How to Attract Consumers in the Face of a Recession

Fears of a recession in the United States have been growing.

For the first time since 2020, gross domestic product shrank in the first quarter according to the advance estimate released by the Bureau of Economic Analysis. Ongoing supply chain issues have caused shortages of retail goods and basic necessities. According to a recent CNBC survey, 81% of Americans believe a recession is coming this year, with 76% worrying that continuous price hikes will force them to “rethink their financial choices.”

With a potential recession looming over the country’s shoulders, a shift in consumer psychology may be in play. U.S. consumer confidence edged lower in April, which could signal a dip in purchasing intention.

Bank leaders should proactively work with their marketing teams now to address and minimize the effect a recession could have on customers. Even in times of economic uncertainty, it’s possible to retain and build consumer confidence. Below are three questions that bank leaders should be asking themselves.

1. Do our current customers rate us highly?
Customers may be less optimistic about their financial situations during a recession. Whether and how much a bank can help them during this time may parlay into the institution’s Net Promoter Score (NPS).

NPS surveys help banks understand the sentiment behind their most meaningful customer experiences, such as opening new accounts or resolving problems with customer service. Marketing teams can use NPS to inform future customer retention strategies.

NPS surveys can also help banks identify potential brand advocates. Customers that rate banks highly may be more likely to refer family and friends, acting as a potential acquisition channel.

To get ahead of an economic slowdown, banks should act in response to results of NPS surveys. They can minimize attrition by having customer service teams reach out to those that rated 0 to 6. Respondents that scored higher (9 to 10) may be more suited for a customer referral program that rewards them when family and friends sign up.

2. Are we building brand equity from our customer satisfaction?
Banks must protect the brand equity they’ve built over the years. A two-pronged brand advocacy strategy can build customer confidence by rewarding customers with high-rated NPS response when they refer individual family and friends, as well as influencers who refer followers at a massive scale.

Satisfied customers and influencer partners can be mobilized through:

Customer reviews: Because nearly 50% of people trust reviews as much as recommendations from family, these can serve as a tipping point that turns window-shoppers into customers.

Trackable customer referrals: Banks can leverage unique affiliate tracking codes to track new applications by source, which helps identify their most effective brand advocates.

3. What problems could our customers face in a recession?
Banks vying to attract new customers during a recession must ensure their offerings address unique customer needs. Economic downturn affects customers in a variety of ways; banks that anticipate those problems can proactively address them before they turn into financial difficulties.

Insights from brand advocates can be especially helpful. For instance, a mommy blogger’s high referral rate may suggest that marketing should focus on millennials with kids. If affiliate links from the short video platform TikTok are a leading source of new customers, marketing teams should ramp up campaigns to reach Gen Z. Below are examples of how banks can act on insights about their unique customer cohorts.

Address Gen Z’s fear of making incorrect financial decisions: According to a Deloitte study, Gen Z fears committing to purchases and losing out on more competitive options. Bank marketers can encourage their influencer partners to create objective product comparison video content about their products.

Offer realistic home-buying advice to millennials: Millennials that were previously held back by student debt may be at the point in their lives where their greatest barrier to home ownership is easing. Banks can address their prospects for being approved for a mortgage, and how the federal interest rate hikes intersect with loan eligibility as well.

Engage Gen X and baby boomer customers about nest eggs:
Talks of recession may reignite fears from the financial crisis of 2007, where many saw their primary nest eggs – their homes — collapse in value. Banks can run campaigns to address these concerns and provide financial advice that protects these customers.

Banks executives watching for signs of a recession must not forget how the economic downturn impacts customer confidence. To minimize attrition, they should proactively focus on building up their brand integrity and leveraging advocacy from satisfied customers to grow customer confidence in their offerings.

7 Ways Banks Can Benefit From Data Analytics

A version of this article originally appeared on the KlariVis blog.

There is a pervasive data conundrum throughout the financial services industry: Banks have an inordinate amount of data, but antiquated and siloed solutions are suppressing incredible, untapped opportunities to use it.

Data analytics offer banks seven distinct and tangible benefits; it’s essential that they invest adequate time and resources into finding the right solution.

