Every time there’s a new chief executive of a bank, or a round of terrible numbers, the calls come for ever more radical options. Turnaround taking time? New strategy not bearing fruit? Be more radical, and quickly, and if you can’t do it, find someone who can. The public catcalls usually come from academics or journos, but in private, large shareholders are also seeking executives who can think outside the box.
Usually, all that has meant is being willing to close or sell businesses or get rid of staff. So Barclays was supposedly thinking outside the box when it shut its Asian cash equities franchise; Credit Suisse when it wound up its CLO book; and Standard Chartered when it cut deep into the ranks of its managing directors.
That’s not thinking outside the box, that’s a basic principle of corporate finance. All of these banks, and many of their management teams, will have worked with private equity firms plotting corporate restructurings of other companies, and right at the top of the page will be “sell or close the bits we’re not good at”.
Sometimes, true, it does mean changing a bank’s identity. Barclays has morphed from global to transatlantic in the course of its restructure, and dropped Africa along the way. With a punchy African presence a big part of the bank’s history, that did indeed require a fresh look at the whole franchise.
But the difficult part is not deciding what to cut, it’s executing the cuts. It’s very much inside the box thinking — how to achieve the best price for an asset sale, how to motivate staff through a time of turmoil, how to retain client loyalty while cutting balance sheet.
“Radical thinking” seems to involve setting ever more ambitious targets for balance sheet reshaping. But the biggest benefits come from the very unradical, methodical review of all the assets a bank holds and how to extract greatest return from them.
That requires a long, hard grind from middle management — nipping here, tucking there, motivating, reassuring, and carrying on pushing. It’s less glamorous than the wave of a hand from the C-suite, but continuing to do the basics right is more important.
When Matthew Westerman joined HSBC as co-head of banking, it suffused the UK lender with a touch of Goldman magic — and a sense that this time it really could make a play for the investment banking big league. But it turns out there’s nothing special about having worked at Goldman.
What Westerman has reportedly brought to HSBC’s banking businesses is a disregard for politics and previous loyalties, and an excellent grasp of the detail of who is bringing in what business, from where, and how. Yes, the banking division has been thoroughly reorganised under his tenure, but it’s making sure the basics of banking are done the best they can be that will give the bank its best shot at breaking the bulge bracket.
The shape of the industry in the medium term isn’t much of a mystery anymore. Markets divisions will be more electronic, sales will be lower touch, client entertainment will be a shadow of its former self, and risk limits will be tighter. Primary markets will be closer to the driving seat, especially in debt, and more and more corporates of smaller and smaller size will take the bond market plunge.
But having a basic sense of the direction the market’s headed in doesn’t mean everything is under control. Doing the detailed work of figuring out exactly how your electronic platform can be more useful than the other 70 offerings on the market, or which white-labelled offering to buy is the hard part — much harder and more worthwhile than any number of airy 'bank of tomorrow' initiatives.
The importance of execution should inform how the market reads Jes Staley’s latest appointment at Barclays — Tim Throsby taking over as head of its corporate and international bank, bringing the total number of ex-JP Morgan senior executives now at Barclays to a magnificent seven.
Though Staley has surrounded himself with his ex-colleagues, that doesn’t mean that Barclays plans to be a mini Morgan. It simply means that when it comes to the long slog of executing on a turnaround, having good, trusted people running the show is essential.