CPG's May/June 2010 Wire Newsletter
CPG's May/June 2010 Wire Newsletter
With the economic and regulatory environment creating great challenges for financial services companies, efficiency improvements must remain a top priority. There are many areas ripe for process redesign, including these four:
1. Retail Delivery:From fraud detection systems to kiosks that enable branch customers to meet face to face with remote sales specialists, technological innovations create opportunities to refocus human resources towards activities that create value for customers and that generate revenue for the bank. For example, at the teller window, deployment of devices such as cash counters, recyclers, and scanners free tellers from data entry, balancing and other time-consuming non-customer-oriented tasks. This can dramatically reduce back office servicing, shorten transaction times, and create potential sales, referral, and relationship enhancement opportunities. Financial services companies need to reevaluate retail delivery work flows to ensure that they get the greatest lift possible from new technologies.
2. Deposit Account Fulfillment:This function remains paper-based at many organizations. Integrating application, processing, underwriting, and other systems enables electronic transfers of data, thus eliminating rekeying and the likelihood of errors and delays that can drive negative customer perceptions and impact customer loyalty. Additionally, reducing fallout from online account opening and funding processes can drive significant increases in new account volume.
3. Commercial Lending: In today’s economic environment, commercial lenders must continue to find ways to improve operating efficiency and better manage credit risk management while simultaneously improving the ability to compete for loan opportunities in a post-recession environment. To do so, financial services companies should establish differentiated underwriting processes based on risk and relationship profitability thresholds, bolster loan risk-rating methodologies to include both a borrower and a facility rating, and improve routine loan portfolio reporting capabilities. In addition to improving efficiency and credit risk management, these changes will enable better risk-based pricing decisions and give business bankers more time to improve the cross-sales of treasury management and other services to their clients.
Financial services companies should also build differentiated underwriting processes for specific industry segments or business types – for example, small service-sector businesses that do not need equipment financing and can no longer count on credit cards.
4. Customer Information Management: By communicating with customers in a more timely and targeted manner, financial services companies can generate more primary household relationships that exhibit higher average balances and lower rates of attrition. To accomplish this, processes must be redesigned to capture more (and more relevant) customer information both during account opening and at other points of customer interaction. Data management processes that consolidate this information across business lines must be built, analysis tools deployed, and results made more readily accessible. For example, analysts that have ready access to relevant customer information can create proactive refinancing models that improve the retention of the bank’s most profitable borrowers.
CPG has recently undertaken a redesign of its own. To learn more about process redesign, check out the “Featured Solutions” section of our new website at www.capitalperform.com/featured-solutions.
The various proposed regulatory changes entail – implicitly or explicitly – imposition of higher capital requirements, higher compliance costs, and restrictions to operating powers. CPG analysis shows that regulatory changes, absent an increase in revenue, will cause average ROEs to fall by 260 basis points. This figure does not reflect the likelihood of higher FDIC insurance assessments and compliance costs.
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CPG estimated the population of institutions likely-to-fail. Several observations can be made based on the estimate:
- There will be a lot of opportunities for community banks to expand their franchises via assisted deals. Most of the likely-to-fail candidates (384 institutions and 87 percent of the population) have less than $1.0 billion in total assets.
- There are far fewer likely-to-fail candidates with assets greater than $1.0 billion, and they are concentrated in certain areas. Most are located in the Southeast and Great Lakes regions. There are none in the Northeast.
- Given the limited supply, bidding will likely be aggressive for the larger institutions. Buyers may wish to preempt the FDIC assisted sale process altogether to secure their desired targets.
- Buyers looking to affect a transformative acquisition should not restrict their sights to FDIC-assisted transactions, but should also consider traditional M&A transactions.
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