Cross-selling is one of those abstract consultant-speak terms that sounds mind-numbingly dull until you find out what it really entails.
Wells Fargo (WFC) was fined $185 million this month after regulators said the San Francisco-based lender put such intense internal pressure on employees to meet internal cross-selling targets that they opened more than 2 million credit-card, banking and other accounts that may not have been authorized by customers. The bank's goal, according to analysts and bank documents, was to sell as many as eight products to everyone who walked into a branch.
But cross-selling doesn't just happen at Wells Fargo, and it's not just in retail banking; Wall Street's investment banks do it all the time.
As new regulations and low interest rates squeeze lenders' profit margins, Bank of America (BAC) and Citigroup (C) are increasingly touting their cross-selling success as a way to generate maximum fees from corporate clients. Executives refer to it as "maximizing wallet share" -- another consultant-speak term that involves selling any given customer fee-rich derivatives, mergers advice, foreign exchange and stock offerings alongside loans, credit lines and corporate cash management.
"Successful investment banks will use client profitability and other data to analyze multi-product client relationships and promote cross-selling," consultants at Ernst & Young wrote in a 2016 report.
It's theoretically a good business strategy for the banks, but when taken to the extreme, it can lead to abuses from stifling competition to short-changing clients, according to regulators and academics.
The U.K. Financial Conduct Authority said in an April report that many investment banks provide below-market loans to companies as a loss-leader, in the expectation that mandates will follow for mergers advice and stock and bond offerings. The arrangements stifle competition, because independent advisers without big lending operations get shut out, the authority found.
Earlier this month, a group of investors filed an amended suit against JPMorgan Chase (JPM) claiming that investment bankers in 2015 guided mobile-security software maker Good Technology toward an acquisition by Blackberry, at least partly because the merger fees would be higher than those from an initial public offering.
"They are conflicted by the nature of their jobs," said William Wilhelm, a professor at the University of Virginia who specializes in investment banking. "It's very easy for things to go awry."
According to a 1999 book by banking historian and former New York University Professor David Rogers, investment banks started pushing cross-selling decades ago. At the time, investment bankers were loath to work with colleagues from other parts of their firms, Rogers wrote.
"Investment bankers are prima donnas," one senior banker told Rogers.
By 2011, as stricter banking rules emerged following the financial crisis, the management consultant McKinsey was urging investment bankers to go all-out in cross-selling efforts.
"Because of the difficulty of attracting new business, most banks now need to establish `stock-x-selling' routines, in which they review their current business with a customer and identify opportunities to present additional products or change existing products (for example, foreign exchange and interest-rate hedges)," a report from the firm read.
Just last week, Bank of America investment-banking chief Christian Meissner described how his firm had achieved a six-fold increase in its fees from a single merger by tacking on loans, bonds, bridge financing and other market-related services.
Since 2013, the Charlotte, N.C.-based lender has increased the number of clients taking at least 10 products by 83%, while those taking only one product have fallen by 7%, according to Meissner.
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"We're shifting as much as we possibly can to really being able to service all of the financial needs of our clients, everything from treasury to advice, to underwriting and distribution, to providing capital, and to do this on a global basis across all products," Meissner told investors at a banking conference in New York.
It sounded a lot like the strategy Citigroup CFO John Gerspach outlined at the same conference. His New York-based firm is "focused on gaining wallet share," he said.
"Our strategy starts with our target clients, the world's largest multinational corporations and investors, who truly value our global franchise," Gerspach said. "Our goal is to deepen these existing relationships, serving our clients' needs with more products and more markets as they grow and transact around the world."
Sometimes, though, the relationships are worth less than they appear.
Brad Hintz, a former treasurer of consumer-products firm Anderson Clayton (now a part of Pepsico's Quaker Oats), remembers when the company faced a hostile takeover bid in the 1980s. Though JPMorgan, the company's longtime lender, demanded most of the investment-banking business, Anderson Clayton sought advice from other firms, recalled Hintz, who later worked at Morgan Stanley as treasurer, Lehman Brothers as CFO and Sanford C. Bernstein as a bank-stock analyst.
"When we had a big transaction, they may have, in their minds, thought, `You owe it to us,'" Hintz said. "But in our minds, we didn't owe it to them."
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