One-third of bank chief financial officers expect their institutions to step up merger and acquisition activity in the coming year, a new survey found.
One in five chief financial officers at banks plan to pull back, doing fewer mergers than in the past, and about half expect to stay on their current pace, according to the report by Duke University's Fuqua School of Business.
The survey, taken during the last week of June and sponsored by the Financial Executives Institute, found that chief financial officers at banks plan to increase long-term debt in the next 12 months, while an equal number said they will reduce the figure. By a 2-1 margin, banks expect to increase capital investment, and two of three expect to increase spending on product development.
The findings suggest that after a period of hunkering down, banks are becoming more agreeable to spending for internal growth.
Bank chief financial officers say they will be investing not so much for expansion but to upgrade systems for the year 2000 and general modernization.
The spending plans come as a tight labor market is affecting banks.
Financial institutions are less likely than other industries to bringing in less-skilled workers, the survey found.
"By and large, banks appear more reluctant to give in, despite the low unemployment rate," said John Graham, professor of finance at Duke University and director of the survey.
Some 476 chief financial officers, including 60 at banks and thrifts, responded to Corporate Outlook Survey, assessing their companies' financial, expansion, and personnel plans for the coming year.
The study looked to chief financial officers "because they, perhaps more than anyone at their company, have their hand on the pulse of the business and spending," Mr. Graham said.
Hiring and retaining qualified staff is a major headache for bank chief financial officers, according to respondents. But less than half said they had been compromising their standards to bring in people, while 60% of communications and media firms have added less-qualified employees.
Another problem for banks is that nonbank financial services firms like insurers and money managers offer high salaries to attract individuals who might have been inclined to apply to a bank, bankers said.
"This is a growing issue," said William Marcoux, chief financial officer and treasurer at First Colorado Bancorp. "A lot of the nonbanks are sucking very qualified people from the banking industry."
The survey also found that banks, though having stepped up merger activity, are not such aggressive consolidators as companies in other industries.
For instance, though 33% of bank chief financial officers expect to do make more acquisitions this year, 50% of high-tech firms and 42% of retail companies plan to do so.
Banks are also taking a different tack, opting to acquire competitors, while the trend in other industries is to purchase suppliers and other ancillary units, Mr. Graham said.
Still, the growing move by banks to purchase product suppliers like brokerages and insurance companies is making financial institutions' approach more like most other industries', he said.
But by and large, banks do not plan to hike their fees as much as other industries. Just 1% of bank chief financial officers were considering increases, while at least 5% of other respondents said they were.
Bankers say they will push to keep prices low through internal efficiencies.
"We have a very well-defined budget process," said Daniel Healy, chief financial officer at North Fork Bancorp.
"We become a servicing unit for the line managers," helping them attain financial goals.
Also, banks expect to raise salaries and health-care costs less than most other industries, and therefore do not have to raise prices to offset added expenses, Mr. Graham said. u