The Daily Dividend: Industry News

News, notes and insights from around the industry

NOVEMBER 17, 2017
Friday Hot Links
By Hilary Collins, Assistant, Publications and Research, Financial Managers Society

While planning ahead for a short week and a long holiday weekend, here are a few industry stories to help fill your down time.

Making your website your top referrer
In the recent shift to mobile and online banking, the focus has rightfully been on the customer experience and convenience. But if that’s where your institution’s fine-tuning stops, you could be selling yourself short. Understanding how to optimize internet and search traffic could mean that your website isn’t just pleasing existing customers, but charming new ones.

Questioning online lenders
Research from the Cleveland Fed has prompted criticism of online lenders for not paying enough attention to their customers’ welfare. Traditional lenders are supposed to not only look at the probability of losses, but how well-suited the loan is for a particular customer – something that online lenders may be ignoring altogether.

Shopping risks
Online holiday shopping is prime time for cyber threats, as employees use work emails, corporate cards and recycled passwords. Nip the problem in the bud with some timely training.

Preparing for change in 2018
A balanced foundation can help your institution navigate the choppy regulatory waters of the coming year. By simplifying your processes and policies, taking a closer look at risk and reward and bringing governance, risk and compliance advisors to the table, you’ll be in a good place to take on whatever the future holds.
  
NOVEMBER 16, 2017
When Mergers Fail
By Hilary Collins, Assistant, Publications and Research, Financial Managers Society

when mergers failA new study from Cass Business School and Intralinks analyzed over 78,000 international M&A transactions over the past 25 years to try to find out why some mergers and acquisitions fail while others succeed. While the average failure rate over the course of the study was 5.7%, it was up to 7.2% last year – the highest percentage since the crisis of 2008. 

The M&A experts surveyed blamed the high failure rate of 2016 on the shaky environment politically and economically, but there also a number of more general ways to predict failure. Though there were dramatic differences in failure rates between countries, regions and industries, the study pointed out several significant predictors of failure across the board:

The absence of a punitive fee for a failed deal 
Called a break fee or a target termination fee, the acquirer must pay the target if the merger fails – when this fee was present, the odds of failure dropped by about 12%.

The size of the parties 
There are many ways in which the size of either party can impact a deal – in general, the bigger the target, the higher the likelihood of failure; the smaller the acquirer, the higher the likelihood of failure.

The target’s perception of the initial bid
If the target perceives the overture as unwelcome or downright antagonistic, most deals will not close.

The number of legal and financial advisors the acquirer retains
The higher the number of advisors, the less likely a deal is to fail – adding a financial advisor reduced the likelihood of failure by 11.5%, and adding a legal advisor reduced it by 8%.

Of course, this survey doesn’t tell the whole story – there are differences between private and public companies, industries, regions and more. Nevertheless, it does provide some worthwhile food for thought for any organization considering M&A as a strategic possibility.  
 
NOVEMBER 13, 2017
A New Way to Look at Innovation
By Hilary Collins, Assistant, Publications and Research, Financial Managers Society

A New Way to Look at InnovationWhy do financial institutions have such a hard time with innovation? The Financial Brand takes a closer look at different types of innovation, and what banks and credit unions are getting wrong.

Consider what kind of innovation you’re after
Innovation is not one specific thing – it can vary from slowly improving existing products to appease current customers to overhauling a whole organization and brand to appeal to an entirely new customer base. This is why institutions need to carefully consider which level of innovation is right for them; those that change too slowly run the risk of being overtaken by competitors, while those that completely revolutionize may underestimate the business impact.

Weigh risk versus reward
While incremental innovation is less of a risk, it also is less likely to result in the kind of changes that will demonstrate true value to existing and potential customers. By implementing different types of innovation in different initiatives within the institution, you have a better chance to hit that sweet spot. For instance, an institution may slowly bring its branches and lending system into the 21st century, but at the same time dramatically overhaul its mobile and internet banking experience. In other words, it may be time to throw out the one-size-fits-all innovation mindset.

View innovation as a portfolio
Financial institutions are often so failure-averse that they don’t take enough chances to keep up with innovators, much less get ahead of the curve themselves. To remedy this, it may be worth looking at innovation as a portfolio, where risk is balanced by spreading it across multiple projects. To take this approach, however, banks and credit unions must first realize that failing is a reality that’s going to happen if they take innovation seriously.
  
NOVEMBER 10, 2017
Friday Hot Links: Leadership Edition
By Mark Loehrke, Editor, Financial Managers Society

Friday Hot Links Leadership EditionThis weekend, let’s take a break from the day-to-day dollars-and-cents issues to instead focus on a topic that can affect your institution – positively or negatively – just as much as any ALM or accounting decision: leadership. 

Whether evaluating your own leadership style or the skills of those around and above you, here are a few good articles to help you see where your institution stands – and how it can improve – from the top down.     

CFOs Who Deliver
Leadership in the finance area is critical for every institution, but many boards feel they can’t be as effective as they’d like because they’re not getting the information and insights they need from the CFO. Where are the gaps, and how can the CFO step up to make sure they’re filled in order to give his or her board a boost? 

Staying on Top of the Numbers
One way a leader can make sure he or she is delivering the innovation and information the board needs is by heading up a deeper dive into the institution’s data. A good analytics program is more important than ever, so prove your mettle as a leader by avoiding some of the common pitfalls with this emerging area. 
    
