Whether the much-discussed “Trump bump” will come to fruition remains to be seen.
Bankers certainly are feeling more positive about economic conditions and the regulatory environment since the November election. Among the visible positive signs are the sudden upward direction in the stock market, a rise in the value of the dollar coupled with a drop in gold prices, and an increase in IPOs and merger activities.
Speak with nearly anyone in the industry and you will hear the optimism in their voice about current prospects for business growth.
But talk is just talk for now. Taking advantage of the new environment is what’s really important.
Ray Dalio, head of the Bridgewater Associates hedge fund, published a blog post last month predicting a Trump-led “ideological shift” in investment incentives, tax policy and deregulation that he said could ignite the “animal spirits” in both consumers and businesses. That raw enthusiasm has enormous implications for banking.
Customers will look to put their stores of money back to work. Businesses will want to expand and — here’s a shocker — borrow money again. The movement of money should not create concerns about deposits flowing outward since funding is still cheap and easy to get. But bankers must ask the question: Is my institution an asset generator? The name of the game will be accumulating assets, preferably loans.
Every bank must determine whether it is sufficiently customer-focused, or too focused on compliance. The industry has been slammed by regulation over the past nine years — a world dominated by chief risk officers, compliance officers, enterprise risk management departments and internal audits. While those structures need to stay in place, it is now time to refocus on the customer and the shareholder.
Here are three steps to take right now:
First, start listening to the internal dialogue at the bank. Are your employees spending more time talking about the lending business or compliance? If the chatter is about the latter, that needs to change immediately. C-suite executives need to start their meetings with discussions around customers, markets and products. Even if the ostensible topic of the meeting is risk or compliance, lead with how the customer is affected. Let everyone in the bank know your focus. Communicate to them that it’s time for the business to grow.
Then make sure that you have the right people in place to execute a customer-focused strategy. The aftermath of the crisis meant that a bank’s most talented employees were often on the compliance side. Today, banks should elevate their most talented employees to be customer champions. And look to hire the best and brightest customer-oriented business development officers, before your competition acts on the reality that the world has changed.
Third, build your assets. Don’t worry about deposits. Don’t move too aggressively on raising deposit yields so that you can be more aggressive on loan pricing. Money-gathering is yesterday’s problem. The most successful financial institutions are going to be those that can originate and purchase high-quality and high-yield assets. And don’t be overly concerned with the duration of the assets. Yes, rates are going to rise and you don’t want to be caught with long-term, fixed-rate assets, so be sure to partially hedge these assets. If money is flowing, then the asset turnover will be greater than you think. Plus, the cost of funds will lag the overall increase in market rates.
Because of dramatic developments in Washington, banking is transforming once again.