Perilous Passage?

By Bill Stoneman, John R. Engen and Kenneth Cline

Even as retail bankers confront more economic uncertainty post-September 11, they must stay focused on long-term goals ? such as improving service quality.

The phrase "everything's changed" suffuses our national discourse post-September 11. This applies to retail banking as well.

Prior to the assaults on the World Trade Center and the Pentagon, top retail executives had been guardedly optimistic about their industry as they looked to yearend and early 2002. While they were watching credit card delinquencies with some concern, they also saw continued strength in home equity and auto lending. Most anticipated an economic rebound by the latter half of next year.

Now, with U.S. troops embarked on a war of indeterminate length and scope, all bets are off. The confluence of events has dealt a heavy blow to consumer confidence, which was already under assault from layoffs and a prolonged stock market decline. "It's an issue of consumers' perception of the future," says David Coulter, vice chairman of J.P. Morgan Chase & Co.

How are America's retail bankers preparing to address the challenges that lie ahead? What are their expectations for the future? To answer these questions, Banking Strategies conducted interviews with 10 retail chiefs at some of the largest banks. Understandably, we found apprehension about an economy that took a turn for the worse after the terrorists struck. "Whereas we once saw the recovery as being a gradual line upwards, we're now thinking it might be more V-shaped — a deeper plunge downward, followed by a strong bounce-back," says Robert Worth, president of Wells Fargo & Co.'s San Francisco-area bank.

Balancing the short-term gloom is a reservoir of optimism about the fundamental strength of the U.S. economy and banking system. Executives report their institutions benefiting from a strong inflow of deposits as consumers flee Wall Street for the safety of federally-insured accounts. They also expect declining interest rates to spur lending demand, laying the foundation for better days ahead. "The American public is pretty resilient," says Kelly King, president of BB&T Corp.

And even as these executives grapple with the aftermath of September 11, they express determination to tackle some of the long-term problems affecting their institutions. The central issue in retail banking is how to boost revenue growth in a sluggish market. Since most consumer lending businesses are tied to the economy, institutions generally hope to get that extra kick from cross-selling more investment and insurance products to core banking customers. As the baby-boom generation nears retirement, banks are rushing to claim their role as the provider of choice for the financial planning, savings and investment needs of these customers.

"If we want to position ourselves for the future, we have to place an inordinate amount of energy into insurance and investment sales," says Richard Davis, vice chairman at U.S. Bancorp, Minneapolis.

The problem is that targeting improved cross-sell ratios, by itself, doesn't seem to be getting the job done. Customers are resistant to sales pitches from their banks when so many alternate providers are available. The challenge for retail bankers is to change the perceptions that customers have of their institutions after a decade of poor service and rising fees. For too long, banks were focused on their internal issues, particularly mergers and re-engineering. Now is the time, many executives have decided, to place more attention on the customers' issues.

For that reason, institutions as diverse as J.P. Morgan Chase, U.S. Bancorp, Wells Fargo, BB&T and KeyCorp are putting service quality front and center in their retail strategy. The tactics for achieving this differ from institution to institution, but the overall strategy is to forge closer bonds with customers by providing more perceived value. "Differentiating yourself on service quality is key if you're going to be in retail financial services," Coulter says. "If you can't, you'll have a tough time articulating a long-term growth proposition."

Service Overhaul

As the head of retail at a New York-based financial institution, David Coulter finds himself at ground zero for both the aftershocks of September 11 and the long-term issues facing retail bankers in the United States.

J.P. Morgan Chase lost two employees on September 11 and had its operations disrupted as it temporarily evacuated some offices in the financial district. Coulter himself spent much of the ensuing weeks reviewing emergency plans and meeting with employees to boost their morale.

Life is gradually returning to normal now, but the lingering effects of the terrorist attacks will continue for a retail franchise heavily focused on the New York area. "It's going to impact customers well into 2002," Coulter says. "It will influence what people buy and what they finance. And it certainly influences the risk profile of some aspects of our business."

