ABA Banking Journal - November 2013 - (Page 47)
Pass the aspirin
The Banker-to-Banker exchange
The Headache: When dumb competitors bring down the market
We've been hearing bankers complain about dumb competition-other financial institutions taking dumb risks or engaging
in dumb pricing just to put business on the books. We asked prescribers what they were doing about it. Some had remedies.
Some said, "Send a solution-please!" You can send ideas to email@example.com
Remedy 1: Out-of-this-world
competition, circa 2008
Richard J. Krauland, president and
CEO, Farmers & Merchants Bank of
Western Pennsylvania, N.A., $424.6
million-assets, Kittanning, Pa.
The NASA Federal Credit
Washington, D.C., which is more
than four hours away from us-has
begun running a radio ad blitz in
southwestern Pennsylvania, promoting first mortgage loans with a zerodollar down payment (i.e. 100%
financing) and no private mortgage
insurance. Its website (www.nasafcu.
com) contains the same product
promotion. The ad closes with the
statement that ". . . you don't have
to work for NASA to get your mortgage from NASA FCU." As far as
I know, there are no NASA facilities or employees anywhere near
This type of unsafe and unsound
lending practice is a repetition of
the mistakes that lenders made
and which came to light in 2008
when the whole mortgage debacle
occurred. What is even more galling
is that this is a non-taxpaying federal credit union.
What's your take on this new
lending-product promotion from
NASA Federal Credit Union?
It would be nice if "Aspirin"
could somehow draw attention
to this situation to the examiners at the National Credit Union
Administration. In the meantime, I
would love to hear from other bankers on how to fight this.
Remedy 2: Talk to the customer
Deborah Cole, president
and CEO, Citizens
Savings Bank and Trust
Co., $93.2 million-assets,
Our bank has experienced other
financial institutions engaging in
pricing techniques just to put business on the books, and, in some
cases, the business did move to
the other institution. The most
successful approach for us entails
remaining in constant contact with
customers. If we get a heads-up
that another bank has approached
a customer, we immediately ask
that customer for the particulars
and attempt to enlighten her on just
what the proposal contains-other
than a lower rate compared to her
current loan transaction. In most
cases, where we are aware of the
other offer, we have succeeded in
retaining the customer.
Unfortunately, in some instances,
all the prior work that we committed to the customer just will not
win out over unreasonable pricing.
There are some rate structures that
just cannot be matched.
Our principal concern for the
bank is safety and soundness.
Remedy 3: Welcome customers back
president and CEO,
Bank, $922.5 millionassets, Archbold, Ohio.
Recently, we lost a deal to a thrift
that priced the loan at a variable
rate: 30-day LIBOR plus 160 bps.
On the day we learned about it, the
rate would have been 1.94%. We
told our customer that we would
like to do business with him, but
to take the bargain-basement rate
while he could-and we would still
be here for him when the thrift
came to its senses. Who knows how
this will work out in the long term.
We also have seen a rash of credits to closely held companies where
credit facilities are being offered
without guarantees. It seems excessively risky to me. We have lost some
accounts because of this, yet most
we keep because the borrower is
willing to accept the risk.
Remedy 4: Deal vs. relationship
Frank Campbell, president and CEO, Pilgrim
Bank, $170.4 millionassets, Cohasset, Mass.
We have seen aggressive pricing that might not be considered commensurate with risk in
This type of aggressive pricing
first started to show up on commercial real estate deals. In addition
to longer terms (ten-year fixed, for
example), there are banks offering near-conforming rates on CRE
More recently, something that
has been documented in local
publications is jumbo pricing below
conforming loan pricing. This might
become even more prevalent if and
when the government-sponsored
enterprises lower the jumbo limits.
We still try to be competitive, but
we have lost several deals to lower
pricing in certain areas of the market. We also have been more willing to negotiate with our existing
ABA BANKING JOURNAL
Table of Contents for the Digital Edition of ABA Banking Journal - November 2013
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Inside Farmer Mac
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Pass the Aspirin
ABA At Your Service
ABA Banking Journal - November 2013