By Eliot Stark - Debate continues over a potential $30 billion government-backed infusion of capital to small businesses. As I’ve noted in the media, the concern is whether this “no risk” funding will fuel loans to businesses that aren’t creditworthy enough to meet banks’ normal underwriting standards. And, if approved, who will be the banks willing to make riskier loans?

A very real issue is that it could be tempting for banks that don’t have sufficient size, resources and capital strength to win quality lending business without a governmental handout. And the government backing may tempt banks to make loans to companies that represent relatively high credit risks. If this funding resulted in higher default rates, taxpayers are going to be the losers.

And it won’t solve a fundamental problem – there are simply too many banks, and far too many weak, undercapitalized banks. Many institutions are now hanging on for dear life. Others are doing well but remain too small to attract the capital needed to grow and make quality loans as the economy strengthens.

My concern is the institutions most likely to take this government funding are the ones at greatest risk. If so, a capital infusion from Uncle Sam will only prolong the inevitable for these banks. Many bankers remain in a state of denial about their long-term prospects, thinking they can successfully stand alone without sufficient size or strength.

At Capital Insight, we strongly believe in the community banking model. But every sign points to the fact that troubled or capital-starved banks need to seek a partner for merger or acquisition. They may have numerous attractive aspects, such as a quality customer base or a good base of deposits, but they don’t have the size to withstand higher capital requirements and still have sufficient resources to profitable manage their businesses.

And community banks with less than $1 billion in assets that have emerged from the past two years in good shape need to seriously consider scaling up to remain competitive and have a sufficiently diversified lending portfolio to capitalize on quality lending opportunities.

But if the $30 billion capital infusion gets people talking and thinking about the real issues – the ability of healthy, well-capitalized community banks to make loans to strong credits – then it’s a productive conversation.

By Tad Gage – It’s no secret the next few years are going to hold a lot of changes in the community banking sector. As we at Capital Insight Partners produce reports and updates on various regions in the U.S., one thing is clear: there are too many community banks. Capital issues, challenging loan portfolios and painful accounting-related revaluations of assets and goodwill have certainly had a powerful impact, even on long-established community banks.

But the real pain seems to be in store for the crop of banks that sprang up in the ‘90s through 2006. Without a doubt, there are a large number of successful de novos holding their own and even growing. The upside for many of these businesses is they started conservatively and didn’t have the capital or inclination to dive into the overheated real estate market. So they have been able to emerge in 2010 with minimal loan problems, good core deposits, minimally leveraged balance sheets and adequate capital.

Many of the banks we talk with, whether de novo or established, realize they’ll need a capital infusion at some point if they want to grow and take advantage of the many market opportunities that exist for the community bank model. The expansion opportunity for these healthy banks lies primarily with friendly mergers of relative equals, selective organic or acquisitive branch or location expansion, and acquiring smaller banks.

A large number of these very small community banks aren’t necessarily in trouble, but they don’t have the resources or access to capital to effectively do more than tread water. Realistically, these banks need to prepare to be acquired. And potential consolidators can also prepare to be effective and attractive acquirers.

Putting your financial house in order is the best way to prepare. For acquisition candidates, making it easy for potential acquirers to analyze the bank (under appropriate non-disclosure agreements, of course) can highlight the bank’s value and help potential acquirers identify the opportunities. For potential acquirers, having clear and transparent financials and a compelling game plan will make it easier to demonstrate to investors in a capital raise that you’re the horse to back.

Some key areas to analyze include:

·         Asset quality

·         Fair value of owned assets

·         Book value

·         Nonperforming assets and loan-loss reserves

·         Underwriting practices

·         Real estate loan participations

·         Net-interest margin

·         Capital adequacy

·         Management and board

You can find a detailed discussion of and rationale of these key issues in the Capital Insight-authored article in Bank Accounting and Finance. Just click on the logo link listed on the left side of this page for more detailed information.

By Tad Gage -- Just about every community bank has a functional website, facilitating customer logins, access, account management and so on. But taking more than a few turns around the Internet have shown me that beyond the purely function, a lot of community banks are missing a great opportunity to reinforce their name recognition, values, products and services.

