How to Build Shareholder Value When Economic Growth Slows

December 4th, 2018

shareholder-12-4-18.pngBanking has been on an impressive run since the end of the 2009 recession. Now, as the industry finds itself with sky-high valuations, the market is wondering what banks can do for an encore.

Whatever comes next must be defined by a clear strategy for building shareholder value. That’s because the next 12-18 months are likely to show some level of marketplace pullback. A recent Wall Street Journal article reported that the U.S. economy has likely peaked and that we should expect slower growth on both the consumer and business sides. This means that formulating a strategic plan is increasingly vital.

These six ideas offer some places to start:

1) Balance CRE exposure with C&I growth
One of the commercial growth engines has been the commercial real estate space. But as the demand cycle begins to flatten, many small and mid-size banks are refocusing their attention on the commercial and industrial loan sector. Although it’s a slower, relationship-oriented build, there is an opportunity for a more sustainable, mutually beneficial relationship that could span several years. As a result, we expect continued demand for high-performing C&I lenders over the next 18-24 months who can drive the right kind of volume for the banks.

2) Bolster non-interest income businesses
Non-interest income has always been a big topic. But the banking industry needs to go beyond simply focusing on service-fee opportunities. That can mean creating new businesses around payments, treasury management and areas of wealth management. It can also include non-traditional businesses like insurance, which can offer a nice annuity-based income stream.

3) Play hard in the talent wars
Nearly 60 percent of employers struggle to fill job vacancies within 12 weeks—and by 2030, the global talent shortage could reach upwards of 85 million people. For banks, this means emphasizing three basic strategies that go beyond monetary compensation: a) Develop and enhance career development and retention programs; b) create an emotional bond between employees and the bank itself; and c) involve human-resource executives in formulating deliberate talent-search strategies.

4) Ensure value realization in a pricey M&A market
Banks need a clearly defined strategy around managing mergers and acquisitions. Where will banks find targets and opportunities? Whether the strategy is opportunistic or deliberately acquisitive, banks must create a structured playbook that more than earns back the premium paid by the acquirer.

5) Develop a deliberate deposit strategy
There is no single answer to the deposit funding challenge facing most banks today. But here are areas worth exploring: a) Make sure retail checking and money market products are positioned to retain loyal checking customers; b) bolster treasury management solution capabilities and develop industry niches to grow specialty deposits; and c) align sales team goals and incentives to reflect the priority of deposit growth and retention. The key is putting together a detailed funding plan--and executing a deposit strategy that balances deposit growth with overall cost of funds in 2019.

6) Execute on the channel delivery shift
Make plans to keep moving into a digital world and navigate the world of tech. This really comes down to ensuring a significant return on your channel investments. When making any investments in delivery channels—whether brick-and-mortar, contact centers or a digital strategy—they have to be looked at in three areas. How much will the investment help with customer acquisition? How much will it help to retain profitable clients? And what is the cost?

Building a great strategic plan is actually creating a great story—for the board, for investors, for the employee base and for prospective talent. Then, when looking at financial rigor and value, embrace the idea of relentless execution with milestones, key performance indicators and focus. Success is derived not just from the plan, but also from the notion that everybody has their fingerprints on it by the time the process is done.

No matter the focus over the next three to five years, break it down into its basic parts, create a story and execute on it. Because in the end, success comes down to relentless execution.

swilliams

Steve Williams is a partner and founder at Cornerstone Advisors, Inc. Mr. Williams leads the firm’s strategic planning practice.

obasu

Onker Basu is a senior leader with over 25 years of banking and consulting experience and has been consistently recognized for his ability to combine strategic planning, relentless execution and strong financial management to deliver sustainable positive results.