© 2003 Corporate Executive Board

Serra Bank 61

Practice #3

Business Finance Advisors

Institution Profiled: Serra Bank*

• Europe
• Business Banking Assets: Between 10 and 20 billion €
• Business Banking Liabilities: Between 10 and 20 billion €

Situation
Hoping to improve its penetration of the business credit market, Serra Bank finds that
specialized finance offers the most significant growth potential. However, the demands of
specialized lending make it problematic to deliver through the traditional credit model.

Action
To leverage the specialized credit opportunity, Serra Bank builds an adjunct business unit
within the business banking team, Business Finance Advisors. To mitigate the potential risks
posed by adding a new competence, Serra: 1) provides the new sales force with direct customer
access; 2) creates an access expert to establish credibility within the intermediary channel;
and 3) distributes a market playbook to the new sales team and the existing relationship
managers to ensure effective execution.

Result
Implementation of the Business Finance Advisors generates new credit outstandings
previously untapped by Serra Bank. Volume is expected to increase by 70 percent in 2003 and
280 percent by 2004. Additionally, while total specialized credit advances account for only 10
percent of total balances, the associated fee-based income generated is equal to that from the
traditional lending advances (which account for 90 percent of the total outstandings).

* Pseudonym.
 © 2003 Corporate Executive Board

62 Capturing an Unfair Share

 © 2003 Corporate Executive Board

Serra Bank 63

Situation and Complication

Serra Bank hoped to expand its potential market by offering specialized financing but
questioned whether the reward would be worth the risk. The need for a new approach to
the specialty segment was urgent: Serra’s historical attempts to meet the sophisticated credit
demands of a customer utilized a painfully slow process that often resulted in a poorly
structured deal.

Especially Hard
SME Credit Product Market Risk and Reward Matrix
By Type of Credit Specialized Lending
High
Specialized
25% Lending?
Specialized
Lending
75% Reward
Traditional
Lending Low

Low Risk High

Case in Point: Not a Chance

Harden Industries notifies its Serra Bank relationship manager of its opportunity to purchase a competitor
Situation business; Harden gives Serra three days to respond with an offer
Situation

Serra Bank relationship manager gathers relevant information and works to underwrite and structure the deal

Day
Day11 Day
Day22 Day
Day33 Day
Day44 Day
Day55 Day 15
Action
Action

Still Waiting
Review Data Perform Analysis Structure Deal for Decision

Day
Day11 Day
Day22 Day
Day33 Day
Day44
I need at
PBA
Day 3 Competitor Serra Bank least another
Result
Result Accounting week
Proposal
Proposal
Harden Industries Harden Industries Harden Industries accepts
calls its accountant to contacts provider Finance
Finance specialty credit provider’s
Serra Bank
get an opinion on the recommended by Specialist
Specialist deal and makes bid to buy
Relationship Manager
pending purchase accountant the company

Source: Serra Bank; Business Banking Board research.

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64 Capturing an Unfair Share

Practice Overview
Already concerned about assuming additional credit risk, Serra structured the initiative to
minimize the implementation risk. It eliminated options with the greatest downside—creating
a stand-alone subsidiary and reorganizing the existing organizational structure—and instead
created a unique brand within the existing business bank that would enable substantial growth
in a new segment without jeopardizing the existing business.

A Clear Choice
Growth Opportunity Structure Risk and Reward Matrix

High
Create a unique brand Create a stand-alone subsidiary
within the line of business
Business
BusinessBanking
Banking Specialty
SpecialtyLending
Lending
Business
BusinessBanking
Banking Subsidiary
Subsidiary
Relationship
Relationship Business
BusinessFinance
Finance
Managers
Managers Advisors
Advisors
Relationship
Relationship Credit
CreditSpecialists
Specialists
Managers
Managers
New Real Structured Professional
Ventures Estate Finance Sector

Major Risk: None Major Risk: High Start-Up Costs

Potential
Reward
Train relationship managers Segment existing customers
to underwrite specialized credits to create new line of business

Small Middle
Business Market
Segment Segment

Speciality Lending Segment

Major Risk: Relationship Managers Major Risk: Potential Customer

Lack Capacity Migration Problems
Low
Low High
Implementation Risk

Our Mission
“To create a focused business banking unit to target selective growth in
lending and other products to higher-risk and emerging markets.”
Head of Business Finance Advisors

Source: Serra Bank; Business Banking Board research.