Today’s reality is that people make a lot of judgments about companies (and banks) based on their websites. If your website is wearing jeans and gym shoes to a formal event, you’re going to be negatively categorized. An attractive (not glitzy) site with meaningful content can reinforce all the work you're doing to win and retain customers.

Here are a few ideas of places where your company’s website could work harder:

About the Company/Bank: Many community banks have interesting strategies designed to differentiate them from competitors and provide value, differentiated products and services to appeal to customers. Surprisingly, many community banks don’t take this essentially free opportunity to market itself to customers and potential customers. By compiling this information in one place, banks can demonstrate their practices and value. Highlight management’s strategy for growth and maintaining capital strength. If a bank has a long history, highlight it. If not, focus on how the bank has positioned itself for long-term success.

“Our People”: Use the website as an opportunity to highlight the experience and capabilities of the management team and board of directors. Rather than posting resume-like career accomplishments, put the team’s accomplishments and capabilities in context to illustrate the role they play. Be sure to include members of the senior lending and service teams, credit officers and technology pros. A few photos of team members (nothing fancy, just good quality candid shots) help put a face on the bank. This is particularly important for customers who rely heavily on web-based delivery of services and info. A community bank is all about the people, and the website can help deliver a more personal feel even if customers don’t frequent the physical locations.

Communication: Your website is the chance to communicate. Easy to access news releases, messages from executives, information about upcoming events such as financial planning seminars or community activities sponsored by the bank are all valuable ways to reach out to stakeholders and new business prospects.

Disclosure: Because all regulated banks are required to share financial information about their performance, why not include selective charts and information that highlight good financial performance, asset growth, and a few other basics?  Privately owned banks and even smaller publicly traded banks fail to do this. Especially with all the concerns about bank strength and solvency, people appreciate the reassurance of knowing their bank is financially sound and well-managed.

Graphics: A bit of color and style go a long way. Keep backgrounds white or light colored, but use photos and design elements to liven up the site. Make sure it's easy to use with handheld devices. Use the bank’s logo frequently to enhance awareness and reinforce awareness when people pass the physical locations. Many banks have LPOs and facilities that have no signage. A website can be particularly useful to supplement minimal signage. Replace free stock photos (you know the ones – smiling people shaking hands, generic pictures) with real photos. Stock photos are easy to identify, and many people find them a turn-off. Scenes from your community, pictures of actual employees, interior photos of your bank, etc. add veracity.

Easy to Navigate: If tabs and hyperlinks are difficult to locate and use, people check out. Make them large, easy and clear. And NEVER have a link that takes a user away from the site by replacing the current link with a non-site link. If there’s an appropriate need to utilize other sites such as stock market info, alliances with financial planners or financial calculators, make sure the link opens a new window but keeps the original window open.

Keywords:  I often find when I enter a bank’s name (or part of a name) in a search engine, I get a lot of sites not related to the bank I’m searching. Invest in Search Engine Optimization (SEO) to move your bank to the top of the search engines with a minimal amount of information. It’s relatively inexpensive and there are a lot of web consultants who specialize in SEO.

An informative, attractive, easy-to-use website is something any bank can offer. Call me at 312-466-7646 for more information on this cost-effective way to enhance your communications.

By Tad Gage -- Although overall employment stats continue to lag, at least one sector is demonstrating robust growth: the market for FDIC regulators and staffers.

I can almost hear the collective groan from the banking community. But hold on – maybe this isn’t an entirely bad thing.

The FDIC has announced it will increase its total examination staff by about 25% in 2010, which includes a 31% increase in risk management staff, according to data provided by the agency to FinCri Advisor, which has become one of my favorite “insider” news sources for banking and regulatory issues. The publication notes that would equate to a 69% staff increase at the FDIC since 2007. Scarily, a lot of these hires are temporary.

I can’t imagine an inexperienced full time hire or temp would do much more than keep lock-step with whatever the bosses dictate. The OCC is also upping staff – about 3% in 2010.

No doubt, more regulators will mean more reviews, more hassles, more questions, and more time spent on compliance. An influx of auditors and examiners who are wet behind the ears will probably result in even less flexibility than in the past, and more adherence to strict interpretation of regulations than ever. By nature, no bureaucrat (especially a new hire) has the experience or incentive to interpret individual circumstances.