The economy had already been slowing prior to September 11, causing delinquencies to rise in J.P. Morgan Chase's huge credit card portfolio. Coulter had also been monitoring a decline in daily trades at Brown & Co., the bank's discount brokerage. Those negative factors will be exacerbated in the wake of the terrorist attacks, albeit offset somewhat by strong mortgage production.

As an experienced senior banker (former chief executive of BankAmerica Corp.), the 54 year-old Coulter takes the ups and downs in stride, asserting: "The strengths we had before will prevail." Such bedrock optimism allows him to stay focused on the longer-term issues affecting retail banking, such as the need to improve service quality.

To bring the $740 billion-asset institution up to speed in this area, Coulter is advancing a "Six Sigma" quality assurance campaign of the kind made famous by General Electric Co. Six Sigma involves examining all aspects of a company's processes and operations to eliminate defects and improve customer service. The predecessor J.P. Morgan & Co. began adopting Six Sigma three years ago.

Cognizant of how disruptive such initiatives can be to current operations, Coulter began applying Six Sigma earlier this year in selected retail areas such as mortgages, credit cards and auto finance. This process will be expanded over the next few years to include all of the bank's retail and middle market services.

Improved service, for Coulter, lays the foundation for improved cross-selling. He says previous industry efforts fell short because they were "based on average service levels and na•ve marketing. I think it's a different story when you exceed people's expectations on service and then go about marketing in a much smarter way."

Coulter's other long-term, multi-year initiative is to improve the integration of the various units in his sprawling domain, which is the product of two big mergers in the last five years. Coulter wants to break down some of the "product silos" to present the customer with a unified interface. Customer relationship management systems, he says, can't achieve their full potential when "a data warehouse in mortgages doesn't talk to the one in credit cards."

Part of this effort involves rationalizing the way J.P. Morgan Chase invests in new technology. Last year, Coulter championed the creation of a "technology queue" in the retail and middle market units, which is a process of prioritizing spending in those areas.
? Kenneth Cline

Service Culture

Twelve hundred miles from New York City, in Minneapolis, U.S. Bancorp vice chairman Richard Davis can still discern some positive trends amid the reverberations from September 11.

Stock market gyrations and the recent terrorist attacks have sent many consumers scurrying for liquidity and safety. Accordingly, USB has seen deposit balances rise, especially in shorter-term certificates of deposit and money-market accounts. While USB's credit card processing business fell after the events in New York and Washington, transaction volume began to rebound a short time later. Loan demand, meanwhile, doesn't appear to have been much affected ? yet.

A continuing drop in interest rates, however, spurred by nine Federal Reserve rate cuts this year, does present Davis with a short-term challenge. To the extent that banks' assets reprice more slowly than deposits, institutions benefit from an environment of declining rates, which helps maintain a healthy net interest margin. Lower rates also help boost consumer appetite for loans.

But if deposit rates fall so low that banks can't drop them any further without alienating customers, asset re-pricing catches up. Davis sees that happening now, which makes him worry about margins. "It's not cataclysmic, just an incredibly different environment for us," he says.

Like Coulter at J.P. Morgan Chase, the 43 year-old Davis won't let these short-term challenges divert him from his long-term goals. Since USB is also the product of a recent merger, Davis is still spending a lot of his time melding the Internet platforms and back-office systems of the former Firstar Corp. and U.S. Bancorp., which combined earlier this year under the latter's name.

More fundamental to his strategy, and the thing that really gets him fired up, is infusing the former Firstar's service culture into the U.S. Bancorp franchise. Firstar had always prioritized service while U.S. Bancorp emphasized operational efficiency. Improving service franchise-wide, Davis believes, will enable the merged institution to capture, among other things, the investment and insurance business of existing customers. "If we can hang on to customers by treating them better than they've been treated in the past, then we can earn more of their business," he says.

Image marketing and employee education are vital to this effort. This fall, the $160 billion-asset USB introduced a modified logo and a tagline that emphasizes service. Combined with that marketing effort, Davis plans to step up efforts to boost branch accountability through performance measurements and incentives. "Our goal is more accountability, which is reflected in the spirit with which our employees speak to you, and how they serve you," he says. "If we can get that message across, we'll be well-positioned."

