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Late last month I sat down to lunch with a CEO whose bank’s performance is, well … struggling would be putting it kindly. It should be noted, however, that this bank has historically outperformed its peers for well over 40 years, providing impressive dividends to the shareholders every year except the past two. This particular CEO (we’ll call him John), has been at the head of the holding company more than 30 years. He is one of the most insightful, ethical, professional businessmen I have met in my career of working with community banking leaders.
John and I sat over our gourmet sandwiches and potato salad enjoying stories about our families and our lives. Then, predictably the conversation turned to work and the struggles his bank is experiencing. A sign of the times, I was not surprised to hear John had just gone through his THIRD wave of “reduction in force” (or RIF, for those who need to say it quickly, like tearing a band-aid off in order to make the pain shorter). Nor was I surprised to hear that the bank was closing three less-than-profitable branches. Not surprised because these decisions are being executed more and more frequently throughout my Midwest Territory, and across the country.
Then came the shocker. You see, this particular institution is a multi-bank holding company (several charters, in fact). John admitted they were in negotiation to sell one of the smaller – but extremely profitable – charters. Turns out this charter was the only one that could garner a fair book value in today’s market.
Now, I know John well, and selling one of his charters is much like going through a RIF for him. He was there for the acquisitions of these banks. He led their growth, made them part of his brand. And while selling off charters is a common decision, I realized with John’s next statement, that doing so in today’s market is the slippery slope. I remember the moment vividly because I was biting into my corned beef and swiss triple-decker when John said, “We figure the money from that sale will keep us afloat for another 12 months, and if things don’t get better by then, we’ll take the next charter and sacrifice it too, and so on.”
And so on? And so on?? The phrases were ringing in my ears: keep us afloat…sacrifice it…and so on. The symbolism was playing itself out right in front of me. Just as I was eating my lunch, John was eating his banks. Farmers call it eating your seed corn. Anthropologists simply call it … cannibalism. Any way you slice it (forgive the pun), you’re consuming the very thing that under normal circumstances would be considered your most prized possession, one of your own. But therein lies the key: “under normal circumstances.”
By itself, it sounds like a sane business decision, but when stacked on top of reductions in force, branch closings, poor credit quality, shrinking margins, and increased regulatory scrutiny, one has to ask, where does this end? To put this all in perspective, I probably need to give you a little more history on my relationship with John. He had asked my company to assess his organization’s performance only two years ago. We found many opportunities for expense reduction and revenue enhancement, to the tune of several million dollars annually, but not without making some difficult decisions. The board decided they’d ride out the storm with the boat they were on—and declined our assistance to help implement the sorely needed changes.
“If you ever have a client who thinks they can do it themselves you can use me as a reference, have ‘em call me,” John shared during this last lunch meeting. “It’s very possible we would not be selling this charter, or in this condition, had we gone ahead with your project.”
I promise he really said that. You can’t make these things up.
Maybe you don’t have charters, but you’re selling off assets or locations. I believe the argument here is the same. Ask yourself if the locations / bank may be better off after reviewing the processes, staffing models, technology, products, risk management, and branch activity? If that hasn’t been on your list of options, maybe you should add it to your list.
Before you say no, I have a CEO named John I’d like you to talk to.
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