What could be the possible upside? Well, maybe a little more pain up-front might get the whole thing over that much faster; like ripping off a sticky bandage versus pulling it off slowly. It’s going to hurt either way, but one way is faster.

To-date, examiners (no matter how experienced they are) haven’t been all that flexible or forgiving, anyway. The days of negotiating with examiners ended in 2008. Many forcibly closed banks in 2009 were initially given 18 months instead of 12 months until the next exam because they were deemed by the regulators to be in good shape. Then, in swooped the regulators. Negotiation and forbearance really hasn’t happened since 2007.

A larger staff potentially means more exams, but reviews and any results or directives may at least go faster. Any directives from Capitol Hill (if, indeed, legislators can ever figure out something mutually beneficial for the banking industry and the public) may be implemented faster and more fairly. We can only hope the efforts of bankers to make the case for some clear and fair directives from Washington will be heeded.

And consider that more examiners (and increasingly fewer banks to regulate!) may mean more careful and thoughtful analysis. Let’s face it: the majority of banks that have failed had some pretty serious issues.

Setting aside the conflicting messages regarding lending and capital adequacy that confuse everyone, expanding the ranks of examiners will probably accelerate the demise of struggling banks and perhaps accelerate and facilitate the process for banks with the ability to survive.

I don’t know if throwing more regulators at the “problem” will result in a quicker cure. But we can nurse hope that adding examiners is a first step in getting all these issues behind us so bankers can get back to banking in a more predictable regulatory environment.

If President Obama’s December 14 meeting with bank CEOs wasn’t a trip to the woodshed for an actual lashing, then it was at least an executive tour of the woodshed to view the various implements of punishment hanging on the walls. And it was most definitely a trip to the woodshed for the banking industry, which was portrayed as greedy, uncaring, and awash in self-serving lobbyists.

President Obama’s post-meeting rhetoric did nothing to address the general public perception that all banks are inextricably linked with (and headquartered on, it seems!) that half mile strip of concrete called Wall Street.

This “woodshed summit” provided yet another example of why it’s incumbent upon each and every community bank to talk to its customers, potential customers, investors and communities about how and why it doesn’t belong in that chastized group trek of woodshed visitors.

Proactive communications – and we’re talking here about sharing information about the bank, its management, operating strategy and performance, not just product marketing and a little local PR fluff – can be a highly effective tool.

After more than a year of public bank-bashing, it’s clear the American public, from the President on down, either can’t or doesn’t want to differentiate between community banks, mega-banks and investment banks. Of course, community banks aren’t blameless, as witnessed by the many small bank failures and the loan quality and capital sufficiency problems being experienced across the board.

But this is a far cry from failure and problems related to exotic financial instruments and bloated executive compensation despite sub-par performance. If anything, it’s rooted in over-exuberance in real estate lending, weak underwriting and poor management.

True, there are too many banks and too many weak banks: that will lead to continuing consolidation. But consolidation doesn’t mean the end of community banking or the basic premise that community banks are a critical part of the country’s financial mix. It just means community banks will need to be stronger, smarter, and a bit larger than before.

If there was ever a crisis in perception, the banking industry today is a textbook case study. Despite this public relations catastrophe, many community banks have chosen to minimize rather than revitalize their communications.

Despite the best efforts of the many fine and hard-working community banking industry groups to clarify public perception, it’s clear they’ve failed to alter public opinion in a meaningful way. Look no further than the White House rhetoric: bankers=fat cats.  Heck, even the banking experts on Capitol Hill only offer the faintest glimmer of hope that they understand the diversity of the financial sector.

It’s pretty clear the most effective way to change and manage public perception rests with each and every bank. And unless you’re a banker who actually believes your organization is not providing valuable service at fair prices, this is not about spin. This is about using proactive communications to correct some very detrimental public misperceptions about banking and about your business.