Backing up this vision, USB has licensed some 1,500 bankers to sell insurance products, and it has installed 500 full-service brokers in high-volume branches, supplementing their efforts with direct-mail and marketing campaigns. But Davis says he won't pursue cross-sell ratios for their own sake, noting that not all additional product sales generate more net income for the bank.

The real point of his strategy is to make USB customers feel more valued so they will share more of their business with the institution. "If we do that," says Davis, "we'll never have to find new customers."
? John R. Engen

Hiring for Service

Jack L. Kopnisky's strategy for boosting retail revenues at Cleveland-based KeyCorp is a familiar one: cross-sell more products to current customers. But pursuing that goal leads the senior executive vice president to focus on people first ? hiring and retaining top-quality employees to implement his vision of service quality.

Kopnisky, 44, says he doesn't think improvements in cross-selling can be achieved without improvements in service quality which, in turn, can't be achieved with traditional, operations-oriented branch-banking employees. In recruiting, KeyCorp is ranking competency and character as more important selection criteria than banking experience or specific financial skills. "We are looking for the qualities inside of people," Kopnisky says. "Are they results-oriented? Do they love to deal with clients? Are they proactive?"

As he works to assemble the right team, Kopnisky is counting on using customer data to make those employees more productive. Segmenting customers by profitability, for example, positions front-line bankers to shower their most valuable customers with the best service, he says. In addition, it drives pricing that is intended to encourage low-balance customers to make greater use of low-cost delivery channels.

Though analysts are increasingly skeptical that profitability segmentation boosts earnings, Kopnisky insists it's paying off at KeyCorp. As proof, he cites an increase in the most profitable of five customer tiers, accompanied by shrinkage in the bottom group. In December 2000, for example, some 24.5% of customers were counted in the top group, reflecting $1,500 or more in annual income per relationship, up from 18.6% in June 1998. The bottom tier, consisting of unprofitable customers, dropped from 35.3% of all customers to 25% in the same period.

Service and sales are particularly important to KeyCorp because of the placement of its franchise, which consists of 926 branches in 13 states strung along the northern United States from Maine to Alaska. By and large, this is not a high-growth region, so the $86 billion-asset bank cannot expect to attract a lot of new customers, outside of acquisitions. Kopnisky also declines to compete on price, which he views as a short-lived tactic.

KeyCorp thus needs to make better use of its existing customer franchise in order to generate revenue growth. On the retail side, the strategy requires two things: cross-sell more products and services to existing customers; and reconfigure the franchise territory to maximize KeyCorp's marketing clout.

In 1999, for example, KeyCorp sold its 28 Long Island branches since it lacked heft in that particular market. It then used some of the proceeds from that sale to open branches in faster-growing markets such as Seattle and Salt Lake City. The company has also been exiting single-product national businesses with limited cross-sell potential, such as credit cards and auto leasing/lending, and moving stand-alone brokerage offices within the bank's market area into branches.

Although deposit inflow increased in the wake of the September 11 terrorist attacks, there's also been a weakening of credit quality in KeyCorp's retail loan portfolio. Kopnisky expects the bank to continue and possibly accelerate its program of tightening underwriting standards and improving collection efforts.
? Bill Stoneman

Quest for Quality

In addition to serving as president and head of retail banking for BB&T Corp., Kelly S. King might also be called "chief proselytizer" because of his top priority: persuading customers ? and even his own employees ? that BB&T's value proposition truly revolves around service. "We define value as quality rather than price," says the 53 year-old King.

The image that King wants to instill in the minds of customers, therefore, is of a bank where front-line employees have authority to approve loans and to correct mistakes on the spot. On a more routine basis, he says, customers are treated consistently by employees who wear name tags, address clients by name and thank them for their business.

King's musings about value underpin his overall approach to retail strategy. He begins with the proposition that execution flows from "clarity about how an organization creates value." He then defines two routes to creating value: improving quality while holding prices steady, or cutting prices while holding quality constant.

King flags his own preference by citing research suggesting the quality-driven segment of consumers is much larger than the price-driven segment, even though many consumers say they care more deeply about price. Secondly, he says, competing on price is much riskier because it forces consumers to focus on just one variable, leaving the institution at the mercy of competitors.

