Think about the critical themes at play in banking today. They’re to do with the incorporation of apps and new technologies such as artificial intelligence and distributed ledger technology; they’re to do with product and service digitisation and automation; with the emergence of digital and crypto-currencies. And with cyber-security; anti-money laundering; combatting the financing of terrorism; and environmental, social and governance (ESG) factors.
What is striking is that none of them are actually about banking. Quite the contrary. To deal successfully with all of these issues and make them integral parts of 21st century operating models and business strategies demands a different set of skills and a wholly different mind-set.
Technology is now the dominant driver across a suite of financial products, be it in the increasing use of retail and consumer lending algorithms; robo-advice in wealth management; or automation in bond and equity trading and in payments. What are the principal motivations behind consolidation in the banking sector? Sure, growing market share and taking out costs are up there. But a key enabler of both of those is deriving scale and creating big enough budgets to invest in technology. That is a key reason pushing second-tier banks to seek mergers in Europe.
Beyond the specific themes above, many in the analyst community are supporting a brand-new notion of banks as tech utilities earning low returns with an aversion to risk. Indeed, central banks and governments have forced banks into this utility function, using their networks to distribute funds released through Covid fiscal and monetary support packages to ensure they get to end-users.
Banks in Europe have been banned from paying dividends or engaging in share buybacks to keep capital in the system while central banks have done everything they can, short of a direct order, to make sure banks keep the credit taps open to ensure economies are adequately financed. Governments are viewing banks as policy-driven money conduits in charge of maintaining the plumbing and less as free agents operating private stand-alone businesses. This makes it even less critical to have bankers at the helm.
Yet banks have either been slow to or have refused to recognise this vital sector sea change in the executive boardroom. As such, they look wrong-footed and ill-equipped to handle the challenges this new world is throwing out. Taking all of this into account and factoring in the chances that it is unlikely to be a short-run blip, the need for an army of career bankers in charge looks rather ludicrous.
Had this past year not taken the world so much by surprise and been dominated by rapid-fire actions to combat Covid-19, it would in retrospect have been the perfect year for banks to have re-thought their raison d’être and altered their succession strategies. After all, the use of e-commerce and digital banking accelerated but didn’t start in 2020. It certainly won’t go back to how it was before. Meanwhile, ESG has dramatically moved up the agenda this year and will stay there.
But in a year of big change at the top of banks in Europe and elsewhere, no bank has had the courage to signal how the banking industry has changed. Career bankers have taken top slots as they’ve become available.
That means Charlie Nunn, CEO of wealth and personal banking at HSBC, who is set to take over as CEO of Lloyds Banking Group as Lloyds boss Antonio Horta-Osório moves to take over the chairmanship of Credit Suisse from Urs Röhner.
We had Noel Quinn taking the reins of HSBC earlier in 2020 from John Flint; Steven van Rijswijk, ING’s chief risk officer, promoted to CEO following Ralph Hamers departure to take over from Sergio Ermotti as CEO of UBS. And we had Thomas Gottstein being appointed CEO of Credit Suisse after Tidjane Thiam was fired over that disgraceful spying scandal. And if, as is likely, Jean-Pierre Mustier (who quit as CEO of UniCredit in December) ends up running a large European bank, that’ll make a clean sweep.
Not only is this a lost opportunity, there are huge issues of governance in some of the appointments. Not for one second to cast aspersions on any individual here, but if senior executives allow serious governance or other breaches on their watch, shouldn’t that disqualify them from continuing at the top of the industry if the industry takes good governance to its rightful conclusion?
Think about it. Lloyds was heavily involved in the multi-billion pound Payment Protection Insurance mis-selling scandal that engulfed a host of UK financial institutions over a period of many years and has seen the banks pay out 38 billion pounds sterling in compensation to date. Executives at the impaired assets unit of HBOS (which Lloyds acquired in 2009) were handed prison sentences for the utterly disgraceful serial fraud they perpetrated on small businesses in the UK.
Yet Horta-Osório leaves unscathed and jumps from London to Zurich to chair Credit Suisse, a bank that has been shaken by a spying scandal that led to the firing of former CEO Tidjane Thiam and which outgoing chairman Urs Röhner said had damaged the reputation of Swiss banking. Röhner had previously said he would step down in 2021 in the wake of the scandal. But his decision was inglorious, to say the least, since he had tried valiantly behind the scenes to garner shareholder support to stay on.
Then we have Ralph Hamers, CEO of UBS since November 2020, facing a criminal investigation into his role while he was chief executive of ING relating to the bank’s failure to prevent money laundering that took place over years at the Dutch bank and led to a 775-million-euro settlement in 2018. At the time, Hamers had stayed in his role while letting chief financial officer Koos Timmermans take the walk of shame and resign.
And Chris Vogelzang took over as CEO of Danske Bank in 2019 – the bank that processed 200 billion euros of funny money in one of the world’s largest-ever money-laundering scandals. In the same year as he was appointed to run the Danish bank, the Dutch public prosecutor initiated an investigation into ABN AMRO relating to the prevention of money laundering and financing of terrorism. Vogelzang previously spent 17 years at ABN AMRO.
Two conclusions here:
1) Banks need to stop automatically appointing career bankers from a very small pool into top jobs if they are to draw maximum benefit from the fundamental challenges confronting the industry.
2) Banks talk the talk of governance, but they do not follow through on the tough decisions demanded to walk that talk.