Financial Services Marketing - Assignment Example

?Introduction Signature Bank (SBNY) was incorporated in 2001, in New York as a commercial bank. The company has as many as 25 client offices in the metropolitan city of New York. SBN Y operates in two different businesses and product lines. It offers a large variety of products related to business and personal banking as well as services though bank and investment, brokerage and asset management, insurance related products as well as services though one of its wholly owned subsidiary named Signature Securities (SBNY Annual Report, 2010). SBNY also purchases, securitizes as well as sells the portions that are guaranteed of U.S. Small Business Administration (“SBA”) loans. “Products of Signature Bank includes deposit products like checking accounts, money market accounts, escrow deposit accounts, lockbox accounts, cash concentration accounts, certificates of deposit and other cash management products” (About Signature Overview, 2011). SWOT Analysis SWOT analysis of an organization is its strength, weakness, opportunity and threat analysis. Through strengths and weaknesses are generally considered internal to the organization whereas opportunities and threats are mainly external to the organizations like change in environmental factors or change in governmental regulations. SWOT analysis inculcates new ideas in strategic planning of the organization and can help any organization to take advantage of its strengths and defend against weaknesses. It is easier to conduct and does not incur high costs. It helps organizations to be aware of its external threats, mainly political and environmental threats. So this helps and organization to get prepared for them beforehand (Keller, 2009). SWOT analysis of SBNY is as follows: Strengths SBNY’s concentration in the New York metropolitan area deters it to reap the benefits of a diverse geographic presence (SBNY Annual Report, 2010). The company is not only vulnerable to the economic condition of the area, but also remains deprived of compensating any loss it incurs due to an adverse condition in the NY economy by gaining on another geographic economy performing in a better way. Moreover, above 75% of the real estate collateral for the loans in company’s portfolio is located within the NY metropolitan area (Signature Bank: Key Statistics, 2011). Therefore, any adversity in the economy of the area would hamper company’s earnings. As it is an investment banking company and a Financial institution its customers ranges from retail investors to the companies for which it does merchant banking and underwriting business. The company has fixed a lower limit of investments at which it starts managing the portfolio of its customers. This is done generally to create a standard lot of investment for all the retail investors. The lower limit is decided based upon the marker scenario. The funds of SBNY are managed under a separate wing known as SBNY Fund Management ltd, which is a subsidiary of SBNY (SBNY Annual Report, 2010). SBNYFM is currently operating on the institutional platform and its fund accounting and investment staff provides best class services to its clients. The fund management services are provided mainly to small and large retail investors. The next level services provided to the companies are Corporate Financial Services. It includes Initial Public Offerings, Corporate M&A, and Financial Advisory and capital market services. SBNY’s organizational structure provides for the establishment of private client groups, where each group caters to all the banking needs of its clients. The members of such group are highly experienced as they are recruited from major New York banks and brokerages with 20 years of experience in financial services, and are in position to serve the clients in best possible way. A typical group director has an established team of two to four additional professionals to assist with business development and client services. SBNY has 71 teams headed by 92 group directors. The company has projected to hire 11 more teams (About Signature Overview, 2011). Each additional private client group is expected to bring additional client relationships to the bank and would allow growth of deposits as well as expansion of lending opportunities. SBNY has performed notably well even in the adverse economic conditions; unlike it peers, as evident from its financial results reporting a significant growth in its earnings. In FY09 and Q1’10, the net interest income of the company increased ~34% and ~37% respectively y-o-y (SBNY Annual Report, 2010). This increase was resulted by increases in average earnings assets and average deposits as well as an increase in net interest margin on a tax-equivalent basis of 16 basis points to 3.41% primarily due to lower rates paid on deposits. In FY09, net interest margin increased to 3.41% from 3.25% in FY08 (SBNY Annual Report, 2010). Net income for FY09 reflected a 17% increase when compared to FY08. Net income in Q1’10 increased notably to $22.09 million