1. Save Valuable Time
Time is money. Investing in data analytics can streamline operations and saves employees time. The right solution organizes data, eliminates spreadsheets, freeing up the gray space in any organization. Employees can quickly locate what they’re looking for, allowing them to focus on the tasks that are most meaningful to the institution. Instead of organizing and sifting through data, they can spend more time analyzing the information, making strategic decisions and communicating with customers.

2. Secure Compliance, Risk Management Features
Data analytics improves overall bank security. The regulatory environment for financial institutions is complex, and regulatory non-compliance can lead to major fines or enforcement actions for banks. Data analytics incorporates technology into the compliance and risk management processes, improving bank security by reducing the likelihood of human error and quickly detecting potential cases of fraud.

3. Increase Visibility
Data silos in banks are often a result of outdated data solutions. Additionally, granting only a few people or departments access to the full set of data can lead to miscommunication or misinformation. Data analytics solutions, such as enterprise dashboards, give financial institutions the ability to see their full institution clearly. Everyone having access to the same information — whether it be individual branch performance or loan reports —improves customer service, internal communication and overall efficiency.

4. Cut Down on Costs
There is a high cost of bad data. Bad data can be inaccurate, duplicative, incomplete, inaccessible or unusable. Banks that aren’t storing or managing collected data appropriately could be wasting valuable company resources. They could also incur bad data costs through inconclusive, expensive marketing campaigns, increased operational costs that distract employees from important initiatives or customer attrition. By comparison, an updated enterprise data solution keeps employees up-to-date and can reveal new growth opportunities.

5. Create Detailed Customer Profiles
All financial institutions want to know their customers better. Data analytics help generate detailed profiles that reveal valuable information, such as spending habits and channel preferences. Banks can create highly specific segments with these profiles and pinpoint timely cross-selling opportunities. The right data solution makes it easier to gather actionable insights that improve customer experience and increase profitability.

6. Empower Employees and Customer Experience
Empowered employees improve the customer experience; happier customers contribute to empowering employees. A powerful part of this cycle is data analytics. Data analytics produce actionable insights that save employees’ time so they can focus on what’s important. Banks can send timely, data-based relevant messaging, based on customer-expressed preferences and interests.

7. Improve Performance
More time spent connecting with customers allows employees to build a deeper understanding of their financial needs and ultimately improve the bank’s performance. The right data analytics solution leads to a more productive and profitable financial institution. In this increasingly competitive financial landscape, employee and customer experience are vital to every financial institution. Customers expect seamless communication and digital experiences that are secure and intuitive; employees appreciate work environments where their work contributes to its overall success. Using data to its fullest potential allows banks to make better strategic decisions, identify and act upon growth opportunities, and focus on their customers.

Cloudy M&A Expectations for 2021

Due to the Covid-19 pandemic, related economic downturn and recent presidential election, 2020 was a historic year characterized by high levels of uncertainty. These circumstances resulted in a significant drop in M&A activity in the banking sector, as stock prices dropped and bankers’ focused on serving customers and supporting their staff.

Bank Director’s 2021 Bank M&A Survey, sponsored by Crowe LLP, explores this unique environment. Rick Childs, a partner at Crowe, offers his perspective on the survey results — and what they mean for 2021 — in this video.

  • Top Deal Drivers

  • Pricing Expectations

  • Looking Ahead

The Uncertain Impact of COVID-19 on the Bank M&A Playbook

As banks across the country grapple with market and economic dynamics heavily influenced by COVID-19, or the new coronavirus, separating data from speculation will become difficult.

The duration and ultimate impact of this market is unknowable at this point. The uncertain fallout of the pandemic is impacting previously announced deals and represents one of the biggest threats to future bank M&A activity. It will force dealmakers to rethink risk management in acquisitions and alter the way deals are structured and negotiated.

As we have seen in other times of financial crisis, buyers will become more disciplined and focused on shifting risk to sellers. Both buyers and sellers should preemptively address the impact of the coronavirus outbreak on their business and customers early in the socialization phase of a deal.

