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January 2010 |
Meeting the Challenges of 2010... We are pleased to welcome back Christopher J. Zinski, who returned to the firm in January as a partner in the Financial Institutions and Corporate and Securities Groups. Since 2006 he served as general counsel of PrivateBancorp, Inc. (Nasdaq: PVTB), the bank holding company for The PrivateBank, a $12 billion Chicago-based financial institution with an expanding national presence. In addition to managing all of the corporation's legal affairs, Chris provided counsel to the CEO and board of directors on strategic initiatives, capital markets activities, corporate and regulatory compliance, and executive compensation. Longtime Schiff Hardin clients and contacts will remember Chris as a partner and past chair of our Financial Institutions Group. We look forward to introducing him to newer clients and contacts who might not be familiar with his strategic insights, skills and experience. In this Financial Institutions Strategic Alert, Chris shares some of his observations about what financial institutions should expect — and what they should focus on — as we move into a new year and a new decade. No one can argue that 2008 and 2009 were not traumatic years for financial institutions. With the new year upon us, financial institution leaders should be asking the question: What now? This alert offers eight specific priorities for what will be a new and different operating environment for banking in the year ahead. Management should foster a close, proactive relationship with regulators. Initiating regular contact with regulators provides crucial intelligence about exam and compliance priorities that, in turn, can guide management's priorities. Also, proactive outreach builds a relationship that will help should the institution face a problem that risks safety and soundness. The stronger the relationship, the greater the likelihood of resolving regulatory problems informally, heading off formal enforcement proceedings. If you feel yourself avoiding contact with the regulators or uncomfortable thinking about regulatory risk, it means you are not managing the risk proactively enough. Get in front of it! Directors must raise their awareness about political risk. The reality is that until the banking industry is stabilized, the U.S. Congress and the executive branch will continue to exercise intense scrutiny of the industry's every move. Being attentive to legislative developments is important, as is extreme sensitivity to how corporate conduct may be publicly perceived. Until the problems in the banking industry fall off the front page of the newspaper, especially the stories on taxpayer funded bailouts, bank boards cannot pay enough attention to this potential factor in board and management decisions. Directors must develop capital and liquidity plans. If 2008-2009 taught us nothing else, it is the value of good planning for capital and liquidity and identifying contingency sources for both. Just released proposals from the Basel Committee on these subjects remind us that capital and liquidity are high on the regulatory agenda worldwide. From a business perspective, those institutions that can absorb unforeseen credit losses and seize strategic opportunities will enjoy a competitive advantage. Performing periodic capital stress testing, whether or not mandated by law or industry best practice, should be considered. 2010 will be the year of the capital plan. Documenting it, stress testing it, executing on it and being proactive in discussing it with your regulators is the critical path to success. Finding the best people and keeping them satisfied and motivated is critical to preserving the franchise and delivering long-term value for stockholders. It is important, therefore, for a financial institution to develop a human resources strategy that retains the organization's best people, creates opportunities to recruit the best people from other organizations, and is tightly linked to the bank's business strategy. For the survivors, there will be great talent acquisition opportunities. For those banks just holding on, keeping key personnel in place is a must. Financial performance pressures make this a huge challenge, but there are practical solutions. The new reality of banking — whatever it turns out to be — will require the board to self-assess to determine whether the qualifications of the board itself match the strategy and complexity of the bank going forward. Likewise, the board should evaluate whether the qualifications of the bank's management team reconcile well with the bank's strategy and tactics. The line between success and failure in business is razor thin and this is even more acute in banking. To stay on the right side of the line, banks need great operators in this environment where execution is what matters. At a minimum, great operators manage the balance sheet and income statement, strategy, opportunities and risks in a deliberate, coherent way to drive long-term stockholder value. Whether a bank has great operators working effectively as a team can only be determined through self-assessment. Do your current managers have the experience to operate effectively? If not, fill the gaps quickly. Publicly held bank holding companies have special issues to address in the current environment, especially those that have benefited from U.S. government programs to restore health to the banking system. Directors of publicly held bank holding companies should remain vigilant to developments in corporate governance and the strategy and tactics of activist stockholders. Great opportunities are born in periods of stress and trauma. Healthy banks should be planning to take advantage of talent recruitment opportunities, FDIC-assisted acquisitions and capital building transactions. Casual thinking about strategy does not work. It takes deep thinking and a lot of planning to map out alternative strategies and be prepared to execute on them when opportunities arise. Banks cannot do enough planning in this environment. * For greater detail and a more comprehensive discussion of this topic, please see the "Director's Perspective: What Now?," Banking Law Journal, July/August 2009, 126 Banking Law Journal 656, by Christopher J. Zinski, available here. ABOUT SCHIFF HARDIN LLP Schiff Hardin LLP provides services to banks, savings associations and other types of financial institutions nationwide and internationally. In addition to our traditional strengths in mergers and acquisitions, securities and financings, bank regulatory compliance, and trust department counseling, we have a particular and increasing focus on corporate governance and fiduciary litigation. Our Finance Group also supports our financial institutions clients in all aspects of their credit and lending businesses, and our Securities and Futures Regulation Group assists them in their securities, investment management and commodities-related businesses. We represent some of the largest banking organizations in the U.S. and overseas, and many community banks and thrifts. For more information, contact us. |