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ORLANDO, Fla. – Banks are facing a variety of changes and emerging trends that are affecting the way they deal with their customers and determining new markets they pursue. Richard Hartnack, vice chairman, head of consumer banking group for U.S. Bancorp covered a wide range of these issues when he spoke to attendees at the BAI Retail Delivery Conference opening general session. Hartnack’s menu ranged from consolidations and acquisitions, to gaining market share, to credit unions converting to mutual thrifts. When it comes to dealing with credit unions, the U.S. Bancorp executive offered two predictives – “be careful what you wish for,” and “you’ll reap what you sow.” “Credit unions have hit a responsive core with a key part of the market, they’ve become an important part of the industry,” said Hartnack. “They’ve developed into a very large and important part of the financial services industry,” he continued. “The question is whether there is something unique about credit unions that would keep them from converting to stock companies.” Hartnack’s answer to that was `no,’ and he predicted that banks “will start to see credit unions converting to stock companies and giving shareholders the value they deserve.” He also forecast there will continue to be occasional mergers between large banks, but the more common consolidations will be between large banks and small community banks. “The old business models have drifted apart,” said Hartnack who added that the market will see a lot of regional players consolidating. “It’s economically inevitable,” he said, “We’ll see a different consolidation pattern.” Some of Hartnack’s other predictions included: * mortgage lending – “We face a bumpy road and we’ll all deal with the consequences of those lenders who have given products to people who couldn’t afford them.” * commercial lending – banks are experiencing the weakest commercial loan demand for this stage of the country’s economic recovery. That trend is due to lower demand caused by companies moving offshore, and an increase in the number of competitors in the market that has resulted in as loss of market share. To deal with that, he offered, banks have loaded up on mortgages and converted their exposure to the real estate market. “Banks are developing alternative exposures,” said Hartnack. * banks estimate they will lose about 12% of their clients to new financials in the future. To reverse that they will need to differentiate themselves and find ways to bring in new customers. To accomplish that, Hartnack suggested banks have a distribution dominance in their market and have a well-articulated value proposition. “Give them a strong reason for doing business with you,” he advised. “Your mission statement has to be executed perfectly,” said Hartnack. -

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