King, president of BB&T since 1996, acknowledges that building a perception of quality with retail customers is a long-term process. An organization must attract, train and retain highly motivated people. It must also make the right mix of investments in physical and electronic distribution channels and coax its many product-based departments to work together.

Despite the industry's decade-long infatuation with technology, particularly in the area of storing and manipulating customer data, King ranks technology rather low on his list of things that help improve service quality.

That's not to say he dismisses the utility of information and electronic delivery systems. BB&T, with $69 billion of assets, is currently installing an application that gives branch officers access to a complete list of customers' accounts, which King describes as "a great leap forward." BB&T is also honing its customer profitability measurement capabilities and developing sophisticated data mining techniques to help in profitably aligning company offerings with customer needs.

"But frankly," King says, "we think the most important attribute for success in the future involves human interaction ? talking to clients and understanding the information they give you." To that end, King wants relationship managers, rather than product marketers, probing for the next sales opportunity among existing customers.

King is generally upbeat about the economy and consumers' financial condition, although he says the nation almost certainly is in a recession. While terrorism dealt a blow to consumer confidence in the short term, he expects that confidence to rebound, bringing the economy with it, perhaps by the middle of 2002. "Our view is that the recession will not be particularly deep or particularly long," he says.
? Bill Stoneman

Cross-Sell Campaign

San Francisco-based Wells Fargo is strongly focused on cross-sell ratios. Chief executive Richard Kovacevich has enshrined as a company goal the doubling of products sold per-customer, to eight from the current average of four. Implementing that strategy falls to executives such as Robert Worth.

Wells Fargo doesn't employ a single executive to preside over the entire retail banking franchise. But the 49 year-old Worth is certainly a key player, since he's president of the Bay Area bank, the company's largest retail unit. Right now, he says his biggest challenge is making sure his various business units are working together effectively and that employees are motivated, by incentives and training, to deliver on Kovacevich's cross-sell strategy.

The economic slowdown does worry him. He says the events of September 11 exacerbated an already-building sense of uncertainty among consumers. But he also expresses confidence that the $280 billion-asset Wells Fargo can gain market share during this difficult period by leveraging its full array of banking, insurance and investment products.

"When the economy slows, competitors can better differentiate themselves in terms of the value they bring to customers," Worth says, noting that Wells Fargo can offer its clients a lot of options.

People with insurance needs, for example, can be referred either to licensed in-branch salespeople or to representatives of subsidiary agencies, such as the recently-acquired Acordia Inc. of Chicago. Customers in search of investment products are directed to one of more than 1,400 licensed in-branch brokers, while those looking for a mortgage are steered to subsidiary Wells Fargo Home Mortgage, the nation's largest originator.

The trick is making sure those business lines pull together to generate cross-selling opportunities. After two years spent integrating Wells Fargo with the former Norwest Corp., Worth and his fellow regional presidents plan to emphasize the "coaching" side of their jobs in 2002. That entails making sure the proper incentives and training programs are in place for specific product areas. It also involves getting the various business lines to communicate with each other and produce more than the sum of their individual efforts.

Service hasn't been overlooked in this effort. Improved service quality is among the 10 top corporate initiatives at Wells Fargo, in fact, and Kovacevich has even formed a task force to focus specifically on this area. "We've set targets for ourselves," Worth says, "for responding more quickly to customers' questions, lowering error rates and answering the phones more quickly."

Since his personal responsibilities are geography-specific as opposed to franchise-wide, Worth also is focused on challenges unique to the California economy, such as the rapidly shifting demographics. Beginning next year, Wells Fargo will fine-tune its delivery system and marketing campaigns to better serve growing Asian and Hispanic populaces. Automated teller machines, for example, will be made multilingual, and hiring programs will target a more diverse mix of employees.

Worth also expects to devote a lot of his time to regulatory issues as a growing number of California municipalities develop regulations around predatory lending (including "elder financial abuse"), consumer disclosure and privacy. "Every city is a province unto itself," Worth says.
? John R. Engen

Firing Up Employees

America's first true universal bank, Citigroup Inc. offers its retail bankers a plethora of cross-selling avenues. But for retail chief Maura Markus, the biggest challenge is finding and motivating representatives to take advantage of those opportunities. "The employee is the determining factor in how customers feel about Citibank," says Markus, president of Citibanking North America since June 2000.

