WEST DES MOINES, Iowa - While the new combinations of JPMorgan Chase/Washington Mutual and CitiGroup/Wachovia are in scramble mode, now is the time to launch an offensive move to develop and cement your position, according to Dennis Hedlund, founder of the market intelligence firm iEmergent.
"All of these mergers, as opposed to being unions of one strong and one slightly less strong entity, you're talking about a strong entity taking up what is essentially a failed structure, so the question is how will these entities work it out," Hedlund explained. "The prevailing wisdowm is that the big are getting bigger, and you could end up with four big banks that are too big to fail, and then that raises the question of what is government's responsibility to those banks, and is there such a thing as too big?"
The end result, it would seem is that there will be the very large, "too-big-to-fail" banks, and their much smaller brethren, the community banks and credit unions, with no mid-sized regional players. "So you can be small or big but nothing in between," he suggested. "That changes the price and product structures. The big can be more aggressive on price and product because they are too big to fail. That puts small players at risk, because the small player can't take those same risks, and they don't have that brand power."
But the big players don't hold all the cards. "On the other hand, the assumption about being big is that you can leverage scale economies, but the flipside is the bigger you get, the more significant your scale complexities," Hedlund said. "And scale complexities are probably one of the big reasons some of these banks faltered, because managing that nationwide is tough. You get your economies of scale from things like processing, but loan capture and transaction capabilities are still local issues, and the big guys aren't better at this than anyone else. In fact, they are less efficient because they are making bulk decisions."
It's easy for niche players to feel overwhelmed by the big boys coming into their markets, particularly in the top markets in the nation, he suggested, but there are steps credit unions can take before they throw up their hands.
Dig into market intel instead of relying on intuition. "It may not be enough anymore that you are familiar with and comfortable with your local market," Hedlund advised. "Credit unions really need to identify their target segments and do more work pinpointing what sort of products matches up with those segments."
You can't out-price the big boys, but you can "out-relationship" them. "Out-local them. Put together a lending package that really speaks to that segment, the unique aspects of your market."
While you're targeting segments that may be a little outside of your traditional market, don't forget about your existing base.
Short-term window, long-term strategy. "You have about a two-year window to set your place as a niche lender," Hedlund said. "But then you need to really look at how that strategy plays out 24 months from now. You're smaller, so you should be more nimble. Use that smallness to your advantage. But remember, they are not sleeping giants, once they have figured out how all of this is going to shake out, they are going to come out swinging."
To build relationships, keep them first. "One of the weaknesses the big guy have is that once you have more than 2,000 originators, your turnover is about 30% to 35% a year, and every time one of them leaves, they lose the relationship," Hedlund said. Staff training and retention, therefore, is key to "out-relationshipping" the big banks.(c) 2008 The Credit Union Journal and SourceMedia, Inc. All Rights Reserved.http://www.cujournal.com/ http://www.sourcemedia.com/
