Should bankers look at 2008 when grappling with the challenges of the current economic environment? What's similar between then and now, and what's totally unique about the present situation?
Jim Young and Dallas Wells tackle this question and also offer advice on how bankers can face an uncertain market with some certainty.
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Transcript:
Jim Young:
Hi and welcome to The Purposeful Banker, the podcast brought to you by Precision Lender. We discuss the big topics on the minds of today's best bankers. I'm Jim Young, director of content at Precision Lender and I'm joined again by Dallas Wells, our EVP of strategy. On today's show we're going to try to thread some needles and walk some fine lines and all that sort of thing here. We're going to try to look at the economic uncertainty we're facing today through the lens of the last time banking was facing something similar, the 2008 financial crisis and its aftermath. Are there lessons from that that can be applied now, but also how is today's situation fundamentally different?
Jim Young:
You know, we'll have some links to the show in the episode notes to relevant articles and information. Dallas, I guess, and again, this is one of those where I'm going to probably be carefully phrasing thing and that sort of stuff because this is, we want to share information, but it's the situation is so fluid that we struggle with how to do a podcast if three or four days later it's possible that everything we say could be even more obsolete than it normally is when we do podcasts.
But yeah. Let's just start with the question of whether I've even framed this podcast discussion correctly. Does it make sense to look at 2008 when thinking about what we're facing today with COVID-19, social distancing, and the effects that they're having on the economy and banking or is this so apples and oranges that there isn't a comparison to be made?
Dallas Wells:
I think there definitely is. So I'm sure we'll get into, as we discuss this, some of the differences, but let's start with maybe why it does apply. And I think for at least top of mind for banks right now, first and foremost is just volatility has come back with a vengeance, so rates moving, muni bond market's kind of freezing up a little bit and then obviously all the craziness going on in the equity markets as well. And I think to your point, we've got a few days lead time here before you will actually hear this. So markets could be different by 20%. So we don't have to talk specifics I think for the concepts to be right, which is, it's kind of hard to find solid ground and stable footing right now. So that uncertainty and just the associated fear is definitely relevant. And I think that's probably some of the lessons we should talk about for bankers to learn from last time.
Jim Young:
Yeah. And I'm going to be giving, just assume this is the blanket caveat that I, the blanket sort of opening clause I use often times when they're in discussions with bankers, which is: "This may be a stupid question, but ..." But you mentioned about fear and uncertainty and I'm wondering about that, how much of making it through a period like this is simply about not letting emotions override rational thinking.
Dallas Wells:
Yeah. It's one of those things that everyone likes to believe that they are the rational thinker and yet collectively we've all lost our ever-loving minds right now. So somebody's letting the fear rule them. But I think it's critically important and it's something that through most circumstances bankers are actually really good at, which is just sort of kind of taking a, maybe your customers would almost say sometimes a cold clinical look at things.
I remember back in my banking days, I had a customer come in and bring me their financial statements and I just talked through their business with them as I just kind of went down their balance sheet and down there their income statement and I just was like a robot just kind of going through it. And then I looked up and I saw this sort of quizzical look in their eyes and they're like, "Gosh, that just felt like I just got naked."
So bankers are generally pretty good at just running through the analysis and sometimes removing the human element from things. And I think in circumstances like this that's okay. That's a good thing is to just look at the facts, try to remove some of the emotion that goes with situations like this and kind of look at your business on a numbers basis. And what it boils down to for most banks is that you will be okay. You're going to come out of this okay on the other side. If this does trigger the sort of deep recession that it looks like it might, we know how to weather those too. We've done some of those and this will be temporary. There that will be banking on the other side of it.
So just being calm and rational I think is step one. And being analytical in that as well and just sort of letting the data inform you. And that's maybe the tricky part that we're hearing a lot from bankers right now is just like where to find good solid information and where to find data that's relevant when, as we talked about before, things are changing sort of hour by hour. How do you find something on which to gauge where you stand and where you should be.
