Jeff Judy

Jeff's Thoughts -June 24, 2009


You say that many of your bank's employees have been with you for years and years? And these highly experienced staff have built and maintained longstanding relationships with customers, some of whom you have had for a very long while?


I congratulate you on a very successful past. Just don't ask me to assume that you are looking forward to a very successful future.

Most of the bankers I work with can clearly see that history is not enough -- when they are looking at their customers. The best may even consider a highly experienced management team and workforce, relying on a stable of very long-term customers, an additional risk factor. When you are evaluating potential business customers, or particular transactions with existing customers, you know that:

After all, when you, your staff, and your customers have all been around for a long time, you can see the end of those relationships from where you stand right now. Retirements on both sides of the relationship can hit hard.

You have seen it before, in past relationships. Some of your customers get upset when a banker they've worked with for a long time leaves the bank, for whatever reason. Or the founder of one of your business customers retires, or moves on to another opportunity, and the successors are very different people to deal with, you discover.

Now, think of what it means for your future when both of those things happen together, when experience within the bank and experience within the customers both give way to new players, with different experiences, attitudes, and expectations.

Naturally, most of us work hard to minimize turnover, to take advantage of experience, and to build long term customer relationships. Those are proven steps to strong outcomes, and if you enjoy that kind of stability at your bank, you're probably drawing good results from these relationships. They run along so smoothly, so efficiently, that even modest returns benefit you because you do not have to invest a lot of resources and staff time into managing this part of your business.

But when I'm in a bank where they boast of all the experience, and how long they have had their biggest customers, I recognize what they are really talking about: a concentration.

We are trained (and regulated, even) to avoid concentrations, to avoid relying too heavily on one business sector. Typically that refers to a particular industry or type of business.

And we get into trouble when the returns to be made from a particular industry or business sector seem just too good to resist taking a slightly larger bite of that apple than we should. These concentrations produce excellent profits, of course, for a period of time . . . and then, when the apple cart tips, the same concentrations contribute more than their share of the pain the bank feels.

So look at your own portfolio and your personnel to see whether you have a generational concentration. One thing we know about people is that we all leave the workforce eventually. Your experience and the longevity of your customer relationships may have been key contributors to your success in the past.

But these same factors could be key contributors to problems in the very near future . . . just like any other concentration!