For that reason, the 43 year-old Markus spends much of her time trying to keep her troops fired up, particularly in Citibank's 460 branches, where most of the critical customer contact takes place. She says the annual rate of employee attrition ? which is a good indicator of job-satisfaction and -performance ? was cut in half between early 2000 and mid-2001, but declines to provide exact figures.

A cooling job market helped to slow turnover, Markus believes, as did facilities improvements and her own efforts to respond to staff concerns. Retention and motivation "start with listening to what employees are saying," Markus says. "And when they tell us something is difficult, we go to work on it."

Markus assigns such a high priority to company/employee relationships because she knows they provide the foundation for stronger customer relationships, which is the foundation of successful cross-selling. Only by selling more products to existing customers can the $950 billion-asset Citigroup extract the synergies promised by its unique combination of major banking, brokerage and insurance subsidiaries.

Much of this cross-selling effort takes place in the Citibank branches, most of which are located in and around New York City. "Despite the Internet and telephone banking, most customers still go into a branch at least once a month. So they are interacting with our employees on a pretty regular basis," Markus says.

When customers enter a Citibank branch, many are asked if they would like to fill out a financial planning document called a "CitiPro," which is essentially a list of questions designed to diagnose the customer's financial needs. When the questionnaire identifies investment and insurance needs ? which translate into sales opportunities for the bank ? customers are introduced to licensed specialists who work in most branches.

In use for about two years now, CitiPro is delivering measurable improvements in customer retention, accounts per household, balances per account and revenue per household, according to Markus. "And that's great for me," she adds, noting that these results help her motivate branch managers to intensify their efforts. "I can say, ÔLook guys, you can see it here in black and white.' "

Like J.P. Morgan Chase, Citigroup suffered from disruptions related to the destruction of the World Trade Center. But Markus expresses optimism that the city and nation will bounce back. "The important thing to remember is that our banking and financial systems are sound," she says.
? Bill Stoneman

Staying on Course

Fifth Third Bancorp's retail strategy might be summed up in one phrase: keep on keeping on. The Cincinnati-based company has achieved an outstanding 22 consecutive years of double-digit earnings growth, largely on the strength of its retail unit. And right now the momentum shows no signs of letting up, even though the economy is heading south and Fifth Third is in the middle of digesting the biggest acquisition in its history.

At least in the short term, even the events of September 11 haven't deflected Fifth Third from its course. The terrorist attacks happened to coincide with a sales campaign to boost core checking and savings accounts, so the bank received a flood of new deposits from customers looking for a safe place to park their money.

Fifth Third's enviable record is based on a deceptively simple formula that the bank continues to execute year in and year out. It's a mix of incentives, metrics and old-fashioned sales campaigns designed to encourage front-line managers and employees to get out and hustle product. "You differentiate yourself in banking by selling," says Robert Niehaus, executive vice president in charge of retail banking.

All of Fifth Third's 1,000-plus branch managers possess lending authority and are responsible for their own profit-and-loss statements. They're also assigned sales goals, backed by 90-day campaigns with catchy themes such as "Winter Wonderland" and "Holy Cow." Their progress is monitored weekly. Managers who exceed profit and sales targets can rack up bonuses reaching as high as 30% of their base salary. "This is all about execution, having the right products, setting goals and measuring progress," says the 54 year-old Niehaus, retail chief for the last eight years.

Next year, Fifth Third will be promoting several new initiatives, including an "e53" checking account, which is an Internet-based product that doesn't generate a paper statement ? customers can track all their activity on the Web. The bank also plans to introduce some new mutual funds and will keep pushing a debit card that generates handsome interchange fees for the income statement. "As long as we continue to attract new customers and then cross-sell them new products, we'll continue to have success," Niehaus says.

