You are a small banker, so act like one

I have been thinking over this issue for some time. Then I read this article today and it crystallized my fragmented thoughts and I decide it to put it online. Initially I was planning to tweet this but then I realized it will take many tweets to say what I want to say. I am not like @pmarca Marc Andreessen whose legendary tweet storms are lapped up by his cult followers as divine revelations.

I had mentioned in one of my earlier posts that I have changed my job. Its a relatively new bank in a market that is very liquid and over-banked. The challenge with working with a small and new institution is that you can’t take on the big boys (large and well established old banks) in this game. You might be able to have a quicker turnaround compared to large bureaucratic banks but with decade long established corporate relationships this is not much of an advantage. Say you are used to borrowing $200 million each from Citibank singly and it takes them a month to approve the line. Suppose we can get back to you within a fortnight with our approvals but due to regulatory and risk concentration reasons, can only offer you US$27M max (not even a round number) . You’d rather wait another fortnight and get a nice lump sum from Citibank without the hassles of opening new account and completing KYC for such irregular sums with a new bank like us. Anyway, once you get $27Million from us, you will need to approach someone else to raise the remaining $173M.

What we can do is search for opportunities that these big banks are ignoring. These may not necessarily be riskier but are not plain vanilla either. We may need to structure them differently, crossall the “t”s and dotting all the “i”s in legal documents, ring fence the assets etc. Such customers may not come to us. We have to seek them out. The problem with bankers we hired is that they all come from well established large banks where the corporate borrower came to them because they have the balance sheet to singly finance the needs of the customer. It didn’t matter who was the relationship manager in the large bank. The corporate had a relationship with the bank and not the relationship manager.

Anyway the problem is not with the relationship manager. The problem is much higher than that. The CEO, the Corporate Head, etc all have come from large banks and do not display the zeal that is required for the small bank to expand. I am not saying that we need out-of-box thinker as I am not one. But what we need are people who are willing to put in the extra effort. People willing to roll up their sleeves and go out to acquire customers. A corporate head who is actually willing to meet and work with less than blue chip companies. Issuing a press release for being a part of 29 bank consortium that provided funding to a government backed entity is not how small banks make a name for themselves.

Now we are hiring a treasurer as our last treasurer resigned few days ago. I have heard that this treasurer worked for a government owned investment vehicle for 30 years. What the fuck will he know about running a bank treasury where you have daily liquidity requirements. Just because we are a small bank doesn’t mean our treasury requirements are small. We need to setup lines with international banks, ask local banks to increase our limits, monitor liquidity on daily weekly basis. I don’t think a 60+ guy who has worked in sedentary government treasury for 30 Years is the man for it.

Don’t think that the bank will grow much if we keep acting like a large bank.