As Usual, Common Sense Prevails

Every year, the editors at Bank Director magazine sit down with some of the smartest people we know: bank analysts. In Charles Keenan’s article in this issue (The A-List, beginning on page 24), the analysts hold forth on some of the financial institutions that consistently stand at the top of their peer group in all matter of metrics.

Analysts are most firmly in their comfort zones while sitting behind their computer monitors, running every conceivable model of what might happen to a bank under a great variety of “what if” situations. Some analysts make regular visits to look management in the eye and to hear their grand plans; some prefer to let a bank’s performance speak for itself.
I love the analysts. Were I investing a lot of money in the banking industry, I wouldn’t dive in without them. Still, it strikes me that for all the sophistication we have today in the banking industry, common sense prevails in building the bank.

Our analysts like Wells Fargo’s consistently high ROI and EPS growth. Pinned down for an explanation, they cite CEO Dick Kovacevich’s “empowerment” of employees. In other words, the phenomenal ROI and EPS numbers come not from high-powered financial machinations, but from motivating employees to be sold enough on their jobs to cross-sell more services to customers than the guys across the street are selling. Similarly, our analysts love New Jersey’s (and now the entire East Coast’s) Commerce Bank and its consistent 25%+ EPS growth. Why so much higher than other retail-oriented banks? About the most complex answer we got was, well, maybe not so complex after all: It builds a lot of branches, keeps them open longer than anybody else, and treats customers well with services like free checking and free coin counters.

As you go through the analysts A-List banks in each measured areau00e2u20ac”leadership, customer service, mergers and acquisitions, capital management, and technologyu00e2u20ac”it’s a worthwhile exercise to boil down what each of the banks are doing different. It’s very, very simple and it’s very common, common sense.

Bank Director‘s Senior Editor Jack Milligan likewise asks a very basic common sense question in his page 56 article, Declaring Independence. With listed banks and other public companies being required to focus on the independence of their board members, Jack’s article raises the question of whether more independence inevitably leads to better governance. While public companies have little choice in the matter, the majority of American banks still do have a choice, and this is an article that might well serve as the focus of this month’s board meeting, should you be in that so-far-not-so-independent group. Is your board comfortable in having an outside director-only session every meeting, not just when the CEO’s pay package is being discussed? How about your committee structure? Even if you’re not required to have independent audit, compensation, and nominating/governance committees, now is a logical time to reexamine and perhaps reshuffle the makeup of those committees.

Banks that have fallen under the size requirements or exchange listing demands of the various regulators have an opportunity that shouldn’t be overlooked: Examine the governance changes required by the most heavily impacted in your industry; evaluate whether incorporating similar changes in your own bank would be a net plus or minus for you; make the changes that common sense says will improve the bank.

Do all of this for the best of all reasons: You don’t have to.