We’ve compiled a non-exhaustive list of potential issues that banks should consider when doing deals in this unprecedented time:

  • Due Diligence. Due diligence will be more challenging as buyers seek to understand, evaluate and quantify the ways in which the coronavirus will impact the business, earnings and financial condition of the target. Expect the due diligence process to become more robust and protracted than we have seen in recent years.
  • Acquisition Funding. Market disruption caused by the virus could compromise the availability and pricing of acquisition financing, including both equity and debt financing alternatives, complicating a buyers’ ability to obtain funding.
  • Price Protections. For deals involving publicly traded buyer stock, the seller will likely be more focused on price floors and could place more negotiating emphasis around caps, floors and collars for equity-based consideration. However, we expect those to be difficult to negotiate amid current volatility. Similarly, termination provisions based upon changes in value should also be carefully negotiated.

In a typical transaction, a “double trigger” termination provision may be used, which provides that both a material decline in buyer stock price on an absolute basis (typically between 15% and 20%) and a material decline relative to an appropriate index will give the seller a termination right. Sellers should consider if that protection is adequate, and buyers should push for the ability to increase the purchase price (or number of shares issued in a stock deal) in order to keep the deal together and avoid triggering termination provisions.

  • Representations and Warranties. As we have seen in other economic downturns, expect buyers to “tighten up” representations and warranties to ensure all material issues have been disclosed. Likewise, buyers will want to consider including additional representations related to the target business’ continuity processes and other areas that may be impacted by the current pandemic situation. Pre-closing due diligence by buyers will also be more extensive.
  • Escrows, Holdbacks and Indemnities. Buyers may require escrows or holdbacks of the merger consideration to indemnify them for unquantifiable/inchoate risk and for breaches of representations and warranties discovered after closing.  
  • Interim operating covenants. Interim operating covenants that require the seller to operate in the ordinary course of business to protect the value of their franchises are standard provisions in bank M&A agreements. In this environment we see many banks deferring interest and principal payments to borrowers and significantly cutting rates on deposits. Sellers will need some flexibility to make needed changes in order to adapt to rapidly changing market conditions; buyers will want to ensure such changes do not fundamentally change the balance sheet and earnings outlook for the seller. Parties to the agreement will need focus on the current realities and develop reasonable compromises on interim operating covenants.
  • Investment Portfolios and AOCI. The impact of the rate cuts has created significant unrealized gains in most bank’s investment portfolio. The impact of large gains and fluctuations in value in investment securities portfolios will also come into focus in deal structure consideration. Many deals have minimum equity delivery requirements; market volatility in the investment portfolio could result in significant swings in shareholders’ equity calculations and impact pricing.
  • MAC Clauses. Material Adverse Change (MAC) definitions should be carefully negotiated to capture or exclude impacts of the coronavirus as appropriate. Buyers may insist that MAC clauses capture COVID-19 and other pandemic risks in order to provide them an opportunity to terminate and walk away if the target’s business is disproportionally affected by this pandemic.
  • Fiduciary Duty Outs. Fiduciary duty out provisions should also be carefully negotiated. While there are many variations of fiduciary duty outs, expect to see more focus on these provisions, particularly around the ability of the target’s board to change its recommendation and terminate because of an “intervening event” rather than exclusively because of a superior proposal. Likewise, buyers will likely become more focused on break-up fees and expense reimbursements when these provisions are triggered.
  • Regulatory approvals. The regulatory approval process could also become more challenging and take longer than normal as banking regulators become more concerned about credit quality deterioration and pro forma capitalization of the merged banks in an unprecedented and deteriorating economic environment. Buyer should also consider including a robust termination right for regulatory approvals with “burdensome conditions” that would adversely affect the combined organization.

While bank M&A may be challenging in the current environment, we believe that ample strategic opportunities will ultimately arise, particularly for cash buyers that can demonstrate patience. Credit marks will be complex if the current uncertainty continues, but valuable franchises may be available at attractive prices in the near future.

Bank M&A: Setting Expectations for 2020

What’s driving bank M&A today? That’s one of the questions explored in Bank Director’s 2020 Bank M&A Survey, sponsored by Crowe LLP. In this video, Crowe Partner Rick Childs explains how M&A drivers and barriers will impact deal activity in 2020. He also weighs in on how to effectively measure the success of a transaction and shares the important role strategic discipline plays in achieving long-term success.