compared to the $2.41 million net income in Q1’09. The increase in net income was predominantly attributable to net interest income growth, fueled by record core deposit growth and continued loan growth. In addition SBNY recognized $10.2 million non-cash accelerated deemed dividend, combined with the preferred dividend of $1.5 million. Return on assets (ROA) for SBNY has also improved over last few years; 0.79% in FY09 compared to 0.68% in FY08 and 0.50% in FY07. The company has also succeeded to witness an increase in its deposits from $5.38 billion in FY08 to $7.22 billion in FY09 and $7.89 billion in Q1’10. Net loans provided by the company have also increased from $3.43 billion in FY08 to $4.43 billion in Q1’10 (SBNY Annual Report, 2010). FY09 revenue was $386.14 million ~19% up from $323.46 million in FY08 primarily due to the rise in volume. FY09 EPS was however down from $1.35 in FY08 to $1.30. The decrease was due to the additional ~7 million shares resulted from the repurchase. In the first quarter of FY10, net income of the company was $22.1 million or $0.54 EPS compared with $2.4 million or $0.07 EPS i.e. an increase of ~817% (About Signature Overview, 2011). The increase in net income was predominantly attributable to net interest income growth, fueled by record core deposit growth and continued loan growth. Weakness Total NPA of the company increased from $32.86 million in FY08 to $55.52 million in FY09 (~0.61% of total assets). The NPA however declined marginally to $52.58 million in Q1’10 representing 0.54% of total assets as of 31-Mar-10. The provision for loan losses also increased significantly over last 2 years, primarily due to growth in the loan portfolio and to cover the inherent risk brought by the economic uncertainty. Net charge-offs in FY09, SBNY recorded a provision of $42.7 million compared to $26.9 million provision in FY08. The uncertain economic environment witnessed a significant increase in the net charge offs from $8.1 million in FY08 to $24.6 million in FY09. Net charge-offs to average loans increased from 0.30% in 2008 to 0.64% in 2009. As of 31-Mar-10, quarterly net charge-offs to average loans (on an annualized basis) declined to 0.59% from 0.82% in the prior year period. SBNY’s allowance for loan losses totaled $55.1 million at 31-Dec-09 compared to $37.0 million at 31-Dec-08. Even in Q1’10, when the economy has started improving, the allowance for loan losses recorded by the company increased to $59.95 million as at 31-Mar-10 (SBNY Annual Report, 2010). Opportunities “Regional banking is very much a commodity industry. There are few barriers to entry, competition is intense and the only barrier is approval from regulators” (Allen Rubin, 2007). As in all commodity business the major factor to excel are controlling costs-operating, credit and funding. There are certain banking business model which has low capital requirement, it boosts profitability and also keep these banks from venturing too far in search of higher yields. Aftermath of subprime crisis one thing is clear – the problem with the banking sector was not excess return, but in fact the inability to generate acceptable returns without taking unacceptable risks. A strong case can be built up saying that competitive forces ultimately led to the demise of several financial companies and virtually the entire banking system As the recession continues many banks will likely exit are be acquired at distress process, as assets are transferred to more productive use. “The regional banks that survive this cycle have the opportunity to emerge stronger as they acquire assets of failing banks at attractive prices, especially with loss sharing agreements in place with the FDIC” (About Signature Overview, 2011). In regional –Northeast Banks the leader in long term growth rate for last 5 years is Signature Bank with annual growth rate of 17.98%. If we have a look at the EPS trend the industry shows a stagnant movement in EPS for last on year, while signature bank has been showing a growing EPS trend in the same period. Despite general signs of recovery in other areas of the economy, the global banking industry continues to struggle with tough credit conditions, the impact of consolidations, and potential legislative and regulatory changes. The regulatory changes will effect each institution in some way or the other but all set at this time are strong regional banks who have an established and concentrated business model. According to Forbes, Signature Bank is currently rated as having Average Accounting & Governance Risk (AGR). For the period of last three years Signature bank has always been in the range of Average or Conservative. Bank performance scorecard by Charles Keenan for 2009 suggests that out of the 150 bank studied only one bank made it from Regional Northeast Banks-New York’s Signature Bank, with $ 9.1 billion in assets, came in 10th place overall. “The Northeast’s economy has fared better over the past year than other regions; its states do not match the troubles of those such as