity, gave bankers tips for capitalizing on opportunity.

At the annual meeting, conducted during the seminar, it was reported that 16 new members have joined the association in the last year, bringing total membership to 235 organizations. Three Minnesota bankers were elected to three-year terms on the board of directors: Brad Bakken, Bakken Securities, Inc., St. Louis Park; Donavon Kuehnast, Northfield Bancshares, Inc., Northfield, and Roy Terwilliger, Community Bank Group, Inc., Eden Prairie.

Bird, the former Norwest executive who now heads SCB Forums, Ltd., of Granite Bay, Calif., assured the audience that there is a place for community banks in the future of financial services. Community banks tend to be nimble, customer-centric and well connected to their market. These characteristics, she said, give community banks an advantage over larger financial services organizations, which tend to be bureaucratic, self-focused and distant from their markets. The best community banks, she said, are entrepreneurial, capture opportunities when they can, work quickly, know where they are going but are not chained to a rigid strategic plan, and accept a longer time horizon for reinvestment. The mid-size banks that run into trouble tend to get distracted with trendy product or service offerings, lack clear leadership, have a cost structure that is too high, lack a sense of urgency about their mission and don't focus enough on execution.

Bird noted that the market is particularly challenging due to an everincreasing regulatory burden, softening asset quality, and rising costs associated with auditing, compliance and accounting. Margin compression, she noted, is excruciating.

Relationship management is very important to the success of a community bank, Bird said. While cost containment is important, she said the real opportunity comes from growing revenues. Citing research by Bain & Company, she said investments in efforts to retain customers pay off in six ways:

* Increased retention lengthens customer tenure with the bank

* Individual account balances grow across time

* Number of accounts grow across time

* Cost of servicing may drop

* Customer's conversations yield referrals

* Loyal customers are less price sensitive.

She further noted Bank Marketing Association information that says the chances of losing a customer with four products in the first year are less than 1 percent, while the odds of losing a customer with only one product are 50 percent.

Economy Uncertain

Miller, a vice president at the Minneapolis Federal Reserve Bank, noted the difficulty of predicting the course of the economy. He said economists make predictions about the future based on their familiarity with similar conditions in the past. "The confidence in forecasting comes from the number of times we have traveled down a similar road and we have not traveled down this road very often," Miller said. "Forecasters didn't predict the recession. We cannot be certain about predicting the recovery."

The recession, which officially ran in 2001 from March to November, was caused by a collapse in business investment, Miller said. The economy has been recovering slowly since then.

Miller noted growth in the rate of productivity. A 4.4 percent growth rate for 2003 so far has led to a decline in unit labor costs, he said. The Gross Domestic Product for this year's second quarter grew 3.3 percent and the growth rate is expected to be reported at 4.5 percent for the third quarter. "A 3.9 percent growth rate is what is expected for the remainder of the year and through 2004," Miller said.

Miller cited several factors that could hamper economic growth, including an expected increase in heating fuel costs, and continued stress on state budgets. On the other hand, he said, the U.S. economy could be buoyed by improvements in the foreign economies, such as Japan and England. He noted also that past growth may have been under-estimated; he said we will get a more accurate picture as statistics are adjusted and finalized in the coming months about activity during the last year and a half.

Glass, a motivational speaker who has worked with companies such as Sam's Club, Texaco and Ace Hardware, offered personalized stories about making the most of the opportunities in our lives. Among his suggestions: view problems as opportunities, make the most of your drive time, be creative by thinking like a child, and don't measure your success against the competition.

By Tom Bengtson