Thomas K. Brown March 12th 2012

Transcription

1 Thomas K. Brown March 12 th 2012

2 retail banker

3 Discussion Topics The attack on retail banking profitability Recent trends in customer switching activity Possible steps to change

4 Attack on Retail Profitability Continues Industry created a cross-subsidy model damaged by regulation/legislation

5 Changed Checking Account Segmentation Segment Rate Driven Definition H.H s (mm) Ck Accts % of Ck Accts % of Ck $ s % of Ck Fees Opening Yr > $2500 Avg Bal. 39mm 70mm 30% 80% 4% 6mm Impaired Transactions < $2500 w/ O.D. Fees Mushy Middle < $2500 w/ No O.D. Fees Underbank Low Bal, Low Use % 100% 100% 35mm Source: Velocity Analysis

6 Attack on Retail Profitability Continues Industry created a cross-subsidy model damaged by regulation/legislation Retail distribution costs inflated by over expansion of branch networks

7 Source: Deloitte the United States is the only industrialized country in the world to have significantly increased the number of branches per million residents since 2001.

8 Chicago MSA Bank Branches Source: Kevin St. Pierre, U.S. Banks: A View from the Battlegrounds; Who s Winning in New York, Chicago, Atlanta, Dallas, and Ohio?, Bernstein Research,

9 Dallas MSA Bank Branches Source: Kevin St. Pierre, U.S. Banks: A View from the Battlegrounds; Who s Winning in New York, Chicago, Atlanta, Dallas, and Ohio?, Bernstein Research, SNL

10 Bank Branches per Adult (in 000s) Mexico Germany Canada UK US Spain France Source: World Bank

11 Attack on Retail Profitability Continues Industry created a cross-subsidy model damaged by regulation/legislation Retail distribution costs inflated by over expansion of branch networks Huge negative impact from low interest rates but that may be the case for awhile

12 Scenarios for the 10-Year Treasury Yield (1/3) Source: Weekly Report: Beyond the Cliff 12/3/12, BCA Research

13 Scenarios for the Fed Funds Rate Source: Weekly Report: Beyond the Cliff 12/3/12, BCA Research

14 Attack on Retail Profitability Continues Industry created a cross-subsidy model damaged by regulation/legislation Retail distribution costs inflated by over expansion of branch networks Huge negative impact from low interest rates but that may be the case for awhile Asset growth opportunities hurt by consumer de-leveraging, CRE runoff and tougher regulation

15 Loan Growth Exiting Recession by Week Source: Jason M. Goldberg, U.S. Large-Cap & Mid-Cap Banks 2013 Outlook 1/2/13, Barclays, Federal Reserve

16 U.S. Consumer Debt % Nominal Disposable Personal Income 4Q12: 105.2% Source: ISI Daily Economic Report 3/8/13

17 Quarterly Change in Home Equity Loans Source: FDIC QBP Graph Book 12/31/12, FDIC

18 Twelve-Month Loan Growth Rates Source: FDIC QBP Graph Book 12/31/12, FDIC

19 Median Construction and Development Loan Concentrations Percent of Total Risk-Based Capital, by Lender Asset Size Source: FDIC QBP Graph Book 12/31/12, FDIC

20 Customers Changing Bank Selection Criteria Customers switch banks at an 8% annual rate

21 Annual Switching Rates % of Consumers Who Switched Primary Banks Source: How Mobile is Driving Bank Market Share Changes March 2013, AlixPartners

22 Customers Changing Bank Selection Criteria Customers switch banks at an 8% annual rate Switchers are disproportionately young with low incomes

23 Annual Switching Rates % of Consumers Who Switched Primary Banks Source: How Mobile is Driving Bank Market Share Changes March 2013, AlixPartners

24 Customers Changing Bank Selection Criteria Customers switch banks at an 8% annual rate Switchers are disproportionately young with low incomes Switchers are disproportionately in urban markets

25 Demographics of Bank Switchers 4Q12 Source: How Mobile is Driving Bank Market Share Changes March 2013, AlixPartners, AlixPartners Financial Services Franchise Health Study Q4 2012

26 Customers Changing Bank Selection Criteria Customers switch banks at an 8% annual rate Switchers are disproportionately young with low incomes Switchers are disproportionately in urban markets Bank selection criteria are different between young and old

27 Preferred Features When Choosing A New Primary Bank Among Smartphone/Tablet Owners Who Switched Primary Banks in the Past Year, 4Q12 Source: How Mobile is Driving Bank Market Share Changes March 2013, AlixPartners, AlixPartners Financial Services Franchise Health Study 2012

28 Likelihood to Switch Primary Banks to Get Access to Mobile Banking % Extremely Likely or Likely to Switch Primary Banks for Mobile Banking Among Smartphone/Tablet Owners 4Q11-4Q12 Source: How Mobile is Driving Bank Market Share Changes March 2013, AlixPartners, AlixPartners Financial Services Tracking Study

29 Customers Changing Bank Selection Criteria Customers switch banks at an 8% annual rate Switchers are disproportionately young with low incomes Switchers are disproportionately in urban markets Key bank selection criteria are different between young and old Big banks are winning a disproportionate share of the switchers