  • Pricing Expectations
  • Defining a Successful Deal
  • Predictions for 2020

In accordance with applicable professional standards, some firm services may not be available to attest clients. © 2020 Crowe LLP, an independent member of Crowe Global.   crowehorwath.com/disclosure

M&A: What Today’s Sellers Need To Know


Pricing is often a deal-breaker in bank M&A, and sellers are seeking the best price possible for their shareholders. Dory Wiley of Commerce Street Capital explains that while pricing likely won’t rise in 2016, some banks will be better positioned for the best price and, more importantly, the best deal.

  • Which Banks Will Get a Higher Price
  • Expected Pricing Trends in 2016
  • How to Get the Best Deal

Bank M&A in 2014: What to Expect


In this video, Rick Childs of Crowe Horwath LLP highlights findings from the 2014 Bank Director & Crowe Horwath LLP Bank M&A survey, revealing a shift in which banks are expected to be the active acquirers this year. In addition, Rick shares his insights on regulatory approval trends, mergers of equals and the continued disconnect between buyers and sellers on pricing.


M&A: Getting the Regulatory Position Right Remains Critical to Deal Activity


1-15-14-FinPro.pngTwo of the biggest obstacles to merger activity are mismatched pricing expectations and regulatory impediments. With the dramatic increase in banking stock prices and trading multiples, buyers now have much better stock currency and thus, the capacity to pay more. The driver of this improvement has been better earnings and improved credit quality resulting in lower credit marks.

With these improving conditions, one might expect a wave of merger activity that advisors dream about. However, we have to keep in mind that equity markets are pricing in the expected future results while banking regulators are focused on past exam results and potential future market stresses. Therefore, regulators are not caught up in the current market euphoria. Regulatory issues can materially delay deals as evidenced by the pending M&T Bank and Hudson City transaction.

Limitations of Joint Meetings with Regulators

Regulatory factors will continue as impediments to deals. One common approach in addressing regulatory factors is a pre-filing meeting with regulators prior to announcement. This pre-filing meeting serves multiple purposes. It provides a courtesy to regulators and helps strengthen the relationship and trust between banker and regulator. Bankers and their advisors also view the meeting as a due diligence tool. Managers report to their boards of directors that they meet with the regulators on the transaction and did not hear any objections. However, it is important to realize that the usefulness of this meeting from a due diligence perspective will depend upon the attendees of the meeting. Regulators are prohibited by law from discussing examination findings with anyone other than the management of the regulated institution and their regulatory advisors, so regulators must limit what is said in a joint meeting with both management teams and advisors. As a solution, the pre-filing meeting should be a two-part meeting. One part should allow for an open dialog on examination matters between the regulator and regulated institution. The second part will allow the buyer, target and their advisors to discuss the application and processing matters with the regulator.

Regulator Impediments

From my experience, regulatory impediments toward mergers revolve around three areas: 1. safety and soundness, 2. compliance and 3. golden parachute restrictions. From a safety and soundness perspective, regulators require that the combined entity be at least pro forma CAMELS rated 2. The key to addressing regulatory concerns from a safety and soundness standpoint is compiling a pro forma enterprise risk management (ERM) analysis. The ERM analysis will provide a framework for management to discuss the resulting entity’s risk profile in a CAMELS format. Regulators will be interested in discussing the impact of any new lines of business, concentrations and new staffing models of the combined entity.

Material buyer compliance issues will usually delay or prevent a transaction. Management teams of buyers have to be vigilant with regulatory compliance and resolve issues pre-announcement, even if the delay is weeks or months. Compliance issues at sellers are easier to resolve. Regulators will be evaluating whether the buyer’s management and policies and procedures are sufficient to provide a sound compliance framework going forward. However, correcting compliance going forward does not absolve buyers from the target’s past issues as JPMorgan Chase & Co. and Bank of America have found in their purchases of Washington Mutual Inc. and Countrywide Financial Corp. Therefore, due diligence remains key in identifying these issues while deal structure helps manage liability. For example, we recently advised two different acquirers that were purchasing banks with significant Bank Secrecy Act/anti-money laundering violations. In the first case, the acquirer built in a walk-away provision in the merger agreement which allowed the acquirer to terminate the deal if fines exceeded a threshold. In the second case, the buyer could not determine the potential liability and elected to structure the transaction as a purchase of assets and assumption of certain liabilities. In this second case, the regulatory fines amounted to almost the entire deal consideration. The buyer was immune from the fines, but the sellers received almost nothing.

