“Sometimes I wonder what I’m gonna do
There ain’t no cure for the summertime blues”
It’s summertime Gonzo Mongers. Soon the pale, flabby bodies of overworked bankers will be hitting beaches, lakes and pools across this fine land. Time to put on the Bermuda shorts and zinc oxide and try to forget about that dang “net interest margin compression.” Rates are low – the lowest in more than 40 years – and it’s getting harder to make a buck in banking.
In a few days, Greenie and the Fed will meet in humid D.C. to knock another 25 basis points off this year’s Christmas bonus. Good news: deposits are dirt cheap. Bad news: there’s no place to put the money. 1.2% treasuries, 4.25% prime-based loans – ugh!
For bank executives, it is a strange time for strategic planning – earnings have been strong but they are melting fast with these hot summer interest rates. How long will rates stay this low? Who knows? One of my clients recently joked: “We’ve been predicting for the last three Augusts that interest rates will go up. Maybe we’ll get it right this time.”
Like everyone in the industry, I have no magic advice to deal with these unavoidable earnings pressures, but I do want to resurrect something bankers haven’t talked about in a while: niches.
When we all go into strategic planning this summer, there’s going to be a lot of talk about shoring up earnings – expense control, a more aggressive sales culture, better capital leveraging. All good stuff, but it’s mostly tactical positioning. In addition to the need for short-term execution, I hope bankers also go back to the four most basic questions of strategic positioning:
In the hallowed meeting rooms of resort hotels, bankers spend their summers coming up with indeterminate answers to those questions:
Excuse me, I was dozing for a minute. The abundance of plain vanilla hypnotized me.
C’mon, Gonzo Bankers, mix it up a bit. Let’s try answering those questions again… this time with feeling! Tell us who you really are. Pick a niche and stand for something. As Dennis Rodman once said, “Dare to be different.” (OK, bad example.)
Let’s face it. Committing to a niche strategy is scary – it shuts off many opportunities for revenue and makes it harder to feel like the rest of crowd. However, long-term commitments to niches also build staying power during tough times – like today. Niche players typically have better earnings stability, better pricing leverage and less complexity in their operations.
Dominic Ng, CEO of East West Bank in Los Angeles, is probably facing margin compression like everyone else – but he’s probably not questioning his company’s strategic future. This bank, which caters to the exploding Asian population in California, remains true to its vision of “the link between East and West.” A niche – a damn good one. Ten grand of stock in East West five years ago is worth $37,000 today.
Strong, long-term performers in the banking industry are typically backed by a strong strategic identity and some clear niches:
At Cornerstone, we’ve also seen credit cards for union members, farmland management services for trust customers, financing oil and gas leases, and many more.
Every time we bump into these niches, we get excited and optimistic about the industry – there are tons of creative ways to make money.
Of course, bankers can sometimes get too creative with their niches. (Does anyone realize that Petloversbank is still around?) Like any good strategic positioning, niches require a combination of smarts and common sense.
In addition, niches need to be specific enough to be meaningful and lasting. “Small business” may have been a niche historically, but now everyone and their mother is doing it. It’s time to dig deeper into specific industries and types of small businesses.
So instead of building a plain vanilla force of commercial lenders, develop a team like this:
Sales teams and individuals should be challenged this summer to develop a towering competence in something… anything that makes them different in the marketplace.
So Gonzo Mongers, when you go into planning this summer, talk about potential strategic niches – product niches, customer niches or industry niches. Talk about building a “portfolio” of small, low-risk niches that may turn out to be jewels someday with the right focus and stamina. Then, see if your identified niches meet the following criteria:
Niches do not have to be an all-or-nothing proposition. Most banks have to bang out some degree of basic commercial loan growth, retail fee income and mortgage gains on sale. But, within this core business, banks should start to plant some seeds that can make them different in the future. Experimenting with niches can give bankers new ideas and insights into how to grow future revenue. As marketing legend Regis McKenna once concluded, “Most large markets evolve from niche markets.” This was true for folks like Dell Computer, Vanguard and CNN.
As your bank goes into planning this summer, remember that the essence of strategy is not simply working harder, but doing things differently than competitors. It’s also about making hard choices about the bank’s focus, priorities and investments. In the famous words of strategy expert Michael Porter, “The key to strategy is choosing what not to do.”