Banks scrambling to find experienced workers

May 17, 2014
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Back in the 1980s, before the city’s Big Three banks were bought by rivals from afar, young bankers like Brian Chaffin endured a boot camp on commercial lending.

American Fletcher National Bank, now Chase, schooled him in financial analysis skills he’d need as a loan officer. Chaffin had to justify making a loan before a mock tribunal of senior bank executives who needed more bran in their diets.

“They would grill you,” he recalled of the frightful exercise. In the long run, “it was a terrific experience.”

Indeed, the education serves Chaffin well as Indiana market president of Marine Bank.

But like many baby boomers in top leadership positions who came up through the regimen, the 56-year-old can now see retirement on the horizon. The coming exodus of boomer executives has many a bank worried the younger generation hasn’t received the breadth of training and experience needed to succeed them.

“On several levels, staffing is a challenge for community banks. Perception of the banking industry is not favorable, and one consequence is difficulty attracting and retaining talented staff members,” a recent report by the Conference of State Bank Supervisors said of Indiana.

Even the Indiana Bankers Association’s own publication, Hoosier Banker, recently carried an atypically downbeat column, by former Bank of America executive Richard Parsons, titled, “The Next Banking Crisis: Talent Risk.”

“The banking industry is on the cusp of losing the war,” Parsons warned.

Mark Bruin, executive vice president and chief banking officer at National Bank of Indianapolis, doesn’t argue: “What are we going to do when all these 50-somethings retire?”

The concern is not a knock on the younger generation; it’s about birds coming home to roost following structural changes since the 1990s. Mergers and reorganizations altered the nature of positions where ambitious young Turks traditionally cut their teeth on the way to the executive suite.

Among the positions: the loan officer. Once upon a time, the loan officer had more autonomy to approve a loan. Ability to weigh credit risk was essential.

But at many big banks these days, that part of the loan officer’s role has been assigned to credit analysts cloistered in cubicles, sometimes hundreds of miles away.

The loan officer is often now more of a front-line salesperson or, in industry-speak, “a relationship manager.”

“There’s certainly more specialization than there was 20 years ago,” said Paul Freeman, executive vice president of the Indiana Bankers Association. “For most institutions, you’re not going to find credit authority at the branch level.”

Many bank CEOs came up through the credit training program of AFNB or the other former big Indianapolis banks—Indiana National Bank and Merchants National Bank, now Chase and PNC, respectively. The pace-setting institutions were assimilated by out-of-state banks in the late 1980s and early 1990s.

“You were brought up to do all things,” said Randy Reichmann, regional CEO for Evansville-based Old National Bank, which is now the largest Indiana-based bank.

People like Reichmann learned the ropes as loan officers. The latter, said longtime investment banker John Reed, of David A. Noyes & Co., traditionally were “the meat and potatoes” of the business.

“They’re the revenue-generators.”

Well-rounded

Loan-making also cultivated skills needed for top management. The officers were proven salespeople. They were deft in both people skills and credit analysis. They learned the economics of particular industries and came to understand business cycles.

A good loan officer also had a keen sense of the character and capabilities of the borrower. Such discernment is something Bruin, of the National Bank of Indianapolis, still demands of loan officers who deal with business owners and entrepreneurs.

In much of the banking world today, “I find that generally banks are looking for good salespeople” in the loan officer role, “but their technical skills are lacking,” he said.

Many big banks had arguably sound reasons for separating much of the loan-analysis function from the loan officer.

As banks merged, it became more efficient to funnel loan applications through a central department for a thumbs-up or -down.

The heavy hand of federal regulators in recent years also encouraged banks to filter loan applications through a multi-layered sluice box to ensure compliance. A credit analyst didn’t have to be gregarious or a natural-born salesman—just good at numbers and policy.

Meanwhile, at many banks the role of the traditional loan officer devolved. Now he or she could focus on loan prospecting and take on other roles at the branch.

Banks could be forgiven for not foreseeing the consequences of altering the traditional career track to top management.

Waves and waves of consolidation resulted in layoffs. One justification for the mergers—besides making shareholders of the acquired bank a ton of money—was that the combined organization would eliminate overlapping branch and back-office functions.

If a bank needed to hire later, lots of laid-off employees were available to choose from. Some banks even cut back or eliminated training programs, especially in the late 1990s.

“One of the things that have gotten the ax has been the commercial loan officer training programs,” Chaffin said.

That’s come back to bite not only the big banks but also smaller, community banks whose employees often honed their skills at the bigger institutions.

Indianapolis’ Big Three banks “served somewhat as the unofficial training ground for many of the community banks throughout the state,” said the IBA’s Freeman.

These days, it’s the IBA that provides much of the training, particularly for community banks. Each year, it conducts about 170 classes and upward of 350 Web-based sessions on everything from basics to continuing-education curriculum.

Ultimately, banks need to be on the lookout for promising employees to cultivate for leadership positions and see to it that they get broad experience, Bruin said.

Perhaps a branch manager is steeped in sales and people skills. The bank can send him or her to the credit department to learn more about fundamentals of lending.

The development provides more than prospective executive-level management to fill shoes of retiring boomers. Many smaller banks have gained a competitive edge by having loan officers who can help the bank make a quicker decision on a loan application, something that endears them to businesses looking to expand.

“I think it’s going to also be a reason there’s always going to be a role for the community bank,” said Marine’s Chaffin.

Contrarian view

But the leader of one of the city’s biggest banks isn’t wringing his hands over the much-discussed shortage of talent in the pipeline.

“I don’t know that I agree,” said Tim Massey, Indiana regional president of BMO Harris Bank, whose early training goes back to Merchants National Bank.

BMO didn’t eliminate training, which BMO calls The Institute for Learning. The program includes a giant conference center in Toronto dedicated to developing promising officers.

Furthermore, Massey said, BMO loan officers are still involved in underwriting.

He also contends that the up-and-coming generation of bankers has a lot to bring to a bank’s strategic advantage—including an ability to digest vast data files.

“It’s amazing how much better a skill set they have in certain things than I have,” Massey said.

Of course, young people must be interested in banking in the first place. And there’s at least anecdotal evidence that a banking career isn’t as attractive as it once was.

Some deem it boring, while others are mindful a job could disappear with the next merger, observed Tom Fite, deputy director of the Indiana Department of Financial Institutions.

Not helping was the incessant bad press the industry absorbed during the recession, what with bailouts and the face of “Wall Street and perceived greed.”

Fite was deflated after giving a speech to business majors at an Indiana college and listening to students chat afterward.

“Given that these were all business majors, I was shocked not to hear at least one person say that they considered working in the banking industry,” Fite recalled. “I was even more shocked to hear that no one was even considering a ‘curiosity based’ interview in the banking industry, if nothing else.”

Therein may lie opportunity for the younger generation—and for banks to make a job pitch.

“I think there will be substantial opportunity for quick upward mobility in certain institutions,” Fite said. “Many bankers delayed their retirement during the recession, as they didn’t want to leave on a down note.

“However, with banks now improved, I anticipate a large number of bankers will be hanging up their hats.”•
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