Golden Parachutes as a Problem

One factor used to induce the management teams of sellers to go along with (and sometimes promote) the sale of their institution are golden parachute agreements. However, a renewed focus by regulators on Section 359 of the Federal Deposit Insurance Corp.’s rules and regulations has led to deal hurdles. Section 359 limits the payment of golden parachutes to the management team of institutions in troubled condition. Historically, payments were structured so the acquirer made the payment, not the troubled institution, as a means of sidestepping the issue. But now, the FDIC has strictly limited payments to no more than twelve months salary, regardless of which entity pays it. Therefore, sellers either have to improve their risk profile to remove the regulatory troubled condition or management teams have to accept the severance limitations.

While the market is improving and conditions are ripe for deal making, addressing and evaluating regulatory position needs to be a continued focus.

The Price Is Not Right


ma-research-13-report.pngAn increasing number of banks are interested in making an acquisition, but a significant misalignment between the price that buyers are willing to pay and that sellers are willing to accept will most likely be a barrier to any significant consolidation in 2013, according to a recent email survey of officers and directors conducted by Bank Director and Crowe Horwath LLP.

According to the survey, which was completed by 224 bankers in October, 57 percent of respondents hope to make some form of acquisition this year, which is up from 52 percent last year. Of those, 46 percent want to buy a healthy bank, 21 percent are interested in branches, and 17 percent seek to buy an FDIC assisted institution. Last year, there was less interest in healthy banks at 37 percent but more interest in branches and FDIC assisted transactions—at 27 percent and 24 percent, respectively. 

Respondents looking at acquisitions outside of their core branch banking franchise show particular interest in investment management and/or trust businesses at 40 percent and insurance brokerage and/or agency businesses at 30 percent. Twenty-nine percent of those looking at acquisitions outside of their core banking franchise seek to acquire a residential mortgage origination business.

Chad Kellar, senior manager at Crowe Horwath LLP, explains that acquisitions of mortgage origination businesses are of interest right now given the relatively strong position of mortgage companies that made it through the worst of the financial crisis.

“Sales are very strong right now, and obviously the refinancing boom is continuing,” says Kellar. “So those [mortgage companies] specializing in refinance, in particular, are going gangbusters this year and last year relative to what they had been doing even before the downturn.”

For potential buyers, the top three reasons for making an acquisition did not change this year, with 63 percent of respondents wanting to supplement organic growth, 60 percent looking to increase market share and 41 percent trying to rationalize the cost of regulation over a wider base.

Not surprisingly, pricing is the number-one barrier for both buyers and sellers. Sixty-two percent of buyers cite unrealistically high pricing expectations as a top barrier to an acquisition, and 71 percent of potential sellers feel the pricing is too low to make a deal.

The disagreements over pricing may come down to perceived asset quality—with 59 percent of buyers concerned about the asset quality of potential targets but only 5 percent of sellers reporting subpar asset quality as a barrier to selling their bank.

“From the perspective of an acquirer, there is still significant concern about what the seller is reporting as their asset quality,” says Kellar. “Through a number of transactions where we go in and say, “here’s the potential loss,” it’s still a multiple of what the seller’s board is thinking. So there is a pretty big divide between an acquirer that’s healthy enough to go do a transaction and the seller in a lot of these situations.”

Until these pricing issues are resolved, it appears that any great wave of M&A activity will have to be put on hold. Eighty-nine percent of respondents say they have no intention of selling a bank, branch, line of business, or loan portfolio in the next year. Only 2 percent of respondents report they are planning to sell a bank, which could be bad news for the 46 percent who say they want to buy one.

Rick Childs, director at Crowe, says these results are consistent with what he has been seeing in practice.

“While waves of consolidation have been predicted for a number of years, the survey really indicates that credit quality and pricing concerns have really held back the level of consolidation,” says Childs. “I think banks aren’t as interested in selling as the predictions would suggest. Certainly, increased regulation creates headwinds and the survey shows that banking is not as fun [as it used to be]. But I think these people are still committed to independence, not wanting to have the hometown bank owned by somebody else. There’s still a lot of pride in that.”

For the full summary report, click here.

**A full discussion of survey results will appear in the 1st Quarter 2013 Issue of Bank Director magazine.