The Daily Dividend: Industry News

News, notes and insights from around the industry

AUGUST 19, 2019
Wanted: CFOs
By Hilary Collins, Assistant Editor, Financial Managers Society

Wanted: CFOsIt’s great news for workers with their eye on the C-suite and bad news for the many CFOs who don’t have a successor: CFO job openings are expected to skyrocket in the near future. Comparing data on the average retirement age of Fortune 500 CFOs and the current average age of those same CFOs, it looks like a lot of CFO posts will be up for grabs soon.

Even for financial institutions who haven’t made the Fortune 500 list, this is a good time to start thinking about the CFO position at your bank or credit union. Whether you’re a CFO trying to pick a successor or a potential successor hoping to be chosen, here are three areas where a viable candidate should have experience:

Board interaction
For many candidates, moving into the C-suite will mean a lot more time in front of the board of directors than they’re used to. The next CFO should be able to present complex financial information clearly and have well-honed communication skills.

Strategic planning
Being able to lead the organization through a strategic plan is an essential skill for any potential CFO. Implementing a strategic plan successfully is what makes a CFO an organizational leader rather than just a number cruncher.

M&A knowhow
While this might not be an immediate concern for all financial institutions, mergers and acquisitions are where the rubber meets the road for many executives. Deals are complex projects that demand a wide variety of skills from the CFO, and anyone moving into that position should be capable of handling high-pressure transactions with grace.

AUGUST 16, 2019
The Upside of Being a Downer
By Mark Loehrke, Editor, Financial Managers Society

Nobody likes to be the one in an organization to blow the sad trombone when excitement is building about a potential merger or acquisition, but recent research suggests that the greatest chance of success for an M&A deal may hinge on a CEO-CFO pairing wherein the former is the cheerleader and the latter is, you guessed it, the Debbie Downer.

Despite the optimistic-pessimistic divide, the CFO in this case is of course really just doing what he or she would normally do in the face of any major strategic decision – providing the critical eye and due diligence needed to avoid a potential disaster. While the CEO is more naturally in a position to champion a prospective deal and provide the rosy vision for the combined entity’s future, the CFO needs to be the one to bring hard data to the table that either backs up that sunny outlook or warns of impending storm clouds on the horizon.

The researchers in this particular study looked at the influence of CEO-CFO pairings in more than 2,300 U.S. companies and more than 4,500 M&A deals, focusing specifically on the levels of optimism and pessimism they brought to those decisions, as noted by their use of positive or negative language. The resulting data showed that when CEO-CFO relative optimism was high (when a high-optimism CEO worked with a low-pessimism CFO), ROA decreased by 1.4% when the number of M&As increased; on the other hand, when CEO-CFO relative optimism was low (that is, when a low-optimism CEO was paired with a high-pessimism CFO), ROA increased by 4.7% when the number of M&As experienced the same level of increase. 

In short, the study concluded that in the presence of a pessimistic CFO, optimistic CEOs not only undertook fewer acquisitions, they were also less likely to pursue lousy deals. Thus, an optimistic CEO who has a large risk appetite for M&A and a pessimistic CFO who is sufficiently conservative and prudent to alert him or her to potential pitfalls may just be the ideal pairing. 

So go ahead, CFOs, blow that sad trombone – you’re probably playing a song your CEO needs to hear.

AUGUST 15, 2019
Why Financial Institutions Fail at Agility
By Hilary Collins, Assistant Editor, Financial Managers Society

Everywhere you look these days, talking heads are urging organizations to become more agile. Heck, we’ve done it here. In a world where the pace of change is a major concern, it makes sense that agility is seen as one of the key attributes for keeping up to speed. However, it’s always interesting to hear an opposing voice: for instance, this one, arguing that agility and financial institutions don’t mix.

Financial institutions are intensely regulated and most still have hierarchical leadership structures, two traits that don’t lend themselves to a particularly agile mindset. Disrupting, innovating and, yes, being agile are thus much more difficult for a community bank or credit union than for many other businesses. Financial institutions, for example, don’t have the luxury of developing flexible products or doing things by trial and error – they have compliance concerns that mean any new service or product has to be rigorously examined and tested before it launches.

That said, banks and credit unions can still borrow ideas and habits from the agile methodology. While they may not be able to match the agility of a software startup, embracing change and learning how to roll with technological advancements can give community institutions a fresh outlook and new ideas.

AUGUST 13, 2019
Starting Off on the Right Foot
By Hilary Collins, Assistant Editor, Financial Managers Society

Starting Off on the Right FootAs customers’ relationships with their financial institutions continue to evolve, moving ever further away from branch transactions in favor of digital tools, banks and credit unions need to make sure that have a digital growth strategy. And with the three biggest banks in the U.S. cornering 50% of new deposit accounts in 2018, community institutions have even more reason to focus on expanding their digital markets. 

