Escape from the Dark Side

Man lives in the sunlit world
of what he believes to be reality.
But… there is, unseen by most, an underworld,
a place that is just as real,
but not as brightly lit…..
A DARKSIDE.

Earlier this year, May 13 to be precise, was the 20th anniversary of the last day of a good-sized data processing operation known as First City Austin Information Systems. FCAIS provided data processing, ATM and item processing services to some 125 financial institutions across Texas—and made a lot of money for the bank of which it was a part. However, as part of the second recapitalization of Texas’ First City Bancorporation, HQ decided FCAIS was to be outsourced, “transitioned” to a brave new world in exchange for a one-time gain equal to about six months’ revenue. FCAIS found itself part of Electronic Data Systems, having had no notice and no voice in the decision. (Interestingly, EDS has now been “transitioned” itself, and recently became a part of HP… the Circle of Life continues!)

I was among the many who thought this was just about the worst thing that could happen. We were mostly 15- to 20-year veterans, having literally grown up within the FCAIS organization. We had always done an excellent job for our clients, made good money for our owners, and became “family” together as we braved the rigors of automation as it was in the 1960s, 1970s and 1980s. But the Texas economy had turned south, driven by the massive decline in the price of oil, which followed the massive increase of the late ’70s and early ’80s. The euphoria of $100/barrel oil in 1983 had given way to a regional depression by 1986, when oil prices fell to a small fraction of that price. Corporate greed and lack of regulation led to what later became known as the S&L Crisis of the late 1980s, but all financial institutions in the Southwest were struggling, not just the S&Ls. Nine of the 10 largest bank holding companies in Texas failed or were re-capitalized in some fashion during this period. This is eerily reminiscent of what’s happening today.

So what can those of us who have been to “the dark side” before, and who still operate at the intersection of operations and technology, share about difficult times such as these? Even when the situation is looking less than rosy, there are steps you can take to lessen the impact on your bottom line – and your sanity. And while it may sometimes be hard to see the bright side, THERE IS A BRIGHT SIDE, if you look for it. Here are a few “been there, done that” tips from a seasoned veteran.

1. Analyze your specific situation for some clues as to your exposure. Most community financial institutions only participated in the current fiasco to the extent that they bought (regulator-approved!) mortgage-backed securities. There’s an old saying in banking that a rising tide lifts all boats (meaning when the economy is good, we all participate). But there is also a corollary: a falling tide lowers all boats. Your organization will be affected by current events whether it should be or not, and you want to gauge the probable impact on your operations.
2. An attitude check is in order. The problems our industry is experiencing were not made by those in the operations and technology areas, or those in the community bank space at all, just as we at FCAIS didn’t make the bad loans in the 1980s that sank First City. Our entire holding company, First City Bancorporation, was a national leader in operations and technology—yet we were still impacted by top-level mismanagement and bad lending decisions. It won’t be helpful to spend time and energy resenting those who made the mistakes. Get over it!
3. Know that opportunity abounds in challenging times for those who are astute, brave and flexible. Careful planning also helps! A small regional banking company, then known as North Carolina National Bank, or NCNB, found a crease in the tax laws during those tumultuous ’80s and was able to acquire First Republic Bank of Dallas, itself a combination of two banking giants—First National Bank of Dallas and Republic Bank of Dallas—for a song. That little organization (nicknamed Nobody Cares, Nobody Bothers in Texas for its heavy-handed tactics in the years immediately after the acquisition of Interfirst) is now Bank of America (which just acquired Merrill Lynch). You may not like the institution, but no one can argue that it isn’t astute, brave and flexible.
4. Challenging times don’t end quickly. The number of problem banks at the end of 1Q2008 had increased by some 30% to 117 institutions with assets of $78.3 billion. The FDIC’s reserve ratio has dipped to a point where, by law, FDIC premiums will be increasing. Conservative estimates are that it will be years before bank earnings return to normal. Plan accordingly!
5. Work on efficiency. When times are good, it is easy to slip into the trap of accepting mediocre performance. When dividends are being reduced or eliminated to conserve capital, it may seem counter-intuitive to make new investments in process and technology improvements, but that is exactly the right time to do it. Increasing earnings $.20 per share may not seem like much when the bank is earning $3.00 per share, but when you’re only making $.50 per share, that same efficiency increase is huge!
6. Get outside help when you need it. First City seldom used outside resources, and we always got it done properly—usually on the second or third try. In today’s environment you may not have two or three tries. Do it right the first time by tapping into the experience of experts.
7. Work on morale—both your own and that of your people. Most managers in crisis mode find that their most important activity is “care and counseling” of the troops. If you are a manager and your company is in crisis, remember that it’s not what you do personally that matters as much as what your team will do. Tough times call for strong leaders—and, in fact, tough times create strong leaders. Winston Churchill in all likelihood would have gone down in history as a rather mediocre prime minister without the crucible of WW II.
8. Manage personnel reductions wisely. Handling human resource matters with dignity and respect is always important, and smart bankers deal with “performance problems” early even in the best of times. In a crisis, retain key staff as long as possible and when belt-tightening becomes mandatory weed out the weak performers first.
9. Don’t take it personally if your position goes away. Any number of studies have shown, and personal experience confirms, that forced transitions can be a very good thing. My forced transition away from First City was in reality the best thing that could have happened to me. It sure didn’t feel that way at the time, but there are countless wonderful experiences and significant financial growth that would never have occurred had I remained where I was. And don’t feel guilty if your position does not go away while some of your friends have to leave the company. Down the road, they may find themselves better off for having left and you may not be better off for having stayed.
10. Most importantly, stay focused on core values, both personally and professionally. When times are hard it is easy to overlook all the good things in your life. No one person can rectify all that can go wrong when entire institutions fall, but everyone can take time to “smell the roses.” Spend time with children who will be grown before you know it. Go fishing. Visit an elderly parent or relative. Go to church.

In the end, there is some Boy Scout camping wisdom that is helpful: the air is coldest just before the dawn. Last Friday the federal government unveiled its proposal for restoring sanity in the financial markets and this week Congress has been “fine-tuning” it. We have not seen the end of the problems, and I for one am not counting on the government to get it right on the first try, but at least our leaders in Washington are now in agreement that there is a problem. Mindless deregulation, which helped the financial giants much more than us everyday GonzoBankers anyway, will hopefully be a thing of the past, replaced by thoughtful regulation that avoids risk without unduly burdening smaller institutions.

It’s easy to slip into a rut when there are no problems. Sometimes an unwelcome trip to “the dark side” can reveal new horizons, horizons that were unknown until forced upon us. Finding what is not expected, opening new vistas on the reality of your life, can reveal something completely unanticipated about yourself, something that you didn’t know was there. Something GOOD!
-bm 

 

 

The dark side is always there,
waiting for us to enter,
waiting to enter us.
Until next time,
try to enjoy the daylight.