New broom

Can a new gen­er­a­tion of ex­ec­u­tives re­vive the bank­ing sec­tor?

The Daily Telegraph - Business - - Front Page -

Run­ning a busi­ness be­set by scan­dal, cost cuts and in­tense pub­lic scru­tiny does not make for a very ap­peal­ing job ad­vert. But some of the big­gest roles in UK bank­ing are up for grabs, and the new gen­er­a­tion of bank bosses must find ways to re­vive the sec­tor while deal­ing with the af­ter­math of Covid-19.

These will not be easy jobs. Lloyds boss An­tónio Horta-Osório, who an­nounced a week ago that he would be out by next sum­mer, had to take time off for stress-in­duced insomnia shortly af­ter tak­ing on the role in 2011 and dur­ing his decade-long ten­ure faced mul­ti­ple challenges. The 56-year-old, who has swum with sharks over 100 times and be­came a tabloid tar­get in 2016 fol­low­ing an al­leged af­fair with Tony Blair’s for­mer ad­viser, suc­cess­fully steered the bailed-out bank back into pri­vate hands, faced var­i­ous grillings by MPs and had to nav­i­gate a string of costly bank­ing scan­dals which rocked Lloyds’ rep­u­ta­tion. PPI mis-sell­ing alone left it with a vast £20bn bill.

Who­ever re­places him will not be the only new­bie in the in­dus­try. The chief ex­ec­u­tives of ri­val banks HSBC and RBS have also been in the job for less than a year while San­tander UK and Lloyds it­self have both just hired new chair­men. Even the Fi­nan­cial Con­duct Author­ity, which po­lices the in­dus­try, has a new chief ex­ec­u­tive com­ing in while UK Fi­nance, the bank lobby group which has been at the fore­front of the in­dus­try’s re­sponse to the coro­n­avirus pan­demic, is cur­rently look­ing for a new boss. Spec­u­la­tion is also grow­ing about how long Bar­clays chief ex­ec­u­tive Jes Sta­ley, who is be­ing in­ves­ti­gated over his ties to con­victed sex of­fender Jef­frey Ep­stein, will stay in the role. The bank has in­sisted that no search for a suc­ces­sor is un­der way but there have been mul­ti­ple re­ports cit­ing in­sid­ers claim­ing oth­er­wise.

A sim­i­lar chang­ing of the guard has taken place across Europe. The chief ex­ec­u­tive and chair­man of

Ger­many’s Com­merzbank re­signed ear­lier this month fol­low­ing share­holder pres­sure. UBS’s long­stand­ing chief Ser­gio Er­motti is leav­ing the Swiss lender for pas­tures new, while its arch-ri­val Credit Suisse has re­placed its boss Tid­jane Thiam fol­low­ing an ex­plo­sive spying scan­dal at the bank in­volv­ing his neigh­bour. Chal­lenger banks are also shak­ing things up, with scan­dal­hit Metro Bank re­plac­ing both its chief ex­ec­u­tive and chair­man fol­low­ing a ma­jor loans gaffe last year which shone a spot­light on cor­po­rate gov­er­nance con­cerns.

Over a decade af­ter the 2008 fi­nan­cial cri­sis and in the heat of the dis­rup­tion caused by the coro­n­avirus pan­demic, for many the in­dus­try­wide over­haul of lead­ers will lead to a wel­come strat­egy re­think. Nathan Bo­s­tock, the chief ex­ec­u­tive of San­tander UK, says the ex­tra pres­sures of coro­n­avirus have caused all banks and reg­u­la­tors to re­set their plans.

“Ev­ery­body is re­assess­ing their pri­or­i­ties now. This is the big­gest cri­sis for gen­er­a­tions and none of us can just con­tinue with the same list of pri­or­i­ties we had a few months ago – whether we are run­ning busi­nesses or reg­u­lat­ing them,” he says.

“There’s a popular mis­con­cep­tion that banks are al­ways highly in­vestible and have al­most lim­it­less re­sources. But even be­fore the pan­demic, the UK bank­ing sec­tor was un­der sig­nif­i­cant long term pres­sure from a host of di­rec­tions – in­clud­ing the im­pacts of mul­ti­ple reg­u­la­tion – mean­ing there have been fewer in­cen­tives for in­vestors to in­vest in the sec­tor, some­thing we need to work to­gether to re­solve.”