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Serra Bank 65

Serra realized that even its low-risk option would require significant effort to create
organizational comfort with the new operating risks. Serra Bank identified three key business
risks associated with the growth initiative and designed an operating strategy that would
ensure the management of those risks and generate the desired economic and business
outcomes.

No Pain, No Gain
Business Finance Advisors
Business Risks, Components, and Results

Risk Component Result

Relationship Relationship Relationship

Major Business managers lack the managers managers feel
Risk credibility required lack access to threatened
to deliver specialized customers’ by internal
solutions complex needs competition

Critical Strategy Factory- Goal-

Component Direct Access Driven
Solution Experts Market
Fulfillment Playbook

Solutions One-third of
High margin
generate volume generated
credits
Result significant comes through rel-
approved and
year-one ationship manager
drawn-down
contribution referrals

Our Reputation at Risk

“Once we committed to the market that we could and would deliver specialty financing
solutions, we had to be able to make it happen. Our reputation was truly on the line.”
Director of Strategy

Source: Serra Bank; Business Banking Board research.

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66 Capturing an Unfair Share

Component #1: Factory-Direct Solution Fulfillment

Serra Bank staffs its new unit with highly skilled credit experts and allows them to have
direct customer contact without the relationship manager as a go-between. The combination
of unique talent and personal involvement creates several benefits: customers experience a
responsive credit process and the new unit quickly establishes credibility in the market and
within the institution.

Straight from the Source

Business Banking Structure and Customer Access Diagram

Business
BusinessBanking
Banking

Relationship
Business Managers
Finance Advisors Business FinanceManagers
Relationship Advisors
600 FTEs
600 FTE 3030FTEs
FTE
Business
Business Finance
Finance
Advisors
Advisors Attributes
Attributes
Traditional Credit Specialized Credit Background
Background
Solutions Solutions
•• Graduate
Graduate degrees
degrees
•• Professional
Professional certifi
certifications
cations (e.g., accountants,
(i.e. accountants,
lawyers,
lawyers, certifi
certified
ed fifinancial
nancial planners)
planners)
•• Business
Business experience
experience (e.g., CFOs, risk managers)
(i.e. CFO’s,
Position/Rank
Position/Rank
A = Senior Management
Kemper Inc. B = Middle Management
C = Managers

100% A 5% 100%
B 10% A 20%

B 30%
C 85%
Halo Effect
C
50%
“By allowing the Business Finance Advisors
to go directly to the customer, we are Relationship Business Finance
experiencing an increase in our traditional Managers Advisors
lending as well. If the customer does not Credit
Credit Process
Process
need a specialized solution, they are so
impressed with our capabilities that they PP No
No individual
individual credit
credit authority
authority for
for advisors
advisors
select us for their traditional credit needs.” PP Specialty
Specialty deals
deals are
are given
given priority
priority over
over
traditional
traditional deals
deals inin the
the decisioning
decisioning queue
queue
Director of Strategy PP Conditional
Conditional approvals can be
approvals can be given
given within
within two
two
days of request
days of request

Source: Serra Bank; Business Banking Board research.

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Serra Bank 67

The need for the personal involvement of specialized experts is driven by the distinct nature of
the deals. The typical solution is larger, more complex, more urgent, and more lucrative than
Serra’s traditional products.

Tale of Two Credits

Prospect: Kemper Inc.

Solution
Solution#1
#1 Solution Attributes Solution
Solution#2
#2
Working Capital Line of Credit Management Buy-Out

Revenues are seasonal; business needs help Company looking to reduce lines of business from
meeting cash demands during off months Situation
Situation ten to eight; key managers hope to purchase the
businesses from the company

Moderate-to-Low Urgency
Urgency High

€100,000 Deal
DealSize
Size €1,000,000

Basic Terms
Termsand
and Complex
Conditions
Conditions

75% Loan-To-Value
Loan-To-Value 85%+

0.1% Fees
Fees 1.0%

Solution Fulfillment
Working Capital Line of Credit Management Buy-Out

Relationship Manager Leveraged Finance Expert

6 Days: Approval Decision
Decision Turnaround
Turnaround 2 Days: Conditional Approval

Source: Serra Bank; Business Banking Board research.

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68 Capturing an Unfair Share

Component #2: Access Experts

Under no illusion that the mere existence of new talent would bring about new business, Serra
assigns “access experts” to identify sources of specialized credit deals. Serra realizes dual value
from the professionals sector, a logical starting point, since each relationship served as both a
personal client and an intermediary for the specialty business.