Jim Young:
Yeah, yeah. That's good. I'm going to give that actually after, behind the scenes after this podcast, I'm going to try to brave Costco nearby and I'll stand at the entrance and try to make a statement for an argument for rational thinking over emotion. See how that goes.
Dallas Wells:
Good luck with that.
Jim Young:
Yeah, exactly. But let's go back though in to, and this is going to be maybe a little bit more tactical here, but you can shift it to strategic if you want, but when you look at 2008 and how banking handled it back then, how it handled it well and then how it handled it poorly, are there particular sort of lessons do you think that can be applied now? Either a do this or don't do this?
Dallas Wells:
Yeah, I think, gosh there were so many lessons from the crisis and one of the things that you saw was a lot of banks just pretending like kind of sticking their head in the sand and saying la, la, la, la, nothing's happening here we're just fine, right? And it started with the central bankers at the fed. The language back then was we feel like it's contained. That probably sounds awfully familiar to some of the language we've heard through this thing. It's contained, there will be some effects, but it's largely isolated. No big deal. And I don't think anyone really wanted to face the reality of, hey, this is not just Lehman Brothers. This is not just a few hedge funds that have blown up, it's not just Bear Stearns, right? There's core parts of our business that need to be evaluated here.
And I think that same lesson should apply here. This is not a wholesale like turn off the spigot stop doing business kind of thing. But it is something where you should rationally look at what parts of your business do you have exposure, you know? So obviously with all the social distancing and closing of restaurants and stuff, there's a lot of your customers that are services businesses that are going to be facing some tough times. And so you just need to be thoughtful in how you approach that. I think one of the big differences is banks are coming into this from a position of strength and from a position of being able to be a help, right? And a positive influence through this. Whereas last time the banks were at the center of it and they were the ones that were kind of hemorrhaging and needed the help.
So, I think bankers should like feel like they are dealing from a position of strength and say what can you do to help those customers, again with the idea that this is temporary and there is hope on the other side and your reputation on the other side too. So you can't just sort of turn off the spigots and slam the door in the face of some of your customers that are going to depend on you in the coming weeks and months, help them weather the storm and you'll build a whole lot of loyalty that way. And I think there were some banks that did that through the last crisis. They stood by us and borrowers that had tough times and you know, good luck trying to steal those customers away in the decade that followed. They were really loyal.
Jim Young:
Yeah. Yeah. I'm curious, you mentioned just a little bit back about finding good data and that sort of thing, but I'm also wondering if, and again the sort of herd mentality sort of things that happen on a, we joke a little bit about it, you see the grocery shopping sort of thing, but you know, I know we get a lot of questions right now of what are you guys seeing? What are other banks doing with this? My question is it's good to have that data, but is that data necessarily telling you what you should be doing, if that makes sense. In other words, if everybody's kind of maybe going off the wrong track on something, is there a possibility, we tend to talk a lot about zigging when others zag. Is that a possibility in situation like this?
Dallas Wells:
Yeah, that's a really good question because what we are hearing all day, every day right now from clients and prospects alike is, and it's almost like they kind of sidle up to you and whisper and it's like, what's everybody else doing right now? What are the other banks doing? And I think, look, I get it, there's a human element to that. There's safety in just doing what the masses do. But we've talked a little bit about this and kind of how do we make sure we're helpful to those banks that are asking us that question. And I think there's two parts to it that we have to make sure we get both of them.
So number one is answer the question, which is, I think it's helpful to have that as context. So if we just get more specific about it, lots of banks are asking, "Hey, what's everybody doing with rate floors?" Are they putting in kind of nominal minimum rates on deals? Are they putting floors in their variable structures and they want to know how often and at what levels and they want to get really specific so that they can do the same. And that is valuable market intelligence. You need to kind of know what the market will bear and having some evidence of that is being smart and data-driven.
But there's also, one of the things that we have talked with banks about is there some unintended consequences of that. If you say no matter what, we just don't do deals below 3%, well if the rest of the market kind of does go down below 3% and drifts down there as rates go really, really low in the coming weeks and months, if you don't, what are you going to be left with? You're going to be left with longer deals, you're going to be left with riskier deals, the ones that kind of have no alternative. So you're self selecting for some interest rate and credit risk by saying no matter what, don't go below this number.