Those new to their seats are up­beat about the fu­ture. Dan Frumkin, who be­came the boss of em­bat­tled Metro Bank in Fe­bru­ary, has spear­headed takeover talks with peer-to-peer lender RateSet­ter and says he be­lieves the bank’s “great ser­vice” will en­able it to “suc­ceed and grow” de­spite its board still grap­pling with last year’s loans scan­dal and await­ing the find­ings of an on­go­ing reg­u­la­tory probe into the mat­ter. Its share price also re­mains de­pressed at just 115p, down from more than 500p a year ago. Nev­er­the­less Frumkin is con­fi­dent that with a lit­tle more com­pe­ti­tion in the UK bank­ing sec­tor Metro can still take on the big, tra­di­tional banks.

“The world is chang­ing, but what peo­ple want from their banks isn’t,” Frumkin adds. “We need to level the play­ing field so chal­lengers of scale like us can con­tinue to take on the big banks. We need to bring more com­pe­ti­tion to UK bank­ing.”

For­mer UK bank bosses are more pes­simistic. John McFarlane, Bar­clays’ chair­man from 2015 un­til last year, be­lieves there are fac­tors stunt­ing growth which are im­pos­si­ble to fix from in­side a board­room. “The prob­lem with Euro­pean banks, in­clud­ing the UK, is ul­tra low in­ter­est rates, and un­til that changes, not much is go­ing to hap­pen,” he says.

Sir Philip Hamp­ton, the for­mer chair­man of bailed-out bank RBS, adds that a ma­jor chal­lenge for bank­ing ex­ec­u­tives is cre­at­ing a bank­ing sys­tem “which earns ac­cept­able re­turns with a risk pro­file that doesn’t need gov­ern­ment in­ter­ven­tion”. He says the pan­demic has put banks in a tricky po­si­tion, deal­ing with gov­ern­ment sub­sidised loans and reg­u­la­tory div­i­dend sus­pen­sion.

“The risk pro­file of the loan books is now sup­ported by the Gov­ern­ment, [which] would ob­vi­ously pre­fer not to have to sup­port bank­ing lend­ing. Banks would doubt­less pre­fer not to have the Gov­ern­ment so in­volved ei­ther,” he says.

For the am­bi­tious fi­nanciers eye­ing a top seat at a Euro­pean bank, none of this makes for a par­tic­u­larly ap­peal­ing job of­fer. Al­though as In­vestec banks an­a­lyst Ian Gor­don puts it, “when set against such low ex­pec­ta­tions, per­haps the CEO jobs don’t sound too de­mand­ing af­ter all?”

“The out­look for bank rev­enues is dire, a func­tion of ‘lower for­ever’ in­ter­est rates and the UK’s self­in­d­uced lock­down re­ces­sion. The 2020/21 spike in im­pair­ments will even­tu­ally pass, but the only lever over which banks will be able to ex­ert any mean­ing­ful con­trol will be costs,” he says. “For many large-cap banks it will take sav­age new cost-cut­ting ini­tia­tives even to get back to high­s­in­gle-digit re­turns on tan­gi­ble equity. The dou­ble-digit 2020/21 tar­gets set out by the banks over the past year are now en­tirely re­dun­dant and will likely re­main so for the next decade.”

The next gen­er­a­tion of bank bosses will also be tasked with im­prov­ing the in­dus­try’s poor pub­lic image, which re­mains dam­aged by the 2008 fi­nan­cial cri­sis as well as by nu­mer­ous high-pro­file scan­dals. Bri­tain’s high street lenders have been at the fore­front of the eco­nomic re­sponse to the coro­n­avirus pan­demic and EY’s fi­nance ex­pert Omar Ali, who is among the City grandees ad­vis­ing the Trea­sury and Bank of Eng­land on how to sup­port debt-laden com­pa­nies af­ter this cri­sis, says this could be a ma­jor op­por­tu­nity for the sec­tor.

“Given low in­ter­est rates, many banks will be un­der a lot of strain, so how do they take the good that they’ve done for the econ­omy and use that as a cat­a­lyst to cre­ate the next gen­er­a­tion of bank?” he asks. “There’s a real chance here for a lot of the ills of the past to be con­signed to his­tory.”

‘There’s a popular mis­be­lief that banks are al­ways highly in­vestible and have al­most lim­it­less re­sources’

‘We need to level the play­ing field so chal­lengers of scale can take on the big banks. We need to bring more com­pe­ti­tion to UK bank­ing’

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