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PCBB Banc Investment Daily January 31, 2014
Banc Investment Daily
January 31, 2014

Beware The Ostrich In The Sand

In U.S. President FDR's first inaugural address, he coined the now famous saying, "The only thing we have to fear is fear itself." The newly elected president was trying to keep panic in check as the country faced one of the worst economic disasters in history. His words seemed to have a calming effect and conditions began turning around soon after his speech.
When faced with a threat, people react in different ways. Sometimes they get so caught up in distress they become crippled by inertia. Others react like ostriches, by burying their heads in the sand with an it-can't-happen-to-me mentality. Then, of course, there's a middle ground, which involves facing fears head on and finding creative ways to adapt.
Banks, too, take multiple approaches when faced with impending changes in the financial services industry. In our view, the best line of attack in this situation is to use industry changes as an opportunity to explore opportunities to excel. We don't recommend that banks allow fear to be an excuse for inaction.
Take the big banks and mobile/online products for instance. In their 2013 earnings announcement, Wells Fargo reported a 7% increase in active online customers, reaching 23mm and a 27% increase in mobile customers to 12mm. JP Morgan similarly reported a 26% increase in mobile customers to almost 16mm. Bank of America had a 1% increase in active online customers and a 20% increase in mobile customers to 14mm. PNC reported that non-branch deposit transactions (ATM and mobile) made up 30% of the bank's total and increased by 67%. These number show clear growth that is moving along quickly, so community bankers need to get involved if you are not already doing so.
Innovation is also nothing to fear. Consider that Wells was asked some specific questions about their innovation strategy in relation to technology development for the bank and how it relates to future branch plans. Chairman Stumpf replied that Wells intends to commit to "a lot of investment in technology." Sadly, that was the extent of detail provided. Consider that these big banks are under fire from the likes of Google, PayPal and others, though, so anything they say will be absorbed by those competitors and attack plans will be formed. While the largest banks have led the way in the industry with online and mobile banking features, some of these technology companies are way ahead of them. We are sure innovation will occur with breakneck speed, as all apply large budgets and staff to these projects, so keep your eyes and ears open. Here too, it is important that community bankers not be afraid to innovate, but rather to do so prudently and with purpose.
Fear and risk are also evident in the core lending function of banks. Regulators are clamping down on anything consumer related, compliance scrutiny is extreme and many bankers tell us they are simply being battered and bruised in this area. Certainly there are many lending options for customers these days, so the fight to hold onto what you have is a daily one. Our advice is not to fear these enemies because you have a great bank. Instead, monitor lending alternatives for small businesses that are springing up around you and continue to plan and execute.
Rest assured that regulators don't like the Wild West stuff either going on in the nonbank arena and they are going to intercede over time. Help may be slow in coming, but it is coming nonetheless and their rules will also change so keep fighting.
As with the Ostrich, burying one's head in the sand exposes your hindquarters to a swift kick, so we wouldn't recommend it. Instead, take a page from FDR and push past your fears to succeed and thrive. Lending opportunities are increasing, customer activity is resuming and the industry is finding its footing once again. Make changes, experiment along the way and try to enjoy the ride because we are now in recovery mode - have no fear!