What's the more important strategic imperative for a bank: cutting costs or increasing revenues through marketing?
A group of bankers attending the Consumer Bankers Association's 76th annual retail conference this week spent the better part of an afternoon considering that issue.
The debate pitted one approach to profitability versus another, but in the end bankers seem hard- pressed to take a side.
"It's not an either-or situation " said Emerson Brumback, Banc One Corp.'s director of national retail distribution. "You have to be versed in both to win."
Earlier, bankers heard from a consultant whose firm, Tandon Capital Associates, has helped leading banks - such as Chase Manhattan Corp. and Fleet Financial Group - shed hundreds of millions of dollars from their cost structure.
"We know of no better profit lever," said Anirudha Basu, a managing director with New York-based Tandon. "This is an annuity for a bank."
Mr. Basu's view of banking - in which cost cutting is king - was challenged by the chief executive of a California thrift, who has used humorous radio spots that poke fun at Wells Fargo & Co. and BankAmerica Corp. to gain consumer accounts.
"Expense reduction will build income, but it won't build a business," said Stephen J. Trafton, chief executive of $15 billion-asset Glendale Federal Bank of Glendale, Calif. "Spending greater marketing dollars today will earn greater revenues tomorrow."
Alluding to the growing competition from nonbanks, he said: "Without a radically new approach to marketing, banks won't win the race. We must learn bolder new marketing strategies."
But Mr. Trafton also supports the re-engineering movement, saying he "wholehartedly endorses" companies like Tandon. In 1991, he said, Glendale underwent a downsizing that reduced expenses 38%.
Tandon's Mr. Basus said his firm can help a bank reduce its "controllable" noninterest expense by 35% a year. (Noncontrollable expenses include such items as pre-existing contracts with vendors and certain regulatory costs.)
"And all this can be done without consolidation, closing branches or existing businesses, or changing strategies," he said.
Mr. Basu said a cost-cutting program needs to be holistic and comprehensive, and must have the unwavering support of top management . Ideally, such an effort shouldn't take longer than six months.
"It has to be done one-shot. It can't be done piecemeal," he said. "You can't hold an organization's feet to the fire for too long."
Critics of the cost-cutting approach argue that it often leaves a bank too depleted to increase revenue effectively.
But Mr. Basu argued that many client banks have used expense reduction to make their banks more responsive to customers.
"Loans can be approved faster, work steps can be simplified, and flatter organizations can be more sales- and service-focused," he said.