So there are some trade-offs and so I think there's some, those are the other things that bankers need to consider along with just the, what are the crowds doing is think about for your own business and your own balance sheet, what are some of the implications? Are you okay with that? Is that a trade off you're willing to make? And just going in with your eyes wide open instead of just sort of blindly following what the crowds do because it feels safe, because it may not always be that way.
Jim Young:
Yeah, here's something we're having a lot of conversations with and wrestling with to be frank and in marketing and sales here and I'm guessing therefore it's something that RMs and frontline bankers are also wrestling with, which is how do you even talk about sort of sales or new business or some of those sort of things when clients are on things like, "Hey, can I even get my home office set up so that I can get in touch with the office? What am I going to do with two preschool kids at home and try to do work? And by the way, I am struggling to make sales, so how dare you call me and ask me if I'm interested in this new product you have at your bank." What are your thoughts on sort of how banks can approach conversations and I guess essentially try to continue to do their jobs in a disrupted time?
Dallas Wells:
We'll go into some personal Dallas opinions here. So I think this is sort of like the disclosure that goes on everybody's Twitter profile, like opinions are my own, but I think this is actually a really interesting case study for sort of targeted content and email marketing because people have the ability to get messages in front of specific eyeballs, and sort of adjust campaigns on the fly. So it's been really hard to kind of talking about everybody's working remotely and dealing with just a deluge of new information and updates from the home office and from your IT department, all kinds of stuff.
And in with all that is emails with titles like important update COVID-19 and it's like from Yankee Candle about what their operations are like right now. And that by the way, there's a 20% off sale. And people are, at least what I've seen on Twitter and on LinkedIn, people are in many cases personally offended by this. It feels like you're almost like the people who've bought up all the hand sanitizer and are reselling it on eBay and Amazon. It feels like you're trying to capitalize on fear and like you're trying to use people's fear and this new found attention they have for this word to pedal product.
So there's an interesting balance between that and also the fact that this is new territory for all of us and that there are things that people need to know. We talked about banks asking us questions, so we feel like we have some real time pricing data that might be helpful to people, and so our question we've been wrestling with is how do we get this in front of people? And by the way, it's free, right? We're not going to charge you for it. We're just trying to give you helpful, relevant information. But how do we toe that line between being helpful and being noise? And then there's the line beyond that where, where are you trying to take advantage of the fact that you can use these trigger words almost to get people to look at your stuff and then try to sell them something.
So I think that last part is where you crossed the line. And as bankers, I think you just need to look at is what you're offering, is it helpful to your customers or is it helpful to you? And there should be, of course there'll be some places where there's overlap there, but we feel like our job to our clients right now is to be helpful, to give them things that are valuable and remove all friction from them, just getting that and not have to put up with a sales pitch to get it.
I think banks should kind of take the same approach, which is if you have something that you feel is helpful, offer it in that vein of we think this might help you. The sort of standard super salesy pitch, that's the same campaign that you were running 30 days ago, it feels a little tone deaf to just keep running that and so that's where even marketing departments are going to have to be really agile and adjust through this and give stuff that's useful and relevant.
Jim Young:
Yeah. It's funny, I remember I was talking to somebody about it yesterday. I was kind of doing that thing. I'm like, well, we've got to look to try to be helpful. And I was thinking to myself, honestly, this really should be our approach all the time, right? That if you start off with your sales and marketing sort of things with the question of how can I help you, that's a much better one than can I interest you in this product or that sort of thing. But there is still a difference.
Even if you're doing that and you're doing it well, there is a difference now, which I think is, when you had that kind of conversation normally it's then how can I tie it to the product? And I think we try to make a conscious effort and I've seen other people do that of toning that part down and just focusing really on the help, and if you don't, as you mentioned, we were sharing around I think a LinkedIn post from Natalie Bartholomew, she's "The Girl Banker," if you follow her out there. And she had gotten, I can't remember who it was from but from a vendor and it was just, she was, she was ticked off, she just felt offended. They were trying to essentially, the term used in PR and marketing is newsjacking, which is sort of trying to take advantage of a current event and tie it into your product.
