It’s critically important to every banker to know what their CEO is thinking about. Those topics find their way into your strategic plans, budgets and daily Tasks. Here are the top five topics on most bank CEO lists as they prepare for the coming year.
- M&A. The change in administration opened the flood gates for M&A activities at all levels, including among the largest banks in the nation. This opportunity window will not be open for long, some fear. Our top ten banks will change this coming year, as PNC, Huntington and others have already shown. While most banks see themselves as acquirors, both buyers and sellers need to focus on an important question: what makes an ideal M&A partner?
Good M&A partners, both buyers and sellers, share some characteristics:
- Flexibility is of the essence. It is essential that both sides do not get too entrenched in their current processes, technologies and social issues.
- Integration should be the least painful possible; it should become a core competency. Many banks have an integration playbook they adhere to, which works well in most instances. However, most of us are ill-prepared to effectively integrated lift-put teams and even new bank teams. Retention of key team members should be included in your definition of success (and bonus eligibility). Also, how quickly they become productive can make or break a deal, be it lift-out or M&A. Both should be front-of-mind.
- Proactively address what makes your partner attractive to your bank. Elements such as balance sheet, geographic proximity, product mix, technology, sales culture, credit culture and others can be prioritized to help you identify the most attractive partners for you. For example, if you’re an excellent and effective lender, a partner with a stable core deposit base is more attractive than one with great loan growth and no funding sources. A typical acquisition candidate ideal set of characteristics includes everything mentioned above and more. It is helpful to reduce the list and prioritize truly major aspects of the ideal partner rather than the traditional laundry list we all use.
- Technology. We are beginning to look at technology differently. Most of us felt that all kinds of customer-facing technology, particularly in the consumer space, is becoming table stakes which we cannot ignore. We invested in all the usual places and generally retained the vast majority of our customers.
These days the view of technology is shifting into use cases that will have specific relevance to your most attractive customer segments. Certain words – AI, ChatBot, Stablecoin and Crypto are heard in boardrooms across the USA, but with far greater skepticism than in the past. These aren’t yet peers to Zelle or ApplePay. We are approaching those with caution, especially when customers are involved. The main applications of AI currently among non mega-banks are internal, with the exception of handling customers on chat and on the phone.
Another question that is becoming more present in CEO conversation is the issue of managed services. There aren’t too many successful example of this approach, but the duopoly of FIS and FiServ spawns bank and vendor creativity to handle this pricing gauntlet.
Data ownership, integrity and management are also on people’s minds as data continues to be central to all facets of bank activities, from operations to marketing, from sales to fulfillment. The issue is not only complex but also expensive, difficult to manage and ever-evolving. It’s like laundry. You have a moment, right after you’re done folding it, when there is no laundry in the hamper, but it’s only a moment. Similarly, data can be pristine after a thorough scrub, but only for a moment… So much depends on it, though, that data maintenance, nurturing and utilization are now a critical topic for bank management.
- Fraudsters and deadbeats. Fraud has been the bane of our business since time immemorial, but it has increased in volume, variety and sophistication to the point that we invest meaningful resources in preventing and handling it. Fraudsters are not biased against any form of fraud, from old-fashioned check kiting to puppy scams. Their creativity and industry continue to flourish, and we are challenged by both. Fraud isn’t exclusively in the consumer segment. Fraud in the commercial sector has increased this past year and proves challenging for borrowers and banks alike.
- Deposits. Nothing determines a bank’s franchise value, i.e. price to book, than the composition and proportion of its core deposits. Recent years have confirmed this again and again. In addition, most banks continue to grow loans faster than deposits, which makes pricing them particularly challenging whether your margin is expanding or declining. The recent acquisition of First Bank CO and the price p[aid for it is a perfect example of how an excellent deposit franchise fetches high premium pricing. Banks have added deposits growth expectations to their commercial and wealth businesses, in earnest this time, and the results are encouraging. The retail business is also getting renewed respect as funding is at a premium. A coordinated, bank-wide approach to deposit gathering has paid off for those banks who have undertaken that approach, and is recommended to all.
- New types of credit. Too many banks have expanded their asset originations beyond core banking to participations, syndications, and , most recently, private credit. We have just seen how sudden the collapse of such credit can be. I’ve heard this question asked numerous times: “Why do we land to companies who lend money to people we won’t lend to?”. It’s a tough question to answer.
Not all private credit is made equal, and midsize banks are especially well-positioned to finance privately owned companies through such credit facilities. Regardless, a word of caution is appropriate when we consider the rapid growth of this market.
There are many other issues that are top-of-mind for your CEO: cost containment, capital management, margin expansion etc. As 2026 draws near, the unique opportunities and concerns associated with the near future, with its special flavor of uncertainty we all struggle with, are there for the taking. The industry is well positioned to handle both the upside and downside this coming year. Make the most of it!