Unfortunately, many institutions are still using tools and measurements designed for an outdated business model, leading to an off-balance digital strategy. Here are some tips for setting out on surer footing:

Measure success correctly
Embracing digital growth often means embracing digital advertising, but success in digital advertising can be difficult to quantify. Is it the number of clicks or likes? Can any account opened during a campaign be attributed to that campaign? Instead of simply assuming direct links between a campaign and a new account, community institutions should be more closely analyzing the data to improve their digital strategy.

Open the lines of communication
While leadership is coming up with the digital growth strategy and marketing is creating campaigns around it, operations is dealing with the actual accounts – and all three are looking at different metrics and different ideas of success. Instead, these three areas should be working closely together to make sure outreach efforts, new accounts and overall profitability are fully aligned.

Emphasize long-term health

Community institutions that focus on short-term gains do so to their detriment. Leaders instead should analyze data from the first click to the customer account twelve months later – and that can be a lot of work, especially since many organizations don’t always have easy access to that data. But ensuring marketing, account opening and organization-wide financial health are working in tandem assures a successful growth strategy over the long run.

AUGUST 9, 2019
The Student Debt Burden
By Hilary Collins, Assistant Editor, Financial Managers Society

Many of the spending habits that make Millennials so different from previous generations — such as disinterest in homeownership or having kids — are often not attributable to personal preference so much as financial necessity. For instance, Millennials carry an immense student debt burden, driven largely by enormous increases in the cost of college education relative to wages. Back in 1987, a student might have paid tuition by working a part-time, minimum-wage job; today, this is a virtual impossibility.

So what does the debt burden that comes with a college education mean to leaders at community institutions? New research shows that the average student debt holder spends 20% of his or her take-home pay on student loans, and 24% expect to be making those payments for 10 years or more. Because of this, 82% of student debt holders are delaying savings, and 54% have maxed out their credit lines.

While much of the student debt burden can be blamed on the decisions of college-age young people who don’t fully understand the long-term impact of taking on significant debt, another recent survey shows that parents too feel ill-equipped to plan for college costs. Almost two-thirds of parents wished they had spent more time preparing for their children’s college costs, and 55% said the process of choosing a student loan was more difficult than they expected.

In a tight job market, some organizations are attracting young job seekers by offering help with student debt repayment, and a survey showed that 32% of organizations are interested in adding such a benefit by 2021. For financial institutions having trouble attracting young job candidates, help with student debt is something to consider. After all, the notion of helping customers with their financial challenges may be best nurtured by an employer that helps them with their own.

AUGUST 8, 2019
Fintech in Focus
By Mark Loehrke, Editor, Financial Managers Society

Fintech in FocusWhether you happened to read our story on fintech in the latest issue of FMS forward, or if you’ve just been thinking about what the rise of fintech may mean for your bank or credit union in the years to come, you may be interested in the pulse-of-the-movement snapshot provided by Deloitte’s newly updated fintech interactive tool.  

Tracking competitive investment intelligence across the industries of banking and capital markets, insurance, investment management and real estate, the tool has uncovered a number of notable trends from the first half of 2019, including:

While only three venture capital-backed fintechs were launched in the first half of 2019 – compared to 42 in 2018 – fintech investment of more than $29 billion over those same six months is on track to equal or even surpass 2018 figures

Banking and capital markets once again attracted the lion’s share of fintech attention and investment, leading the way with 61% of the funding and 40% of the fintech companies in 2019 thus far

The U.S. is still largely the place to be for fintech these days (particularly San Francisco and New York), with domestic fintech investments of $15.7 billion in the first half of 2019 representing 53% of the world’s total funding over that period

AUGUST 2, 2019
The Risks Ahead
By Mark Loehrke, Editor, Financial Managers Society

Credit risk has been an issue lurking just below the surface of the mostly positive market environment over the past few years, but it may be poised to develop into a more top-of-mind concern as the economy begins to slow in the coming quarters. That’s the key takeaway from the FDIC’s recently released 2019 Risk Review, which also singles out the market risk associated with an uncertain interest rate outlook as something for institutions to be aware of.

On the topic of credit risk, the report discusses agriculture, commercial real estate, energy, housing, corporate debt, nonbank lending and leveraged lending as a handful of the top sources. On the market risk side, meanwhile, the report points to interest-rate risk, deposit competition and liquidity.

The report predicts U.S. economic growth to slow this year from recent highs as the economy comes off an especially strong year in 2018. Some of the factors that may contribute to this slowdown include tariffs on traded goods, ongoing political risks in Europe and a global economic slowdown that began in 2018. According to the report, this slower growth in the broader economy is beginning to take a toll on banks, with loan growth slowing down over the last three years, especially in real estate-related portfolios.

On the positive side, however, he FDIC notes that despite these heightening risks, banks continue to hold more and higher-quality capital than they did during the financial crisis, and are therefore better prepared to deal with these challenges now than they were then.


Mark Loehrke

Danielle Holland

Hilary Collins
Specialist, Publications and Research