30 Share of Bank Switchers, By Recipient Bank Type 2Q12-4Q12 Source: How Mobile is Driving Bank Market Share Changes March 2013, AlixPartners, AlixPartners Financial Services Franchise Health Study 4Q 2012

31 Switchers Bank Type Origin and Destination Among Consumers Who Switched Banks in the Past Year, 4Q12 Source: How Mobile is Driving Bank Market Share Changes March 2013, AlixPartners, AlixPartners Financial Services Franchise Health Study 4Q 2012

32 Share of Bank Switchers, by Recipient Bank Among Smartphone/Tablet Owners Who Switched Primary Banks in the Past Year, 4Q12 Source: How Mobile is Driving Bank Market Share Changes March 2013, AlixPartners, AlixPartners Financial Services Franchise Health Study 2012

33 Chicago Deposit Market Share Source: Kevin St. Pierre, U.S. Banks: A View from the Battlegrounds; Who s Winning in New York, Chicago, Atlanta, Dallas, and Ohio?, Bernstein Research, SNL

34 NYC - Deposit Market Share Source: Kevin St. Pierre, U.S. Banks: A View from the Battlegrounds; Who s Winning in New York, Chicago, Atlanta, Dallas, and Ohio?, Bernstein Research, SNL

35 Atlanta Change in Deposit Market Share Source: Kevin St. Pierre, U.S. Banks: A View from the Battlegrounds; Who s Winning in New York, Chicago, Atlanta, Dallas, and Ohio?, Bernstein Research, SNL

36 Dallas Change in Deposit Market Share Source: Kevin St. Pierre, U.S. Banks: A View from the Battlegrounds; Who s Winning in New York, Chicago, Atlanta, Dallas, and Ohio?, Bernstein Research, SNL

37 Bank of New Canaan Market Share 52% 53% 49% 50% 7% SNC 18% 20% 22% 12% FLT 49% 22% 57% 27% 48% FLT 42% 36% JPM Market Share Bank of New Canaan Market Share 35% 25% 31% 31% 32% 31% 27% 30% NCB BAC 19% 15% 10% 17% 15% 15% 13% '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 Source: SNL & SCC

38 Possible Action Steps Special attention/programs for largest depositors

39 Deposit Balance Deciles Over 90% of consumer and small business deposit balances are held in the top two deciles 75% % consumer & small business deposit balances Avg. balance / HH: $22k Median balance / HH: $1k 16% 6% 2% 1% <1% <1% <1% <1% Negative Avg. deposits Top 2nd 3rd 4th 5th 6th 7th 8th 9th Bottom / HH ($000): $160 $35 $10 $5 $2 $1 <$1 <$1 <$1 <$0 Source: FMCG case study analysis over the last three years of multiple BHC s household-level customer databases

40 The Top Percentile of Customers (Typically 20 Customers/Branch) Hold Over 20% of Consumer And Small Business Deposits 23% % consumer & small business deposit balances 11% 8% 7% 6% 5% 4% 4% 3% 3% Top 2nd 3rd 4th 5th 6th 7th 8th 9th 10th Avg. deposits / HH ($000): $540 $245 $180 $145 $125 $105 $90 $80 $70 $60 Source: FMCG case study analysis over the last three years of multiple BHC s household-level customer databases

41 Possible Action Steps Special attention/programs for largest depositors Target new account promotions Reduce distribution costs; exit denial!

42 % of Chase Households That Visited A Branch(1) Quarterly Source: Gordon Smith, Consumer & Community Banking 2/26/13, J.P. Morgan & Chase, Novantas U.S. Multi-Channel Survey (2012)

43 % of Consumer Deposits Through Tellers(1) Source: Gordon Smith, Consumer & Community Banking 2/26/13, J.P. Morgan & Chase, SNL Financial

44 Monthly Branch Activity Bottom 25% Median Top 25% Retail Checking Accts Opened Business Checking Accts Opened Direct Consumer Loans Small Business Loans Source: Cornerstone Advisors

45 New Retail Checking Accounts/Branch/Mo Top 25% (29%) Median (10%) Bottom 25% (17%) Source: Cornerstone Advisors

46 Direct Consumer Loans/Branch/Mo. Top 25% Median Bottom 25% 3 2 Source: Cornerstone Advisors

47 Stop the Denial! Too many branches were built in the 2000s under old economic and consumer behavior assumptions The value of deposits is lower because of interest rates temporary but will last awhile Retail fee income has been reduced by regulation/legislation permanent and more pain may be inflicted CONSUMER BEHAVIOR IS CHANGING!

48 Creative Destruction Book Sales of Encyclopedia Britannica , , ,

49 It s Not the Technology, It s Human Behavior Rolls of film sold in the U.S. 1 bil % < 20mm

50 Net Change in Branch Offices Source: FDIC Summary of Deposits

51 CBB Branch Staff e(2) Source: Gordon Smith, Consumer & Community Banking 2/26/13, J.P. Morgan & Chase, SNL Financial

52 Bank Branch Size Distribution in the US > $20m $15-$20m $10-$15m < $10m 7% 10% 8% 74% Source: SNL

53 Takeaways The attack on retail profitability and will probably get worse before it gets better People who switch banks are disproportionately young and in urban areas who want online and mobile banking Develop a more aggressive plan to reduce distribution costs

54 Thomas K. Brown March 12 th 2012