Facing low interest rates, deleveraging, recurring scandals and increasing capital requirements, banks have struggled in recent years. The prospects for many of them are no better going forward. Where once, a score of institutions aspired to be globe spanning, universal banks, the ambitions of many would-be financial titans, have been tempered by crisis and overreach.
I talked to Marc Luet, Chief Executive Officer of Citi’s Consumer business for the EMEA region. We discussed the impact of technology on retail banking, the future of the Universal bank and most importantly the “re-coupling” of retail banking conditions between emerging and developed markets.
Interviewer:
I think it’s quite fascinating how you’re managing operations for Citi both in Europe, which many people see as quite an old sclerotic market, plagued with debt and problems and perhaps a bit of resistance to innovation. But then it sweeps across the Middle East and Africa, where you have economies which are growing very rapidly and new consumers which are open to new ideas and new innovations. From your perspective, are these differences being reflected in the retail banking industry? And what are the key differences you’re seeing between these regions?
Excerpt from SunGard-EIU research on volatility in financial services
The EIU, on behalf of SunGard, conducted a global survey of more than 500 senior executives from the financial-services sector and the finance division of non-financial corporations to assess the impact of volatility risk on firms and their ability to cope with it.
The financial services and energy industries have much in common. They are both capital-intensive, involve huge risks and complex regulation, and the rewards for those who get it right are often mind-boggling. But if they get it wrong, it is more than just the companies, their bosses and their investors who suffer. Quite often, innocent bystanders such as consumers and tax payers also have to bear the brunt of the follies of a few. For every Lehman Brothers in finance, you can almost always find a Deepwater Horizon oil spill in energy.
Given the similarities between the two industries, we decided to survey C-level executives from both industries to find out what accountability means to them. Comparisons between the two sets of responses provide some eye-opening insights.
The Royal Bank of Scotland is 82% owned by the UK government after it received bailout funding of £45.5bn (US$71.9bn) in 2008 in the wake of declaring the largest annual loss in British corporate history (£24.1bn). How does state ownership affect the accountability of the bank’s top executives?
WANTED: Chief Executive Officer for Major Financial Institution. REQUIREMENTS: Honesty, integrity, a backbone. LOCATIONS: The Western World (predominantly areas of Anglo-Saxon heritage). BONUSES: Subject to negotiation with an irate public.
Question: What do you call a rogue trader that hasn’t been caught?
Answer: Managing director
In January 2008, Société Générale lost billions due to an alleged rogue trader named Jérôme Kerviel. During my time working at the Federal Reserve, I was part of a team sent to SocGen to investigate. (Very interesting times in retrospect.)
60-second primer on risk management
As a brief primer on risk management: every trader is given limits to which they must adhere. For example, they have limits on how much they can lose each day. They have limits on how much VaR (value at risk) they can have. Depending on the asset they are trading, they’ll have more product-specific limits—such as delta (ie, the sensitivity of an option to price changes in the underlying security), CS01s (ie, what happens when credit spreads widen 1bp), etc.
The euro zone gets a bad press these days. But are the doomsayers right? Not entirely, if the views of some of the money men who spoke on a panel discussion I chaired at The Economist's Bellwether conference in London is anything to go by.
Peter Smith, the Financial Services Authority’s head of investment policy, is the latest high profile departure from the regulator. He will leave in June, along with chief executive Hector Sants, who announced his departure in March - when managing director Margaret Cole left the regulator. They join Katharine Leaman, manager of the FSA's professional standards policy team, Sally Dewar, managing director of risk and board member, Jon Pain, head of supervision, and Dan Waters, director of conduct risk and asset management sector leader and previously head of retail policy, who all left in 2011.
