When I ask chief executives of super community banks what is the best source of new business they say it is the acquisition of a local competitor by a large out-of-state-bank.
We have all witnessed the effects of consolidation on the industry and know that significant cost saves are integral to the economics of each deal.
In many cases, the acquiring institution is successful in squeezing out most or all of the cost savings initially promised.
However, there is little focus on the impact of such successful cost reduction on the revenue power of the acquired institution.
In the banking industry, the assets go down the elevator every night. Our people and our good customers are our greatest assets.
Customer dislocation per se is not negative.
If through a merger all "D" customers are turned off by a new fee structure of the acquiring institution, that is a positive result.
However, what super community banks find as they get acquired across the country is that the very best customers are offended by the style change of their bank and lose the trust they placed in their bank for so many years.
The very franchise for which the acquiring institution paid such a dear price erodes as an integral part of the acquisition integration plan, yet little focus is placed on that loss.
While the loss of good customers and good employees appears invisible to many large acquirers it is a bonanza for the super community banks.
As the industry intensifies its consolidation drive, acquiring institutions need to ask what are they buying when they pay such multiples for franchises and customer income streams.
If it is indeed the annuity income stream associated with loyal customers, they should take the necessary steps to preserve the revenue generation power of the acquired institution and focus on issues beyond imposing the cost reduction discipline that often is not present among super community bank executives.
Cost reduction is indeed a necessary part of the package.
But if it is combined with a loss of earnings power and franchise value, the acquiring institution has thrown the baby out with the bath water-an unwise move for shareholders of both institutions.
Acquirers will be better served to use a scalpel rather than an ax in their acquisition integration activities with respect to both employees and customers.