There are reasons for everything. For example, from a University of Chicago study, we find that men produce a hormone that causes the development of muscle mass only during deep sleep. The takeaway here is that the only reason that you, Mr. Banker, aren't doing underwear ads in your spare time is the fact you are overworked and not sleeping enough. Don't think for a second that it is because you have the nutritional habits of a raccoon or the workout discipline of a cube of butter.
In like fashion, if your bank is not producing enough ROE, it might be because you are also perusing the wrong fitness plan at the bank. The proper customer type, like sleep, is just what you need to add dollars to your bottom line. Some customer types, like painters (6% ROE for 2007), airlines (5%) and wineries (0%), tend to be more flabby than your CFO's biceps. Their risk is too high, they don't carry a lot of cash on their balance sheets, they are susceptible to changes in commodity prices and they tend not to grow too fast. As a result, the profitability profile of these customer classes has much to be desired.
At the other end of the spectrum, lies the group with the 6-pack abs. Property / casualty and life insurance companies average a 41% ROE. Here, while these companies don't use too many lending products, they do use a lot of deposit products and their duration happens to be the longest in the industry. Their cash flow is non-correlative to interest rates, they have a good rate of growth and they tend to be low maintenance. Other profitable customer types are title companies (36%) unions (35%), retail securities firms (33%) and business/trade associations (32%). Professional firms (doctors, dentist, lawyers, etc.) tend to hover around a 20% ROE, while radio stations, car washes and parking garages are in the 16% area. Health club and gyms for the record, come in at a not so taught, 13%.
If you have a customer profitability module or use our outsourced program, you can do a cut on who(m) are your most profitable customers and why. Once known, that information can drive both strategic and tactical decisions in an effort to build a larger and more defined bank. If you don't have access to this data, you can pick up our analysis at our next High Performance Bank Conferences (Amelia Island, FL, on May 28th). Soon, we look to publish our national data on our BIG Metrics application so you can pull down general or custom profitability levels in interactive fashion. This should be done by July.
We would get this done sooner, but we have to catch up on our sleep.