Bad Apples
Sometimes the best way to pick a good leader is to simply winnow away the not-so-good candidates from the pack and see what’s left, following a few tips for identifying bad leadership traits or behaviors.
 
NOVEMBER 9, 2017
Hire Anxiety
By Mark Loehrke, Editor, Financial Managers Society

Hire AnxietyRemember the good old days – which, incidentally, were technically the bad old days of the recession – when hiring quality new staffers was as easy as whispering that you had an opening and waiting for hundreds of top-notch resumes to fill up your inbox? 

It doesn’t really work that way anymore. The employment picture has changed dramatically over the past several years, and community institutions now find themselves in a battle for the best talent to fill out their professional staffs amid an improving economy and a tightening labor market. In fact, what we’re seeing now may in fact constitute a paradigm shift for finance and accounting professionals. A few key trends that may be unfolding:

More Than Numbers
Finance professionals are increasingly being put on teams within organizations that require them to meld their technical knowledge and insight of the numbers to the technology skills and bigger-picture thinking that bring them into larger strategic discussions.   
  
Gig Economy
Many organizations are jumping aboard the freelance bandwagon, bringing in on-demand financial and accounting professionals – rather than full-time team members – to help handle important functional and regulatory challenges. These organizations not only save on the costly overhead of health care and other benefits, but are able to take advantage of the unique skills of both experienced, semi-retired workers and innovative, tech-savvy Millennials – two groups that are increasingly riding the freelance wave. 

Evolving Hiring Practices
As good candidates become harder to find, smart organizations are shifting their hiring practices from traditional job descriptions that might shut out a good applicant before he or she even steps foot in the door to instead focus as much on potential as skill level. While specific skills can be taught, motivation and personal characteristics are becoming increasingly important can’t-be-taught attributes of the best candidates.  

Focus on Data
The finance and accounting functions in most community institutions look a lot different than they did just a few years ago. While data has always been a big part of the job, it is often now the driving force behind most important decisions. Therefore, the focus these days is on finding people who know their way in, out and around the organization’s data and are thus able to uncover patterns and find the needle in the haystack that can lead to new opportunities and better profitability.

Proactive Candidates
Everybody, it seems – even the happily employed – is on the lookout for the next opportunity. That’s the reality of a strong job market – your best and brightest may not have one foot out the door at any given moment, but they’re probably at least open to a move that better aligns with their career goals. It’s important, then, to check in often and offer feedback as frequently as possible in order to let them know that the institution cares as much about their growth and development as they do.
 

NOVEMBER 8, 2017
Clinching Commendation from Commercial Customers
By Hilary Collins, Assistant, Publications and Research, Financial Managers Society

Clinching Commendation from Commercial CustomersThe 2017 CFO Commercial Banking Survey sheds some light on what commercial banking customers are looking for. 

Conducted in September and October of this year, the survey asked leaders and executives (mostly CFOs and CEOs) what they were looking for in a banking partner. While major banks like JP Morgan Chase and Bank of America received some of the highest marks, the major points of the survey offer insight into how to charm commercial customers at every level:

Make your fees worth it. The characteristic customers most valued in a commercial bank was getting the most value for fees charged, with customer service coming in second. 

Have institutional integrity. These customers are also increasingly seeking out institutions with a solid reputation they feel they can trust. 

Prioritize customer service. The overall score for customer service was 7 out of 10, slightly down from the year before. Since customer service is still one of the top concerns, institutions should make sure their service standards don’t slip.

Stay on top of new trends and knowledge. 56% of respondents said they would strongly recommend their commercial bank to another executive, citing technological capabilities, global reach and industry know-how as winning characteristics.
 
NOVEMBER 7, 2017
The Data Challenges of CECL
By Mark Loehrke, Editor, Financial Managers Society

The Data Challenges of CECLDo you ever wonder why everybody who talks about CECL wants to talk about data? 

Quite simply, data is the backbone of transitioning to the new standard. The more data an institution has – and the better the data is – the more options it will have for how it accounts for expected losses. That’s why every institution needs to get busy now to try and understand how much data it has and how much it can get. 

In doing so, Dr. Raman Mandapaka of Navigant Consulting writes that there are four key data considerations to take into account:

Data diversity
You may have plenty of data, but is it the right kind needed to model for expected losses? Now is the time to build your loan history, find the gaps and double-check the integrity of those numbers. 

Methodology and models
There’s no one CECL model that has to work for every institution, but the choice of which model or methodology to use is going to depend largely on the available data.
 
Documentation
At the very heart of CECL is forecasting, and at the heart of forecasting are the assumptions and data points you use to build your case. As such, the process of documenting your institution’s methods and assumptions needs to become part of the culture.

Governance and controls   
Done correctly, CECL will touch upon every aspect of the institution. It stands to reason, then, that tighter and more streamlined internal controls are a must.

It’s a lot to take in, but FMS is here to help – check out a wide variety of thought leadership pieces covering data requirements and many other topics in CECL Central or join Plante Moran for our upcoming webinar on How to Implement CECL Using Excel.
  


Contributors


Mark Loehrke
Writer/Editor
Email: markl@fmsinc.org 



Danielle Holland
President/CEO
Email: dholland@fmsinc.org 



Autumn Wolfer
Director, Membership and Marketing
Email: awolfer@FMSinc.org


Hilary Collins
Assistant, Publications and Research
Email: hcollins@FMSinc.org