Fifth Third expects to get a lot of those new customers from new markets it entered during recent acquisitions. This year's purchase of Grand Rapids, Mich.-based Old Kent Financial Corp. boosted Fifth Third's size by 50%, to $70 billion of assets, adding northern Indiana, Chicago, and Michigan to its existing territories in Ohio, southern Indiana, Kentucky and Florida.

Fifth Third has always done a good job of improving performance at its acquired companies. Niehaus says Fifth Third has been opening new checking accounts in Chicago at triple Old Kent's pre-acquisition pace, for example, largely on the strength of a free checking product that is common in many markets around the country but still something of a novelty in Chicago and Detroit.

But there's risk here as well: the company's previous largest deal was only one-third the size of Old Kent, so Wall Street is watching this particular integration effort carefully. And of course, not even Fifth Third can remain immune from a deteriorating economy indefinitely.
? John R. Engen

Keeping It Simple

Even as many of its competitors strive to become financial service supermarkets, AmSouth Bancorp operates more like a specialty store by concentrating mainly on loans and deposits ? primarily home equity loans and checking accounts. "It's easy to stray all over the dance floor with revenue growth initiatives," says Candice Bagby, 51, senior executive vice president and head of consumer banking for the Birmingham, Ala.-based company since 1995. "We focus on a small number of very simple things."

To be sure, the $39 billion-asset AmSouth does offer trust services, investments and a limited menu of insurance products. It pushes annuities with particular vigor. But a sharp focus, Bagby argues, greatly improves the odds of executing effectively. The result of trying to do too many things at once, she says, is "executional mediocrity."

Bagby's main strategic goal is to boost revenue growth through a 5% annual growth in deposits, including non-interest checking accounts, savings accounts and certificates of deposit, and 20% growth in home equity lending. Marketing resources and compensation incentives are tailored to those goals, with a particular emphasis on home equity loans.

Bagby emphasizes home equity because it is a profitable business with strong growth potential. Also, like the checking account, it provides a good platform for cross-selling. "Once customers have an equity line with us, they're automatically qualified for our best relationship banking package," she says.

But the crux of her strategy is clearly the checking account, since it anchors the consumer banking relationship and provides the strongest connection to other products and services. "When we have your checking account here, we can cross-sell you a check card, Internet banking, a loan or a credit card."

Bagby sees some benefit for banks in the current economic downturn, since many customers are moving funds from the stock market to the safety of federally-insured bank deposits. "This might really affect the psyche of consumers in terms of how they manage their investment assets over the next ten years," she says. The most direct gain at AmSouth, as at other banks, will be core deposit growth, but banks may benefit indirectly as well by cross-selling investment accounts to depositors, she says.

As for the events of September 11, Bagby says she doesn't yet know how the terrorist attacks will affect retail banking or consumer confidence. AmSouth itself is just trying to do what it can in the communities it serves, such as setting up relief funds and maintaining basic operations at a high level. "All those little things hopefully add up to getting us back on track," she says.
? Bill Stoneman

Relationship Bankers

With $31 billion of assets, Buffalo, N.Y.-based M&T Bank Corp. qualifies as a Top 50 bank ? in fact, it's the nation's 29th largest. But retail banking can best be described as community banking writ large at this institution, which serves slow-growth patches of the industrial Northeast.

The company sets different pricing for the various cities and towns in its territory. It also leverages its local charitable giving and civic participation to cement customer relationships. "Retail customers like to do business with their neighbors," says Emerson Brumback, executive vice president in charge of retail banking. "We are in communities that require us to function as a relationship bank."

M&T's franchise encompasses upstate New York, central Pennsylvania and portions of Maryland and West Virginia, areas that aren't experiencing a lot of in-migration. For that reason, Brumback is focused less on attracting new customers and more on increasing M&T's "share of wallet" with established ones. Increasingly, that means cross-selling investment and insurance products to core banking clients. "We recognized several years ago that the needs of the consumer were changing and that our traditional product and service menu had to be broadened," says Brumback, 50, M&T's retail chief since 1997.

Customers who visit the bank's branch offices or speak with call-center operators quickly learn that M&T offers investment and insurance services. Most platform officers are licensed to sell securities and annuities. And they're backed up by investment and insurance specialists who can be sent to any branch when needed. Direct mail and telemarketing is used to get the word out to customers who don't visit the branches regularly.