Although only a dozen large bank executives met with President Obama, the entire industry and every bank executive today received a tour of the woodshed. The good news is any and every community bank can make a positive case on its own behalf. – Tad Gage

By Anthony Burke Boylan --Jamie Dimon certainly has come a long way since he was considered a stunt casting choice to take over an institution called Bank One.

Back in 2000 analysts were split on whether Dimon was a brash choice for the then fifth largest bank in the nation – albeit one beset by credit card troubles – or an unproven protégé to Sandy Weill, taking the job more out of spite for his ouster from Citigroup than because he really wanted to run a bank.

An April, 18 2000 BusinessWeek article posed the question: “Jamie Dimon: the wrong man for the Bank One job?’’ The piece went on to quote Dale Jacobs, then head of a New York money management firm called Financial Investors, who called Dimon a dealmaker, but questioned his ability to oversee integration, employees, analysts, investor relations and nearly every day-today operation.

Today Dimon is the head of JPMorgan Chase, the largest U.S. financial services company, his navigation of the credit crisis was praised by President Obama and he is in his second round of speculation to be named Secretary of the U.S. Treasury. (A Google search shows a 2009 Seeking Alpha article referring to Mr. Jacobs only as a former wire house executive.)

There is little doubt Dimon’s experience and performance make him qualified to be Secretary of the Treasury. The real questions are whether the political climate will allow it, and if he isn’t a more effective agent of reform in his current role.

While the financial media has been abuzz with speculation on Dimon’s ascension to the post, there are those who have their doubts. While the doubters are wise to keep in mind the cautionary tale that is Mr. Jacobs, there is good reason for their dissent.

Ø  This is the second time Dimon has been considered for the post. He’s telegenic and a plain-spoken, quote-spewing media darling, which means it could be wishful thinking by the press this time around, much as it was the first.

Ø  Dimon is a Democrat and was second only to Oprah in the prestige he brought the Obama campaign; second to none in the Wall Street imprimatur he provided. But true to his firebrand nature, Dimon has split from the administration on key financial industry issues – a very public disagreement at a time when banking news shot from the recesses of the business section to the front page, nightly local newscasts and just about every Internet home page. (Can you remember another time in history when Saturday Night Live spoofed the banking industry?)

Ø  Dimon is a Wall Street banker through and through. Is there any doubt naming him to head Treasury is going to start a round of howls about putting a fox in charge of the hen house? Ask Henry Paulson how his Goldman Sachs credentials were regarded as he oversaw the initial stages of the banking bailout.

Ø  If Dimon joins the public sector, who could be a better exemplar of bank industry reform and success? There is every chance he’s serving the administration better from his plush Manhattan offices than he could from just off K Street in D.C.

Ø  Dimon has publicly discussed a career after banking, and there is no doubt he covets the prestige that goes along with such an appointment. But after seeing Timothy Geithner become a political punching bag – asked to resign by a Congressman from Texas last week – would he want to step into an arena that threatens to tear down the gold standard reputation he has built?

Sure, Dimon has fans on both sides of the aisle, as much for his taxpayer fund-saving acquisitions of Bear Stearns and WAMU as for his opposition to continued too-big-to-fail protection.

But opposition rhetoric is as inflamed as it has been in memory, and Congressional Republicans are happy to overlook the fact they supported, and even initiated, the financial reforms for which they now are throwing Geithner to the wolves. Dimon has to be aware that many a Treasury Secretary has become a scapegoat.

Of course there is one more reason that plenty of people from bankers to bloggers think Dimon is more likely to be the next football coach at Notre Dame than his is to take the well-worn path from Wall Street to Washington: Geithner isn’t going anywhere soon.

The Atlantic summed it up well:

For starters, Geithner isn't going anywhere. Anyone who thinks he might be is nuts. He has carried out President Obama's every wish. And the financial markets have been doing considerably better since he took the reins. While the broader economy isn't doing quite as well, the Treasury Secretary has had little control over any of that. He played virtually no role in the stimulus, the decline of the dollar or the deficit. Unless he gets tired of the job, I'd be shocked -- shocked -- to see him ousted. That would make the Obama administration look really bad.

Anthony Burke Boylan is a veteran financial and political journalist, as well as a media and public relations consultant. Contact him at tboylan@capitalinsight.com