Jeff Judy

Jeff's Thoughts - May 27, 2009

Are You Two-Faced? Good!

Being "two-faced" is generally considered a bad thing, but perhaps that is not always the case.

The Roman god Janus is depicted as having two faces, looking in opposite directions. He could see both the past and the future -- an ability most bankers would do well to cultivate -- and was seen as the god of gates and doors, places where people come and go.

You could also look at typical images of Janus and see someone who is both looking towards, and away, from something. And that two-faced approach might have made Janus a pretty good banker, a real talent in credit risk management, during a recession.

As the economy has tanked, I have learned, from my training and consulting work, how banks are responding to the trials and tribulations of their business customers. The vast majority of these responses seem to fall into two categories:

  1. Some assume that every business customer is in serious trouble. Everything from pricing to covenants to guarantees is tightened up, putting the squeeze on these businesses as they struggle with recession conditions.
  2. Others identify businesses and industries within their markets that are likely to feel the pain the most, such as industries that suffered mightily when housing starts, well, stopped. Their primary concern in recession lending is compiling a complete list of the kind of customers they want to avoid.

    Now, the second response shows a bit more wisdom than the first, but it is not enough. We might say that response #2 above is "one-faced," looking only at the industries that are hurting the most. Response #1 is rather "no-faced," more like an ostrich sticking its head in the sand.

    But our banker deity Janus could add another response to the list above:

  3. While wisely managing risk associated with the hardest hit industries, Janus uses his other face to look for industries that might actually be doing reasonably well, or even thriving, under these conditions!

You don't have to be a god to know that some businesses must be doing well, not only in spite of, but to some extent because of, the current conditions. (If you don't believe me, see the links I've provided below.)

After all, some services (e.g., healthcare) are necessary in any economy. Other industries benefit from the cost-savings they provide to other businesses, or to consumers, in these difficult times.

And within any given industry and market, some individual businesses are better positioned to ride out the tough times, and to be the first out of the gate when better conditions return. Yes, they're moving slowly, perhaps, compared to boom times past. But they're moving forward when their rivals are hunkered down and hanging on, at best.

Who is in a better position to recognize the advantages some businesses have over their rivals, in dealing with the recession and preparing to move forward when it ends, than their bankers? Expand your analysis to make sure you understand their resources, their opportunities, and above all, their strengths and weaknesses compared to their competition.

Don't be seduced by that pile of sand that is so appealing to the ostrich side of your nature. Don't be just a gatekeeper, looking only one way, thinking that keeping out the bad prospects is enough to ensure success.

Just as some business customers will gain market share, later, directly as a result of how they respond to this recession, so will some banks . . . namely, the two-faced ones!