Banking Communications Strategies for 2007

January 2007

For banks, 2006 was a thorny year – rising rates, a slowing housing market and increasing deposit costs. Add in sluggish loan growth and a deterioration of credit quality, and many institutions were left scrambling for something positive to say.

 

A common response was to highlight cost-containment efforts in public comments during 2006, to show how companies could hold earnings in line despite a decrease in revenues.

 

When looking at the forecasts for 2007, it appears that banks will get little relief. Most bank analysts predict that the road will remain rocky – if not get worse – until deposit costs stabilize and margins can expand again.

Marsh Communications Announces New Client Initiatives Marsh Communications is pleased to announce that it has been chosen to manage new financial marketing and investor relations initiatives by Analytic Innovations and Home Forge Remodeling Inc. Please click here to read more.

 

The danger remains that as the housing market stagnates, loan volumes will decrease further and nonperforming assets will rise, as will loan-loss reserves, which will negatively impact revenues and earnings. Thus, many analysts expect the cost-cutting of 2006 to continue or increase in 2007.

 

Don’t Cut to the Bone

If your bank is in this position, do not give short shrift to discussing your plans for driving top-line growth. You must continue to highlight the company’s long-term prospects, even as you talk about short-term tactical responses to the market.

 

Your constituents – customers, employees and investors – by and large understand that the market is constraining the vast majority of the banking industry. Make sure they do not lose sight of the fundamental reasons why your bank is an attractive commodity. (Yes, you may have to cut costs in the interim, but your markets are strong and your style of banking is filling an unmet need in your communities, etc.)

 

Also, when discussing cost-cutting measures, be careful not to go too far in penny-pinching fervor. There is only so far you can go before giving the impression that you are cutting to the bone instead of just trimming the fat.

 

As Charles Prince, Citigroup chairman and chief executive, stated last October, “You can't cut your way to greatness.”

 

Or as Allan Landon, chairman and chief executive of Bank of Hawaii, more vividly described, “(Expense control) is sort of like driving a car down hill: You have to keep your foot on the brake, or it will get out of control on you.”

 

Focus on Competitive Advantages

In terms of marketing to customers and prospects, focus on your bank’s competitive advantages in niche products and services, such as cash management or customized loan programs for small businesses. This is especially true for community banks, which are perceived as offering better customer service than larger banks.

 

Avoid getting caught up in just promoting the CD special of the week. With the rise in rates, there has been a fierce battle for customer deposits, resulting in aggressive pricing of CDs. Bank customers are taking advantage of this by transferring money from lower-yielding to higher-yielding accounts. There is no need to fuel this fire when you can focus your communications on other, less cannibalistic sources of revenue generation.

 

As always, be frank when discussing any shortfalls in revenues or income in 2007, but do not be afraid to remind your audiences of the fundamental reasons why the bank was first founded and why stakeholders should support it in the long run.

< Back to Insight Newsletter