ABA Banking Journal - April 2008 - (Page 8)

briefing Building an anti-Wal-Mart strategy Bergdahl left Wal-Mart after Sam Walton died of cancer in 1992. Since his departure, Bergdahl has been involved in other companies, including two major turnarounds, and he found the Wal-Mart ways so helpful that he wrote two books about them: What I Learned From Sam Walton: How to Compete and Thrive in a Wal-Mart World (2004) and The Ten Rules of Sam Walton: Success Secrets for Remarkable Results (2006, both by John Wiley & Sons). Much of his time today is devoted to speaking and consulting to various industries about how to beat Wal-Mart. He boils his theory down to the word “POCKETS.” As he writes in his bylined guest article posted on www.ababj.com, “for you to compete effectively you have to carve out a unique ‘niche’ or ‘business pocket’ in order to be successful.’ The POCKETS acronym stands for: Price; Operations; Culture; Key item promotion/product; Expense control; Talent; and Service. “These are the seven key result areas of Wal-Mart’s strategy and tactics,” Bergdahl writes. Part of the online article is a tabular “self-assessment inventory” built around the seven POCKETS points that banks can use to develop their own competitive strategy. These tables could help even if Wal-Mart never shows up in your market. Some examples of the points: • Under “Price Strategy & Tactics”— “Our pricing strategy provides customers with no reason to ‘shop’ anywhere else for better rates”; • Under “Operations Strategy & Tactics:—“An ongoing employee customer service and sales training program is in place and training completions are tracked”; • Under “Key Item Promotion”— “Your bank’s ‘brand story’ is clearly understood by your own employees.” For now, banks have a breather, giving them some time to prepare. But that may not last long. In his first book, What I Learned From Sam Walton, Bergdahl traces the ways that many pharmacies took on Wal-Mart, and thrived. Much of what they did, banks can do: leveraging customer relationships; finding products that meet local preferences and tastes, rather than the national, cookie-cutter approach taken by the megastore; and stressing service over price—home delivery proved a big plus over Wal-Mart pricing, for example. Above all, Bergdahl stresses that banks should get used to mystery shopping their competition now. When Wal-Mart attacks a local industry, that’s what it does, he says, so banks new at the game need to start learning it fast. BJ Snapshot Noninterest income shoulders more of the weight I n times like these, full of inverted yield curves, contracting margins, and asset quality concerns, noninterest income can make the difference between hitting and missing earnings targets. Every CFO knows this, and each one works diligently to maximize revenue in these lines, at the same time balancing the concerns of customers. Not surprisingly, over the last two years the fraction of revenue generated by noninterest related channels has steadily increased in banking. The chart shows that on a median basis the ratio of noninterest income to net interest income has increased from 18% in the first quarter of 2006 to 23% in the fourth-quarter of 2007 for publicly traded banks and thrifts. The most notable increase came between the third and fourth quarters of 2007 where the ratio increased by a little more than three percentage points. Explaining some of the change, the chart shows that over the same period the noninterest income median growth rate was greater than the net interest income median growth rate. The second quarters of the year tended to have the largest spread at about 15 percentage points in each of the prior two years. Speculating on the performance into late 2008 and 2009, it is hard to imagine that net interest income and margins can compress much more. It is likely that noninterest income targets will stay at least at the current run rates, and will probably move upward. Competitive pressure may be a fringe issue that tries to drive them down, but it is unlikely, given the current operating environment, that many banks will be able to suffer a significant cut in these lines in order to bring in more traffic. —John McCune, SNL Financial jmccune@snl.com Noninterest income trends Public banks and thrifts Noninterest income/net interest income (%) Median 2007Q4 23.03 2007Q4 2.15 2007Q4 7.72 2007Q3 19.64 2007Q3 6.40 2007Q3 0.90 2007Q2 19.90 2007Q2 11.06 2007Q2 25.77 2007Q1 19.27 2007Q1 -3.09 2007Q1 0.00 2006Q4 19.49 2006Q4 0.28 2006Q4 2.56 2006Q3 19.20 2006Q3 3.30 2006Q3 7.43 2006Q2 19.04 2006Q2 10.71 2006Q2 26.08 2006Q1 18.15 2006Q1 1.21 2006Q1 -5.62 Net interest income growth (annualized linked-quarter) (%) Median Noninterest income growth (annualized linked-quarter) (%) Median Source: SNL Financial 8 APRIL 2008/ABA BANKING JOURNAL Subscribe at www.ababj.com http://www.amazon.com/gp/product/0471920169?ie=UTF8&tag=ababankingjou20&linkCode=as2&camp=1789&creative=9325&creativeASIN=0471920169 http://www.amazon.com/gp/product/0471920169?ie=UTF8&tag=ababankingjou20&linkCode=as2&camp=1789&creative=9325&creativeASIN=0471920169 http://www.amazon.com/gp/product/0471920169?ie=UTF8&tag=ababankingjou20&linkCode=as2&camp=1789&creative=9325&creativeASIN=0471920169 http://www.amazon.com/gp/product/0471748129?ie=UTF8&tag=ababankingjou20&linkCode=as2&camp=1789&creative=9325&creativeASIN=0471748129 http://www.amazon.com/gp/product/0471748129?ie=UTF8&tag=ababankingjou20&linkCode=as2&camp=1789&creative=9325&creativeASIN=0471748129 http://www.amazon.com/gp/product/0471748129?ie=UTF8&tag=ababankingjou20&linkCode=as2&camp=1789&creative=9325&creativeASIN=0471748129 http://www.amazon.com/gp/product/0471748129?ie=UTF8&tag=ababankingjou20&linkCode=as2&camp=1789&creative=9325&creativeASIN=0471748129 http://www.ababj.com http://www.snl.com http://www.ababj.com

Table of Contents Feed for the Digital Edition of ABA Banking Journal - April 2008

ABA Banking Journal - April 2008 Contents Editor's Column You Can't Beat Wal-Mart: Or Can You? Snapshot: Non-Interest Income Shoulders More Weight ABA National Conference for Community Bankers Report 100th Anniversary: Then & Now ABA Resources ABA Chairman's Position Banks Plus Insurance: How to Make It Work Pass the Aspirin 2008: Year of Rich Internet Apps? Tough Time For That IPO Your Audience Needs to Know Who You Are Telepresence: Costly But Very Cool Webnotes Better Websites Mean Tougher Compliance Mailbox Banker's Mart To Advertise/Index of Advertisers The Economy

ABA Banking Journal - April 2008

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