Banking Employment, December 12, 2008

The future of the economy, and the future of banking itself, is uncertain. The entire system is going through what financial professionals call a workout, where assets are repriced, and even the most respected firms take a beating. Just as the outcome is uncertain, so are employment needs and practices. In these challenging times, firms must identify their best people and focus on retention.

Like laborers sifting through the wreckage of a crash, journalists, pundits, experts, executives, and government officials all struggle to explain the breakdown of the financial system as they strive to find a way forward. But this is a contentious crew, and while they cast blame and craft expensive patchwork solutions, a disillusioned public is unable to understand why $700 billion fails to solve problems more quickly.

The public understands through experience what bankers learn through data. Drastically fallen home prices remain elevated by traditional standards; housing inventory continues to increase; income is not rising and, in many industries, is even falling; mortgage rates have heightened; and unemployment is rising nationwide. Money is hard to come by, and those who have it, hoard it.

These dire conditions have persisted throughout the year with hard ramifications for most financial institutions. Still, we hear endless pronouncements calling a bottom, or claiming adequate capitalization, only to see the same institutions in need of capital, closing their doors, selling off assets, and laying off employees a month later. Employees and former employees share the anxiety of getting and keeping a position.

Going forward, we can depend on only one thing– uncertainty.

Echoing this sentiment, David Cleworth of U.S. Banker Magazine told that the number one catch phrase in banking for 2009 will be risk management. Until recently, risk management was more than a catch phrase, it was part of the essence of banking. That changed substantially during this decade as new and complex financial instruments made it more difficult to detect risk, and these instruments created profits in the short term that many institutions found irresistible. Even so, improved risk management standards and processes may prevent future situations where banks can be paid to write almost any loan before selling that loan off into a secondary market.

Jamie Dimon, CEO of JP Morgan Chase, runs a financial institution that remains in relatively good health, but even he says that the current economic situation is "virtually unfathomable." That is what he told interviewer Charlie Rose at the Aspen Ideas Festival earlier this year, adding that a big part of his job is not predicting the weather, but "preparing for all kinds of weather," which is a good informal description of risk management.

"Preparing for all kinds of weather" begins with hiring the right kind of risk managers. Careful assessment of a candidate's credentials is pertinent. The term "risk management" may be a hot buzz phrase, but it isn't necessarily indicative of actual experience or training. Consider whether the person has taken a seminar or has a course in risk management on a university transcript. Better yet, seek out applicants with an actual degree in risk management. The best indication of a solid candidate, of course, is previous experience working either in a risk management department or for a risk management expert.

Hiring risk managers is a critical exercise in evaluating actual credentials and experience. Older, subjective methods of appraising candidates for personal qualities of carefulness will not suffice.

In an insurance industry interview conducted in July of 2008, talked about risk management with Russell Walker, Assistant Director of the Zell Center for Risk Research at Northwestern University's Kellogg School of Management. Speaking about insurance companies in terms that are just as apt for other financial institutions, Walker said that the demand for trained risk managers was booming: "One thing that companies are doing is investing more in risk management, in large part because this most recent downturn is viewed as one where companies that had weaker risk management generally were more exposed."

In addition to risk management, U.S. Banker highlighted two other areas of hiring growth for banks.

1. Information technology. Financial institution will spend an estimated $351 billion on IT in 2008. The top operational goals of this spending are operational efficiency, revenue growth, enterprise risk, compliance, business process management, internet threats, globalization, and branch growth and development. While investing in technology does not directly reduce headcount, it makes the organization faster, more productive and more secure. Hiring and retaining programs for IT specialists and managers will be crucial to the success of banks. IT positions are composed of hundreds of different skill sets and job descriptions, and a crisis of supply already exists in the greater job market.

2. Compliance. A flurry of new regulatory standards has been created, and as the response to the financial crisis continues to unfold, more and more compliance reporting will be required. While no one knows the full extent of coming regulation, it will surely be onerous and costly. Taxpayers and politicians will want full accountability for all of the money that is being thrown into the financial system.

According to one Chicago-area banker who spoke to, one area of retail banking that is heating up is reverse mortgages. For homeowners aged 62 and older who have equity in their homes, a reverse mortgage can be a lifesaver that pays monthly assessments, property taxes, and other bills. Reverse mortgages are not inherently desirable, but they can provide relief against much worse outcomes in trying economic times. The number of people who fit this profile grows daily.

There are problems associated with marketing this product. One is the "sleaze factor" associated with the typical cable channel sales pitch for reverse mortgages. Another is that most people do not understand fully what a reverse mortgage actually is, which leads to a third problem: people see this product as a kind of desperate surrender to unhappy circumstances.

Our banker suggests that an established, experienced reverse mortgage sales staff is a good alternative to advertising. Networking through existing clients with a consultative approach is an effective way to generate new leads among friends, families and neighbors. If the conversion rate is lower than expected, take a hard look at your sales staff and your educational materials. These sales often take place within the homes of the elderly and warrant a warm, slow approach. As insurance sales move to the internet, there will likely be a need for more staff. The temptation will be to move present staff into these positions; however, hiring life insurance sales people is a more effective move. Insurance sales people are accustomed to in-home sales, know how to talk persuasively about numbers, and have an existing client base.

While the near term of bank employment looks weak, the longer term outlook is more bullish, if only from a demographic standpoint. Although retirement plans may be changing in light of recent economic circumstances, about 80 million baby boomers are moving toward retirement age with only 40 million new recruits filling the ranks. This figure puts the emphasis back on retention, and even in turbulent times when banking executives are besieged on all sides, organizational issues cannot be ignored. A highly volatile economic environment makes for a highly volatile personnel situation that demands attention. An organization's mediocre performers are the most likely to hunker down and stay put while your best people will have the most options in the marketplace. They have marketable credentials, skill sets and experience, and they are likely ambitious.

What are the best ways to retain these people?

- Organizational assessment is the first priority. Identify your best performers, and put a target on them.

- The second task is to let them know. Especially in down times when activity slows and layoffs take place, people begin to look around. Even star performers will wonder if they are loved. Tell them.

- Third, invest in them. Once you've told them they are important, you have to show them. Even if spending is down, invest in your best performers. Young people especially are aware of the constant need to develop their skill set. Seminars and classes are just the start. Although organizational stability may be an executive's goal, employees want cross training and new challenges. If you think they may be looking for a new job, give them one in their present organization.

- Finally, make them part of a newer, more flexible organization. Product life cycles are shorter than ever for banks, and upcoming regulatory and market changes in the financial industries will compel banks to move even faster to adjust. Use outside consultants for their expertise in specific programs, and pair them up with your stars so that the organization can internalize the very specific and current expertise that consultants bring.

Now is the time to rethink who you hire, who you retain, and how you organize their work.

Russell Walker