Looking Ahead to 2012 – The 5 C’s of Banking

One of the things I enjoy most about December is that I get the time to visit as many clients as possible. It is a time to reflect on our relationship over the past year and understand priorities for the upcoming year.

We also have great discussions about challenges, issues and opportunities. I was struck this year by the consistent themes from my clients about the challenges ahead this year, and thought it might be interesting to share them. Perhaps ironically for all of you classically-trained bankers, I can boil them down to the 5 C’s.

1. Competition – As banks push to grow their loan portfolio, it is clear that competition for good credits is very heavy. Almost everyone I spoke to had recent examples of pricing and structure they had encountered that did not make business sense to try and match.

2. C&I – Though many banks are willing to look at commercial real estate deals that make sense, there remains a strong commitment to concentrate more on traditional C&I clients. This means a change in focus (and sometimes personnel) for the commercial bankers and credit organizations.

3. Compliance – The growing regulatory burden and the unknown cost of compliance continues to be a question mark. Dodd-Frank is not finished yet, and it is expected to number over 2000 pages.

4. Capital – Though the inflow of problem loans seems to have slowed, banks are continuing to struggle with falling property values and the associated stress on their capital. I especially heard this in more real estate intensive markets at the coast and in the mountains. In many cases, this is leading to some tough decisions by Boards and management teams about the options for raising additional capital.

5. Consolidation – Closely associated with 3 and 4 above, the possibility of consolidation remains on everyone’s mind, some as sellers and some as acquirers. Though the pace slowed last year, it was the opinion of most I spoke with that more consolidation is inevitable this year and several years to follow.

So, how does this relate to hiring?

– Banks need the best people to compete and comply. We are already seeing increased activity to hire new bankers in both Commercial and Private/Wealth, and have several clients actively searching to fill Compliance positions.

-Your bankers WILL get recruited. Be offensive in your retention efforts.

– Good, well-trained C&I bankers are hard to find. Be patient and diligent in your searches. Even if you are not hiring immediately, I would suggest at least starting some conversations with those people now.

– Consolidation will lead to staff reductions. We are already seeing this in 2012 at RBC (621 displacements in NC) and some other consolidated NC banks. In many cases, there are some very good people who will be searching for a new opportunity. Be proactive and aware in order to identify some of the best candidates.

-Consolidation also causes disruption while the merged banks figure out staffing, strategy, etc. This should present new business opportunities if you are prepared and active in the market.

– Every dollar is critical in this environment. People are the engine of your institutions. While you might need to act decisively to get good people, be sure to make careful and thoughtful decisions. Hire the best you can get. Retain the best you have.