a1429When three big banks announce new strategic approaches within three weeks, it highlights how similar the aspirations of investment bank bosses have become.
The litany of language used by Credit Suisse, Deutsche Bank and now Standard Chartered is heavy on profits, not on revenue growth. The banks want clients who pay, not clients that might pay, or clients that once paid, and they will cut off those who are not profitable to bank.
All three banks promise to unwind trades and sell assets where capital consumption is too high, where legacy assets are too risky, or where they are “non-core” (whatever that means).
Similarly, all three want to switch some of that spare cash into things they are good at. Equities, equity derivatives and leveraged finance at Credit Suisse, more corporate finance at Deutsche, and more Chinese investment banking at StanChart.
That’s all well and good. Listed companies ought to be focused on profit, maybe even funnelling some of it back to shareholders (rather than asking said shareholders for money to flow the other way).
But it’s not convincing as a restructuring, because the root problem of investment banks is that they are fiendishly hard to manage, by culture, design and tradition.
A chief executive might say that they want to cut low returning loans, but all those loans are out to clients. Clients who have coverage bankers and product guys who will all swear solemnly that their client is important, deserving of the bank’s attention and are just about to launch a huge, debt-financed strategic acquisition.
Of course, the chief executive, their consultants and operating officers can call them out on it. Revenue tables can be produced, capital constraints quantified, wallet share figures brandished disapprovingly. But actually pulling the plug on lending or on business lines requires real determination. It requires the actual willingness to turn away business, and constant tight discipline on costs and cooperation.
Even if bulge bracket European banks are having a tough time, there are always institutions in the second tier willing to splash cash to win business. Landesbanks before the crisis, Japanese banks forever, commercial houses wanting to make a run in investment banking —if you don’t lend, somebody else will.
Which is why it’s reassuring when banks spell out what they are willing to cut, rather than just offering numerical targets.
If a bank says, as Credit Suisse did two weeks ago, that it will shut its European primary dealerships, then it commits to the course. Clients and their relationship managers know the score; there is no retreat, no argument, no bending of the rules.
On Tuesday though, Standard Chartered offered no such details. It will slash assets from peripheral businesses, and has done some already, such as convertible bonds and equity derivatives. But the only cuts it named in its presentation were to correspondent banking and SME lending in the United Arab Emirates, and a restructure of its Korean business. More specifically, it will “turn around Korea performance, but keep options open”. One can only wonder what the obstacle to doing so before was beforehand, especially if the turnaround doesn’t commit StanChart to any special course.
It promised a “fundamental overhaul” of its commercial bank, but other than a colour-coded grid of countries, said little about what would change. It will use less balance sheet and take some clients from the investment bank. But the fundamental part? Anyone’s guess.
The rest of the presentation also went long on vague generalities. One of Standard Chartered’s “strategic priorities” was to “focus on priority clients”. When you strip out the redundant or meaningless words, you’re just left with “clients”.
Management speech is an easy target for mockery, but there’s a real lack of detail in Standard Chartered’s new plan. It wants shareholders to come up with another £3.3bn to help it prepare for the future, but it won’t tell them what it will spend the money on.