Yesterday, we made the comment
that banks trading far below their book
value are "most likely doomed." We
admit that we said this in too cavalier a
fashion and our thoughtful readers
called us on not being thoughtful
enough. If your bank is trading far below
its book value things aren't terminal, but
know that the market is sending you a
message. To prove us and the market wrong, we talked to
several noted bank workout specialists for tips on how to work
with bank employees in troubled times.
The first lesson that we learned is that if your bank is trading
far below book value, you are basically in workout mode and
getting the most out of employees when morale is low is a
Sisyphean task. However, in sticking with our theme from
yesterday, there is opportunity. Unlike 2005 when everything was
running perfectly, now we know what is broken. The market has
given us the perfect opportunity to pull bank employees and
focus them on a limited set of tasks to bring the bank back to full
health. The first step here is to be candid with employees and get
them involved with identifying and fixing the problems. While we
were off base with our comments yesterday, taking the other tack
is even more dangerous. It's easy to blame the economy for all
the reasons a bank is suffering. Blaming credit problems on the
downturn implies that the situation is totally out of the bank's
hands and left in large part to fate. This is exactly the kind of
attitude that prevents banks from fully understanding and fixing
their problems. Increase communication, open the books to
highlight the problems and go to work to identify the fixes for the
future.
The next step is to raise the profile of the senior management
team. A common theme that we heard from CEOs that focus on
workouts is that the problems that appear on paper are usually
deeper. To fully understand them, senior management needs to
get out, physically move their working location to different
departments and spend some time in various areas. This will
help all better understand the issues. In addition, getting out in
front of the customer and hearing first hand what they are saying
is mandatory. In short, don't wait for employees and customers to
come to you - go to them first. Finding out a) how they are doing
(many will just want to vent), b) what the problems are, c) what
are their solutions and, d) what resources are needed, will help
senior management understand what needs to be done.
The purpose of employee and customer meetings is to not
only find out ways of improvement, but to get everyone involved
in the process of putting the bank back on track. Maybe it is more
loan portfolio diversification, stronger credit underwriting or
coming up with cost cutting solutions. Whatever the solution,
getting the first hand collective wisdom from the troops and their
buy-in for solutions is central to the rebuilding effort.
There's no need to sugarcoat any of this or remain invisible as
if it is business as usual. Pulling a bank through a downturn isn't
easy, but emphasizing the challenge can have its benefits. It's a
great time for employees and customers to realize that they can
play an active roll in their future. Tomorrow, we will look at how
many banks should be expanding, not cutting compensation in
times of a workout.