And I got one of those two, I shared it around with you and some other people where it was something absurd like COVID-19 certainly caused uncertainty and with uncertainty you need a good content management platform. And I was like, you got to be kidding me. So, but it's tough. I mean the thing is, it's tough to, and I wonder if you can speak to a little bit of, to a upper management sort of thing of maybe the conversations they need to be having with their front line people at this point. Because the front line people are trying to still, I mean sell, and again, you talk about being helpful, but if someone says, "That's great Dallas, I can be helpful all the way to not meeting my sales targets. So what are you going to do for me there?" And it feels like at that point there needs to be some sort of a conversation, a transparent one from between upper management and the front line.
Dallas Wells:
The kind of corporate reaction has been all over the place. So there's been some companies that are just like, "Hey look, this is clearly going to impact business, but we're all humans and you have families to deal with. So go do that and do your best. But like we get it." You know? And then there's others that are like, "Hey, the health department says we have to all work from home. So good luck. We're not sending you with any equipment. And also you better hit your dang numbers." And so I think, just like we talked about earlier where you can kind of build some trust and loyalty with customers by just kind of being, by doing what's right and that there's a monetary value to that, right? Like if you even want to talk about sort of shareholder value, customer loyalty is one of those things, it's really hard to quantify, but everybody knows it's important.
Employee loyalty is the same way. So I think management teams, and we've seen some banks handling it this way and they have been very clear with employees of, "Hey, we know that that numbers are going to be difficult, right? And, and that we're going to be flexible, we're going to be understanding, handle your families and, and that kind of stuff first and, and be safe. And then secondarily we'll come back and worry about the other thing." And, and I think that has a value that it doesn't fit on a spreadsheet real easy, but it's real.
And so I think those things are important. And we've seen even big companies have been able to kind of get this right and it's things like Apple's credit card, which is run by Goldman Sachs, but just proactively sending an email that says, "Hey, basically click this button if you need to skip your next couple of payments." And Bank of America just pledged $100 million to help with the COVID response, and I'm guessing that by the time you're hearing this, some of the other big banks have probably followed suit. So it's just kind of getting out in front, doing what you feel like is right through times of need and it'll eventually come back to you.
Jim Young:
Yeah. Well I appreciate our listeners who have hung with us on this one. I realized this is a probably one of the fuzziest ones that we didn't talk a whole lot about specific tactics and again, how you should be handling rate floors and that sort of stuff. There is a a time and place for that, but we've-
Dallas Wells:
Yeah, more of that to come.
Jim Young:
Yes. More of that definitely to come and I would definitely want our listeners to know that we're going to be doing our best to share out, our data scientists and our banking consultants are really combing through the data, trying to give people, a real, as close to realtime sense of what's happening out there in the commercial loan pricing market as possible. So definitely be on the lookout for that.
As for the podcast, this is a little bit of a trickier one. We went with this episode, we'll see what happens with the next one, because who knows in a couple of weeks, and we're going to do our best to try to talk about the topics that matter to you in a timely way and we thank you for your patience and listening to us. So Dallas, thanks for coming on.
Dallas Wells:
Yep. Thank you Jim.
Jim Young:
All right, that'll do it for this week's show. Again, thanks for listening and the usual friendly reminders, if you want to listen to more podcasts or check out more of our content, you visit our resource page at precisionlender.com or just head over to the homepage there to learn more about the company behind the content. And if you like what you've been hearing, make sure to subscribe to the feed in iTunes, Google Play, Stitcher, and give us those ratings and feedback on any of those platforms. And I would also say that if you've got questions about what's going on, what we're seeing in the market to please feel free to share those with us as well. Until next time, this is Jim Young, Dallas Wells, and you've been listening to The Purposeful Banker.
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