Financial Matters

In today's environment financial services executives have plenty to keep them awake at night; earnings declines, toxic portfolios, the lack of liquidity in the interbank markets, decisions as to accepting governmental investment and looming new regulation. In times such as these it is often easy to lose sight of the fundamentals and yet the current market conditions offers some unique opportunities to those firms ready to take advantage of this instability.

One clear lesson of the current crisis is the value of a strong core deposit base. Many of the institutional failures we have seen over the past several months have resulted from short term liquidity problems rather than fundamental viability issues. Similarly, those firms that best weathered the current market disruption have been those with both broad and deep deposit franchises.

So, how does one build a strong deposit base? In normal market conditions building core deposits has traditionally been a protracted and expensive process, often including building an extensive branch network, offering off-market financial incentives and other tactics. Today's environment, however, is anything but normal and presents unique opportunities.

Between Merrill Lynch, Wachovia, WAMU, Bear Stearns, Lehman Brothers and the other firms who have failed or been acquired, we estimate that there are some 40 million customers who are "in play" today and these customers represent an enormous potential deposit pool. One only has to look at Jamie Dimon's willingness to acquire WAMU or Dick Kovacevich's eagerness to acquire Wachovia to see the value of these customers.

Any market disruption creates opportunities to acquire new customers and today's spate of mergers and acquisitions have placed an enormous potential deposit pool in play. To take advantage of this opportunity the key will be a firm's focus on customer engagement. "Engagement" goes beyond simply customer service and invokes issues of emotive attachment and trust and this will be, perhaps, the key strategic battlefield of the next several years.

- Chip Greenlee

Posted by at 12:01 PM | Permalink

This year’s SIBOS event was SWIFT’s largest ever with over 8000 participants from around the world. Traditionally SIBOS is an event where business gets done. Senior bankers and the vendors who service them, spend a week together learning about trends in the industry, cutting deals, and selling product.

As luck would have it this year’s SIBOS coincided with one of the most turbulent weeks in Financial Services history. Bankers read daily headlines like:

Lehman Brother’s with $60B in bad loans says it will file for Chapter 11 after all rescue attempts fail.
Bank of America announces it will acquire troubled Merrill Lynch in a $50 billion all-stock transaction
U.S. government agrees to provide an $85-billion emergency loan to rescue the huge insurer AIG, taking an almost 80% stake in the company
Regulators ban short selling of Financial Services stocks for 10-day in order to slow the market drop.
Treasury Secretary announces a plan to relieve banks of their troubled loan portfolios in an attempt to revive the financial markets
Many senior executives from the top global firms arrived in Vienna only to immediately catch a plane heading home back to “deal with the issues”.

During the week many journalist seriously debated whether the US financial services industry could survive. Given this environment, I expected banking professionals to be in shock and the level of interest in making deals and building solutions to wane. However, in sharp contrast to the pessimism of the media, in the many conversations I held with senior bankers at SIBOS, they were optimistic or at the very least hopeful.

There seemed to be consensus that while the financial services industry has some very tough times ahead, the banks that survive will have to be stronger, more cost efficient, more customer-oriented, and have an infrastructure better equipped to deal with ever the future brings. Numerous banks were actually looking at this as an opportunity - a time for significant investment. At this point, bankers are still looking at IT to help make them more functionality rich, cost competitive and secure in the future. Whether or not this optimism can endure given the market turbulence of last few weeks, we’ll have to wait and see.

I actually had a banker say to me with a wink in his eye, “this is a great time to spend, another few million dollars off the bottom line won’t be missed!”.

- John Hunter, Sr. Product Marketing Manager, Adobe Systems Inc.

Posted by at 11:10 AM | Permalink