An in to Win
Business Finance Advisors Structure and Access Expert Key Responsibilities

Business
Business Finance
Finance
Advisors
Advisors

Intermediary
Intermediaryand
and Structured
Structured
Real
Real Estate
Estate New
New Ventures
Ventures Professional
ProfessionalSector
Sector Finance
Finance

Access
AccessExpert
Expert Access
AccessExpert
Expert Access
AccessExpert
Expert

Professional Sector Clients

Personal Clients
P Private Banking
Opportunities Intermediaries
P Access to client
businesses

Access Expert Key Responsibilities

P Develop products to attract intermediaries
P Attract a broad range of professionals (e.g., architects, accountants, lawyers)
P Perform focus groups to gather market intelligence
P Develop strong branding and public relations within the sector

Source: Serra Bank; Business Banking Board research.

 © 2003 Corporate Executive Board

Serra Bank 69

The chasm between bank process and customer needs fulfillment presents challenges even
with traditional products, so the access experts are essential to closing that gap. They establish
credibility with intermediaries to earn access to leads and are instrumental in ensuring that
customer needs are handled by an appropriate Business Finance Advisor.

Bring It On
Intermediary Channel Referral Process
Serra Bank Perspective
Serra’s access experts
use a rigorous approach
to prove value first to Critical Acquisition Process Step
referral sources

1 3 5

Establish Credibility Get Leads from Close

with Intermediary
ACCESS Intermediary Deals

Identify Intermediary Pool Accept Lead Craft Solutions

Segment Pool Credibility Refer to Close Sale/Acquire

provides Serra Appropriate Prospect
with access Business Finance
Create High-Impact Presentations to customer Advisor
needs and earns
Ask for Trial Run them a spot
as a provider
contender

Needs Fulfillment Process

Customer Perspective

2 4 6

Feel Diagnose Identify Solutions Evaluate Implement

Pain Problem and Providers Options Solutions

Source: Serra Bank; Business Banking Board research.

 © 2003 Corporate Executive Board

70 Capturing an Unfair Share

Component #3: Goal-Driven Market Playbook

Given a business finance advisor’s access to the customer, it comes as no surprise that the
relationship managers might view them as a potential threat to their livelihood. Serra Bank
developed and relies on a market playbook that outlines roles, responsibilities, and income
allocation for relationship managers and business finance advisors to minimize the likelihood
of internal friction.

Playing by the Rules

Market Playbook

Market
Playbook

Business Finance Advisors

Relationship Managers

Page 5
2002 Business Finance Advisor/Relationship
Role Matrix Manager

Role Matrix

Goal Increase share Develop share of Develop share of

of wallet traditional credit specialty credit
market market

Market Share Existing Existing Non-Serra Bank

Customers Customers Customers

Primary Relationship Relationship Business Finance

Responsibility Manager Manager Advisor

Business Support Where Book new business

Finance relationship appropriate: through:
Advisor Role managers • Meet with • Identification of
through: relationship targets
• Advice on manager • Completion of
valuations, customers credit write-up
deal structure • Book complex and obtaining
• Industry and higher-risk approval
expertise deals • Management
• Training on • Agree on of all customer
industry, apportionment interaction
credit of income for • Booking of income
approach each deal • Involving
relationship
manager where
appropriate

Source: Serra Bank; Business Banking Board research.

 © 2003 Corporate Executive Board

Serra Bank 71

Results
Desperate for growth and refusing to be scared off by conventional thinking, Serra Bank
successfully entered a new business by identifying the incremental business risks and
managing them rigorously. In the process, they created a significant new revenue stream that
strengthened, instead of threatened, the traditional relationship manager.

All Together Better

Serra’s efforts paid off by boosting new credit outstandings...
Specialized Credit Advances Booked
By Channel, 2002–2004(E)
280 Business Finance
Advisors Direct
Business Finance
CAGR = 68% Advisors Indirect*
112
170

85
100
168
70
85
30
2002 2003(E) 2004(E)

Specialized New Credit Outstandings (Indexed to 100)

...and generating substantial incremental fee income

2002 Total New Credit Outstandings and Fee Income
All Channels, All Types of Credit
100% 100%

50%
Relationship
90%
Managers

50%
Business Finance
Advisors 10%

Total Credit Total Credit-Related

Outstandings Fee Income
* Indirect deals are those deals sourced by an RM Source: Serra Bank; Business Banking Board research.
but supported by the Business Finance Advisor.
 © 2003 Corporate Executive Board

72 Capturing an Unfair Share