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A Message For The C-Suite

Leaders in the financial-services industry will have a lot on their plates in 2023 as they navigate a fragile global economy, rising (and maybe falling) interest rates and scrutiny from regulators.

As a result, Curinos presents this high-level view of the industry as we approach the new year.

Deposits Take Center Stage As Rates Rise
  • Banks are benefiting from loan growth and loan yields, with future performance heavily driven by deposit betas.
  • Credit is the largest unknown for future earnings performance, but prospects are good for a “soft” landing.
  • Fees are less of a factor in affecting performance.
  • Banks with outsized capital markets, M&A advisory, real estate or wealth businesses have been the most affected by the economy.
  • The most significant pandemic hangover is the embedded losses in the securities book (where excess deposits were parked).
  • The industry is challenged by new digital-transformation issues:
    • Digital marketing and experience investments have fallen short of anticipated benefits.
    • Banks need to rethink digital relationship primacy and personalization.
    • Branches need a “third wave” of reconfiguration.
    • Regionals and community banks find it difficult to keep up with the costs and capabilities.

Banks need to navigate deposit costs and improve the effectiveness of digital investment.

For 2023, a three-part agenda: manage deposit costs, monitor credit risk and make improvements in digital effectiveness.

Navigate Today

Today’s Priorities

  • Manage funding composition and cost:
    • Back book rate-sensitive money
    • Wealth and commercial deposits
    • Revisit TM pricing
  • Expand lending selectively:
    • Target relationship customers (in particular, for home equity and commercial)
  • Develop a liquidity strategy and manage unrealized losses in the securities portfolio

Today’s Headwinds

  • Hints of credit issues (auto)
  • Overconcentration in capital markets, real estate or large-dollar (wealth) depositors.
Anticipate The Future

Tomorrow’s Priorities

  • Improve the quality/effectiveness of digital acquisition and onboarding.
  • Deepen the support for digital customer management:
    • MarTech stack partnering strategy (build vs. buy)
    • Seamless integration of online and digital
    • Metrics and incentives for primacy and relationship
  • Focus on relationship primacy and personalized/tailored products.
  • Rethink “third wave” of branch reductions and branch personnel roles.
  • Consider M&A to gain core deposits and scale.

Tomorrow’s Challenges

  • Expense/effectiveness of digitalization and partners
  • Cost of talent and role of branch personnel

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Nowhere is the mortgage shakeout more apparent than in the wave of mergers and acquisitions that have washed across the industry ever since interest rates started to rise. And that wave is occurring even though credit trends aren’t deteriorating significantly. Courageous buyers view the upheaval as an opportunity to enter new markets and then cut costs from overlapping operations. As these are early days, it is unclear whether these classic strategies to grab market share will ultimately succeed. If economic conditions deteriorate and credit trends weaken, some lenders may experience buyer’s remorse. What’s clear is that the industry’s trends aren’t showing any signs of recovery, with volume down 53.3% year over year. Market trends are showing lower weighted average FICOs (dropping from 760 to 745), higher LTVs (increasing from 72% to 81%). Both metrics are associated with a move away from the refinance boom and toward a stronger purchase market. This means that buyers can’t rely on new geographies to guide them to better times. Instead, lenders will need to keep charging ahead with efforts to optimize margins by using granular pricing strategies. They also must have a clear retention strategy for their mortgage servicing portfolio because recapture will represent a significant opportunity when rates start to come back down.

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Want to go further?

Contact us to learn more about how Curinos can help you navigate today and prepare for tomorrow.

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Need to contact a specific team?

Sales Inquiries:
Sales@curinos.com

Accounts Payable Inquiries:
CurinosAP@curinos.com

Media Inquiries:
Curinos@cognitomedia.com

Need to contact a specific team?

Sales Inquiries:
Sales@curinos.com

Accounts Payable Inquiries:
CurinosAP@curinos.com

Media Inquiries:
Curinos@cognitomedia.com

Need to contact a specific team?

Sales Inquiries:
Sales@curinos.com

Accounts Payable Inquiries:
CurinosAP@curinos.com

Media Inquiries:
Curinos@cognitomedia.com

Need to contact a specific team?

Sales Inquiries:
Sales@curinos.com

Accounts Payable Inquiries:
CurinosAP@curinos.com

Media Inquiries:
Curinos@cognitomedia.com

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