WHAT A WEEK it’s been. The rather shocking departure of Anshu Jain and Juergen Fitschen from Deutsche Bank definitely won out in the “wow” stakes. And, although it didn’t quite match the Deutsche drama, HSBC’s barrage of announcements – topped by the massive 31% cut in RWAs forced on the global banking and markets division and product cuts across the board – was also up there.
The exit of Jain and Fitschen means that four bank CEOs are right now walking at the same time towards their next adventures, with the two joining Credit Suisse’s Brady Dougan and Standard Chartered’s Peter Sands, who both step down from their positions this month.
The circus just never ends and I don’t see the perpetual-motion strategic sausage machine ever running out of gas as strategies are drawn up, reviewed, altered, nuanced and tweaked. You just know that by the time banks get to the tweak stage, the underlying conditions that gave rise to the first version have probably changed – or more to the point the CEO has changed – necessitating yet more reviews and iterations. You get the picture …
We’re in for some rare fun over the next few months as Deutsche Bank’s new shotgun CEO John Cryan and Credit Suisse’s new boss Tidjane Thiam step into their roles with broadly the same set of problems to solve, and they trade actions and statements of intent. The step-by-step comparisons will be simply mouth-watering. Will we be witnessing a race to see who can gut their investment banks quickest? That’s certainly what the playbooks suggest.
Trading top-line revenue growth for profitability demands a different way of looking at the world
IF ONE THING has surprised me amid so much transformational change, it’s how long it’s taking senior management to get the joke and take decisive action around the need to shift from a revenue-generation model to a profitability model geared around a smaller set of clients that best fits their service models, and a slimmer set of products sold into a reduced set of locations.
Trading top-line revenue growth for profitability demands a different way of looking at the world and one that’s not easy to switch to. Banks have certainly developed and applied sophisticated management information tools to the task, but this is not remotely a mechanistic process; it demands a change in mentality as well as strong and sustained leadership.
The scale of the problems may vary at different banks but the core of the issue is essentially the same at pretty much all banks that have been forced into change mode. Whether it’s RBS, UBS, Barclays and Morgan Stanley, which set out to deal with the issues earlier, or Credit Suisse, HSBC and Deutsche Bank now, the crux of the changes required is exiting the capital-intensive parts (mainly) of the hugely bloated FICC businesses all major investment banks ended up with when the global financial crisis hit, particularly long-dated and structured products. And re-allocating to higher-returning core businesses.
Yet we have this continuing stream of banks reaching broadly the same set of conclusions over a pretty elongated period. How little they seem to learn from each other. So what next?
A LOT WAS made of John Cryan’s background as a FIG advisory banker – in fact I had initially written that his appointment speaks more about the kind of strategic thinking people like him bring to the table if banks have any chance of navigating this fraught and convoluted period of industry restructuring and strategic re-calibration.
But with the benefit of some reflection, I’m actually not sure Cryan’s background will have any bearing on the outcome, or on how the problems the bank is confronting are articulated. On the face of it, it isn’t that complicated. But nor is the executing on a solution easy – the combined talents of Jain, Fitschen and the management board couldn’t crack it even after they’d realised they’d initially got it wrong.
But if the strategy that was signed off by the supervisory board a matter of a few weeks ago was wonky, I don’t see Cryan going back to the drawing board. The supervisory board won’t have the stomach for another round. Neither is that precious commodity – time – on their side. They certainly won’t go for Jain’s preferred option of building a monoline investment bank. The range of options is limited and however long you ponder the issues, you end up coming back to the elephant in the room: the need to massively cut FICC RWAs.
Ditto HSBC. Samir Assaf has been given a US$140bn task to get GB&M RWAs to below a third of the group total, along with a 2.5% RoRWA target for his client-facing businesses that will require mid-single-digit growth in revenues. He also has to keep his costs flat at the same time as eating US$1bn-plus of inflation and investment growth cost increases.
I’ve always believed that HSBC’s commitment to full-service investment banking has been lukewarm. Its interest in this business over the cycles and the decades has waxed and waned. In the next part of the cycle, it’s definitely waning as the group’s geographical skew favours Asia and its directional product skew favours commercial and corporate banking.
Case in point: payments and cash management, trade and receivables finance and project finance advisory will be maintained on a global basis; Hong Kong gets to keep a pretty full suite of IB and global markets products, while other regions get to play with a smaller set. The long-dated rates and loan books in all regions will be exited, and other than in Asia, M&A and ECM will be “optimised” – a slightly sinister word that suggests no new investment. Ditto EMEA and Americas rates and equities.
Expect similar levels of detail from DB soon as Cryan looks to make his mark. Welcome to the rat race.
