McKinsey's study of the S&P 1500 companies that found a 1% improvement in pricing would generate an 8% improvement in operating profits is something that we love to share. What we hear more often is how banks are focused on cutting costs. Cost cutting is seemingly always the first club out of the bag, but why?
If your bank has a commercial loan portfolio of $500 million, a 1% improvement in pricing translats to 4 basis points, which is $200k per year on that portfolio. A commercial loan book usually turns over quickly, meaning you can get to those results faster than in banking than other industries. For this fictional bank, it would take less than 20 months to hit that number.
In this episode Dallas Wells and Al Pacino talk about the game of inches, and why it's those inches that make all the difference.
