For Walmart to increase its profits, does it raise prices, cut employees and reduce advertising? Are Walmart's customers willing to wait in long lines at checkout and pay more to pad Walmart's bottom line? NO. They would just go somewhere else. So why does the board of directors at First Niagara bank think that customers are willing to pay higher fees and wait in longer lines at the bank and that they are willing to spend more time on hold on the phone. This is what is happening. Teller positions are being cut and telephone customer service is being cut to reduce expenses. Advertising has been virtually eliminated and fees and minimum deposits have been increased. Branches are closing. All in the hope that profits will increase.
But what is happening is that customers are just going to other banks. Banks without lines. Banks with enough employees to deal with customers and banks where they can talk to someone on the phone. Banks with lower fees. There are plenty of them out there, so why bank at First Niagara. First Niagara has been losing deposits faster than nearly any bank in the US. The only banks that lose deposits quicker are in Cyprus.
If Walmart want's to increase the bottom line, it LOWERS prices, increases clerks to decrease lines and advertises sales. That is what works for them and nearly every other successful business in America. You can get away with higher prices if you provide exceptional customer service. You can get away with poor customer service if you have low prices. However, higher prices AND poor customer service is a recipe for disaster.
The board of directors of FNFG believe that they can cut expenses by reducing staff to beyond acceptable levels and that they can raise fees and increase minimum deposits to increase profits. It has been having the opposite effect, and deposits are falling and branches are closing. It is time to replace the entire board of directors and get some people who know how to do business.
Advertizing has been cut to nearly zero to conserve capital. Tellers are not being replaced even when needed. More branches to close. Koelmel out because of mounting bad loans purchased from HSBC and inability to retain even 60% of purchased deposits. TBV is below $5, no matter what else anyone says. TBV is $4.50 and FALLING.
TBV is below $5 now. You have always said that it is higher than it really is. When I told you it was $5.25 last year you said it was $9 and that I did not know what I was talking about. Which one of us was correct?
I spoke to my source at KBW about FNFG yesterday, and here is what they think of the bank. They told me that KBW calculates TBV of FNFG at well below $5 now. The bank is still reporting it to be higher, but analyst do not accept the banks numbers. Also, the advertising budget of FNFG has been cut drastically, because there is no money left to advertise with. You won't be seeing ads for the bank like you previously may have. The dividend is not safe, and in KBWs view, should be eliminated to conserve capital. The dividend is being paid out from cash that the bank just does not have. The money from the dividend could be put to much better use by using the cash to buy back the preferred shares and to pay down some of the massive high interest debt. The shareholders would benefit much more from this than getting the dividend.
The bank has also been agressively going after commercial loans, and in KBWs opinion has given out way too many very risky ones in an attemp to boost earnings. KBW sees many of these loans going bad very quickly and at great expense . Also, First Niagara has gone on an initiative to weed out unprofitable customers. Not just smaller customers but high asset customers that the bank does not make enough money off of- mostly because the bank does not have the correct products to offer these customers. The bank feels that it is best to "push" these customers out and to another bank. KBW feels that the bank should look for ways and products that they can offer these customers that the bank can make money on.
Overall, KBW thinks if you short FNFG, you should be fine.