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Catch The First FinReg Waves Washing Up On Investment Banks

Hang ten in the financial services industry and catch some of the first waves of business model changes washing up on the investment banking shores … dude. As I advised in a prior blog post, Selling Into FinReg, NOW is the time to sell the financial value of your solutions. Catch the wave! SeeWSJ article.

The regulatory sea change, that is andwill be (with 243 rules remaining to be written) the Dodd-Frank Wall Street Reform and Consumer Protection Act (HR 4173), has begun to upend business models across the financial services industry. And Basel III, the global bank reform standards issued last month and scheduled to be finalized next month, has raised the wind speed and accelerated the pace of structural changes.

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Selling Into FinReg

BREAKING NEWS: Washington D.C.  A regulatory sea change of immense proportions washed up onto the shores of the American financial services industry this week.  Initial damage assessments are indeterminable at this time.  Hundreds of additional waves of regulatory rules (243 to be exact) are expected in the storms aftermath.  Ten regulatory agencies including the Federal Reserve, FDIC and SEC have been assigned permanent clean-up duties. One agency, the CFTC, has asked for $45 million in emergency funding just to hire new staff to deal with the aftermath.  Thousands of lobbying organizations have been mobilized by local establishments to garner public support as they work to mitigate collateral damages.  Businesses, mostly banks, directly in the path of the 2300-page legislative monster have declared a state of emergency.  For example, J.P. Morgan Chase, operating at the epicenter of the storm, has assigned more than 100 triage teams to assess response priorities.  In a sign of despair sales professionals have been spotted aimlessly wandering the hallways of their customers looking for signs of life … and clues about the implications to them. Tax-deductible contributions are encouraged and can be made by going to your online bill pay solution and selecting ‘U.S. Treasury’ in the payee drop down table.  We will have additional reports from the scene as conditions on the ground warrant.

Interestingly, not everyone agrees that the storm has come ashore quite yet.  The Wall Street Journal headlines this week screamed, “Impact to Reach Beyond Wall Street; Key Questions Unresolved for Businesses and Consumers Until Bill Goes Into Effect”.  I know I’m in the minority, but I beg to differ with the implication that business decisions are being deferred.  The headline should have read “Attention Sales Professionals: Your Financial Services Customers Are Assessing Business Model Implications – NOW IS THE TIME TO SELL THE FINANCIAL VALUE OF YOUR SOLUTIONS INTO A POST-FINREG WORLD”.

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Bank to Basics

Once upon a time not so long ago, sales people calling on banks large and small knew what to expect when meeting with executives: business leaders sporting predictable customer-driven, risk-averse, continuous improvement mindsets. They were ‘steady as she goes’ managers espousing conservative strategies for making loans, taking deposits, and generating fees. And they were cheerleaders emphasizing the virtues of maximizing ROA (Return on Assets), an indicator of profitability before leverage.

Oh sure, ROE (Return on Equity) was alive and well in the lexicon of banking executives, but ROE was considered an external metric more suitable for an investor audience. ROA, on the other hand, was almost universally accepted as the internal performance metric of choice when it came to rallying employees, driving decisions, and making investments. The key to ROA was maximizing net income for every dollar, euro, or yen of assets present and accounted for on the balance sheet. During the period from 2000 to 2006, ROAs rose across the global banking industry. According to the FDIC, ROAs reached historically high levels in the U.S., hovering near 1.4%. Life was good in the fairy tale world of banking.

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