Though brokerage income accounted for a scant 2.6% of revenues at M&T in the first half of this year, the investment business is growing at a 20% annual clip. Long-term, Brumback believes banks such as M&T are poised to become significant providers of investment products as consumers continue to shift their savings from bank deposits to investment instruments.

One factor that should help these institutions improve their sales efforts is a cultural shift within the industry that involves vesting employees with more authority and autonomy, he says. "In the past, we had more of a command and control structure. Now there's a recognition that people on the front lines create the profit for the organization, as well as the relationships."

Brumback's cross-selling challenge is complicated by M&T's need to integrate two acquisitions completed this year: Keystone Financial Inc. of Harrisburg, Pa., with $7 billion of assets, and Premier National Bancorp Inc., a $1.3 billion-asset institution based in New York's Hudson Valley. He must balance the usual cost-cutting and consolidation exercises with the need to retain key staff and make a good impression in affected communities. But he thinks gains can be made among former Keystone and Premier customers, who have not been previously exposed to much cross-selling.

Brumback says it's too early to tell whether the events of September 11 will affect M&T's business. "Consumers have propped up the economy for the last several months. If they go over the hill as well, we're probably in trouble. But I'm not sure that will happen," he says.
? Bill Stoneman

Looking South

The grass is greener south of the border for retail bankers at RBC Financial Group, formerly known as Royal Bank of Canada. While the company expects further gains in Canada on the strength of its vaunted sales process, James Rager, vice chairman in charge of personal and commercial banking, says the bigger opportunity will come from leveraging that system in the U.S.

"The earnings opportunities in Canada are limited because the market is so small," says Rager, 52. "So we're looking to the United States for more transformational growth. All the Canadian banks are in the same position."

RBC made its first major retail banking foray into the United States in January, when it announced the purchase of North Carolina's Centura Banks Inc., which has $12 billion of assets. That's a tiny foothold in a huge market, but RBC expects to layer further acquisitions on top of that foundation. Rager's task, in the meantime, is to make the U.S. franchise more productive by deploying RBC's expertise in customer segmentation and electronic banking.

At home, RBC Royal Bank is the dominant retail institution, counting 10 million Canadians, or nearly one-third of the population, as its customers. To retain those clients, the company devoted substantial resources to building a robust customer relationship management system that incorporates segmentation, predictive modeling and targeted marketing. Rager, who championed the development of this system, says it enables his institution to ascertain the profitability of its customers and present each one with tailored product offers that are appropriately priced.

The C$208 billion-asset bank is also a major online player, with 1.8 million Internet banking customers ? 70% of them active. That total includes customers of RBC Centura and the company's wholly-owned Security First Network Bank, which has been folded into Centura. Rager plans a marketing campaign to boost online usage by 10% during the first half of 2002 ? something that he hopes will cut delivery costs. Meanwhile, his information technology staff continues to streamline Internet-related back-office functions. "Even though customers can originate and close a mortgage online, it's not automated all the way through our back-office yet," he says.

Rager expects this combination of cross-selling technology and Internet banking expertise to play well south of the border. To aid in the effort, the company has launched a new branding initiative to promote the "RBC" tag, which all operating units now carry. Rager also anticipates some operations-related cost advantages from Canada's currency exchange rate, which is weak compared with the American dollar.

Because Canada's economic system is tied so closely to that of the U.S., RBC hasn't escaped the current slowdown, however. The events of September 11 weakened consumer confidence in Canada, just as in the U.S. "The impact is being felt even in Toronto," Rager says, citing lower demand for loans and an influx of deposits whose benefits are offset by narrower spreads.

While Rager doesn't know when that confidence will bounce back, he believes RBC's strategy of cross-selling to established customers will hold up well in the new environment. "We should be able to satisfy our targets whether we're in an economic downturn or not," he says.
? John R. Engen

Mr. Stoneman and Mr. Engen are freelance writers based in Albany, N.Y. and Minneapolis respectively. Mr. Cline is senior editor of Banking Strategies.

Copyright © 2003 by Banking Strategies, published by BAI.

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