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Executives at FirstMerit, PNC and KeyCorp — which have acquired branches in deals in recent years — are seeking to wring substantial cost savings from their brick-and-mortar networks and rely more on high-tech services.
September 10
Kelly King missed the memo that branches are passé.
BB&T (BBT) plans de novo branches in its new markets where it wants to expand, its chairman and chief executive said Tuesday at a Barclays financial services conference in New York.
"We have a number of [markets] fortunately that we can invest in and get really high returns from a de novo perspective," he said. He did not say how many are planned, nor did he name the markets, though earlier in
The Winston-Salem, N.C., bank also plans to bolster corporate lending teams in important markets, hire wealth management officers, add broker dealers and focus on serving very small businesses that need the gamut of banking services, he said.
Concerns about cost control cannot overshadow the need to increase revenue, King warned. "It's tempting to focus on controlling and cutting expenses," he said. "We think that's a mistake. … We are going to invest in revenue production."
King's remarks came a day after executives from PNC Financial Services Group (PNC), KeyCorp (KEY) and FirstMerit (FMER)
"We are seeing fewer branch transactions," Paul Greig, the chief executive of FirstMerit, said Monday in explaining why the company closed 4% of its branches, reassigned its assistant branch managers to other duties and is open to further moves.
Phil Flynn, the president and chief executive at Associated Banc-Corp (ASBC) in Green Bay, Wis., provided a common ground between King and the other executives in a presentation Tuesday.
Though
Flynn still is wary about branch overhead. Associated is continuing to prune its branch network as it looks to control costs. The $22 billion-asset company has already eliminated roughly 10% of its branches over the last few quarters, and Flynn said at the Barclays conference that it might not be done trimming.
"The fixed costs of running a large retail network makes the profitability of this business challenging," he said.
Cost control is necessary and BB&T lowered its expense ratio to 53% at midyear from 55.2% six months earlier, King said. However, revenue increases — not only expense reduction — contributed to that improvement, he said.
A Bank of America (BAC) official also cautioned against going too far in branch reductions.
Asked during the Barclays conference why the company could not operate with 1,000 fewer branches, Thompson said it always has to be mindful of the value of deposits. Nonetheless, he added that B of A's next phase of cost-cutting would result in "not an insignificant change to the branch network."
King connected the debate to BB&T's M&A strategy. De novo branching and revenue initiatives help BB&T — which this year
Deals "need to come at their own time and at the right price," he said.
King repeatedly stressed dedication to organic growth, selective acquisitions and diversification. He touted BB&T's recent string of insurance brokerage acquisitions, noting that insurance provides 16% of its revenue and has become its largest fee-based business line.
Though BB&T forecasts loan growth of 5% to 7% this quarter, nontraditional sources of revenue are crucial at a time when the economy looks weaker and margins are tight, King said.
"Diversification of revenue is a really, really important concept, particularly if you want to have predictable revenues and predictable earnings streams and predictable dividend streams, which is our preference," he said. "We are very serious about that."