Banks’ challenges are businesses’ opportunities
by Glenn RittBanks across the Cape, regardless of size, are confronting unparalleled challenges to their industry – and that makes every business customer all the more valuable to each of them.
CEO Charles Simpson, with 43 years experience, concedes he has never seen a period like this. Previous difficult markets were more cyclical. “You could predict what the recovery would look like and prepare for it,” he said. “This time, we are not going to revert back to what it looked like previously. It is a new era of financial management.”
“As a senior executive, I must be concerned that all my managers understand that we will have to do business much more differently and innovatively than we ever were expected do before.”
As a result, First Citizens Federal Credit Union has joined seven others to form a separate company, Octant, so they can consolidate their individual resources together to compete for commercial borrowers against the likes of large institutions like Bank of America and Sovereign.
“Lenders not only must be thinking out of the box, but thinking to make the box better,” he concluded.
What makes 2007 so different from the past? Consider:
• Bank profits are being pinched by an inverted yield curve. As a result, in many cases, they are paying higher interest rates on their deposits than they earn on long-term loans. And since this inversion is so unusual, it is very hard for them to determine future trends.
• The residential loan business is imperiled. The housing downturn has meant fewer mortgages and refinancings. It also has cut the volume of commercial construction loans. But even before housing went south, traditional banks and credit unions were losing business to mortgage brokers and Web-based lenders. Today, only about one in four home loans are generated by banks.
• The Internet has altered the business model almost overnight. While Web-based banking has opened up many new opportunities for banks, it has meant significant capital expenditures for future payoffs.
• Technology has leveled the playing field. Now that businesses can scan and deposit checks from their office, they are not as dependent on the convenience of a local branch. On the other hand, the Internet lets a small community bank do business with customers around the globe. As a result, how different is a Rockland Trust, or even a smaller Community Bank, from Bank of America or Citizens?
All of this has led to a great deal of innovation and diversification occurring across the banking universe, including:
• A growing commitment to wealth management to compete against traditional Wall Street firms. Rockland Trust, for example, has grown its wealth management business by more than $320 million in the last two years to a combined $850 million.
• Acquisition of non-banking business such as insurance. Some have maintained the insurance company’s brand; others, like Eastern, not only have merged insurance under its name, but are moving insurance operations into a common office with consumer banking, commercial lending and wealth management to create a one-stop shopping environment.
• Some institutions are moving away from traditional branches because they are very expensive to establish and take three to five years to break even. The Community Bank has opened up business development centers in busy downtowns to focus on commercial customers. Its new Lakeville branch has only one teller window, but instead an array of desks to encourage customers to stay and talk with bank managers.
• Banks are divining ways to help business customers save time. Most institutions on the Cape have implemented remote check deposit technology. To entice customers to adopt remote deposit, some banks are selling the equipment at cost or developing easy-to-afford leasing programs. Some national banks are even buying the equipment for their best business customers.
• Many banks are partnering with other businesses to provide an array of business development resources to their commercial customers, especially those who also need personal investment or wealth management services. That means a banking relationship could come with an attorney, CPA and financial planner.
This all spells added value for the business customer. If one bank doesn’t want to be flexible or innovative in helping you start a business or expand operations, why not consider visiting another lender?
You may not be able to get an appreciably lower interest rate, but you may be able to garner those value-adds, which in the long run could prove more beneficial to sustaining your business than a few dollars in interest.
Published in Cape Business May/June 2007
Glenn Ritt Glenn Ritt is editor and co-publisher of Cape Business Publishing LLC. He is the former publisher of Cape Cod Community Newspapers and editor of The Bergen Record in New Jersey. 
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