Florida, California, and Michigan, says Fitzgibbon of Sandler O’Neill” (Elaboration Likelihood Model, 2007). During the past month, the Regional - Northeast Banks industry has fallen 7.51 percent. Comparatively, SBNY has outperformed the industry as a whole-which is a good sign for the stock. As we can see in the table, Signature bank has beaten the industry average comprehensively. Average net profit margins for the industry is 13.2 % for the period of last 5 years while for Signature bank it is 19.5% for the same period. In Regional-Northeast bank largest bank by market capitalization is State Street Corp. with market cap of $18.3 billion while Signature bank is 5th with market cap of $1.49 billion. SBNY is an extremely well-capitalized company as per the FDIC norms. As per the FDIC, an institution is considered to be well-capitalized if it maintains a minimum leverage capital ratio of 5.0% and a minimum risk-based capital ratio of 10.0%, of which at least 6.0% must be Tier 1 capital. At 31-Dec-09, SBNY’s total risk-based capital ratio was 14.47%; its Tier 1 risk-based capital ratio was 13.57%; and the company’s leverage capital ratio was 9.39%. At 31-Mar-10, the company’s total risk-based capital ratio was 14.62%; its Tier 1 risk-based capital ratio was 13.66%; and the company’s leverage capital ratio was 9.10%. Each of these ratios exceeded the minimum ratio established for a “well capitalized” institution. Revenue growth of Signature Bank has always been a healthy one compared to other Regional-Northeast bank. Regional- Northeast bank’s play on a business model of acquiring teams of efficient individuals and using them to service the niche sectors of the society. Signature bank hired 14 new teams last year. Their actual target was to hire 4 teams but they went ahead and hired 14 teams that fiscal. In there guidance for new team they announced that they will be hiring 4 new teams in the year 2010. The second best EPS growth in quarters is shown by Signature bank i.e. 690.30%, second only to Cornerstone Financial Corp which had an EPS growth of 1007.60%. The long term story of strong Regional-Northeast bank is in tact; many small ones will go belly up or will be acquired by biggies. Strong and robust business model can only sustain the regulations and the recessionary economy. Several small regional banks were among the first to pay back federal rescue funds given to them by the government under the head of TARP. Signature Bank paid back the $120 Million it received under TARP in March, 2009. The picture of the industry is not as bleak as was in 2008. Loans and Deposits have shown significant growth from the lows of 2008. Banks are participating in FDIC program so that they can cash in on investor’s trust. Threats The market for regional banking and brokerage services is significantly competitive as it allows consumers to access financial products and compare interest rates and services from numerous financial institutions (SBNY Annual Report, 2010). Customers in this sector are always sensitive to competitive interest rate levels and services. “Therefore, banks need to lure clients away from competitor banks by offering lower financing, preferred rates and investment services” (Different types of strategies, 2006). Success in this sector lies in offering both the best and fastest services, but this also causes banks to experience a lower ROA. Hence, the company has to compete effectively for deposit, loan, and other clients in its markets in order to maintain its market share and growth. SBNY primarily competes with larger financial institutions with greater financial resources, lending limits and larger office networks as well as a broader range of products and services (SBNY Annual Report, 2010). SBNY in order to maintain its profit levels and remain in business must control its operating costs as well as credit and funding costs. Apart from this, rapid technological changes in the banking sector have also increased the level of competition with the introductions of new technology-driven products and services. The effective use of technology increases efficiency and enables financial institutions to reduce costs and has also made it possible for non-financial institutions to offer products and services that have traditionally been offered by financial institutions, thereby increasing the competition further. Since SBNY competes with larger financial institutions with greater resources, it faces the threat as the peers would be in a better position to invest their resources for technological advancement and gaining an edge over others in terms of better products and services. References About Signature Overview. (2011). Retrieved Mar 28, 2011, from www.signatureny.com: http://www.signatureny.com/AboutSignature.aspx Alvarado, U. &. (2001). Industrial Marketing Management. In U. &. Alvarado, Supply Chain Management: The integration of logistics in Marketing (pp. 183-198). Bill Birnbaum, C. (n.d.). Strategic Planning, Mission-Vision-Values. 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