Banking in Turmoil
Also by Steven I. Davis AFTER THE CREDIT CRISIS: Best Practice in Banking the High Net Worth Individual BANCASSURANCE: The Lessons of Global Experience in Banking and Insurance Collaboration BANK MERGERS AND ACQUISITIONS: The Lessons of Global Experience BANK MERGERS: Lessons for the Future BEST PRACTICE IN BANKING THE AFFLUENT CROSS-SELLING IN RETAIL BANKING: Meeting the Revenue Growth Challenge EXCELLENCE IN BANKING INVESTMENT BANKING: Addressing the Management Issues LEADERSHIP IN CONFLICT: The Lessons of History LEADERSHIP IN FINANCIAL SERVICES MANAGING CHANGE IN THE EXCELLENT BANKS THE MANAGEMENT FUNCTION IN INTERNATIONAL BANKING THE EURO-BANK
Banking in Turmoil Strategies for Sustainable Growth Steven I. Davis Managing Director, Davis International Banking Consultants
Steven I. Davis 2009 Softcover reprint of the hardcover 1st edition 2009 978-0-230-23571-7 All rights reserved. No reproduction, copy or transmission of this publication may be made without written permission. No portion of this publication may be reproduced, copied or transmitted save with written permission or in accordance with the provisions of the Copyright, Designs and Patents Act 1988, or under the terms of any licence permitting limited copying issued by the Copyright Licensing Agency, Saffron House, 6-10 Kirby Street, London EC1N 8TS. Any person who does any unauthorized act in relation to this publication may be liable to criminal prosecution and civil claims for damages. The author has asserted his right to be identified as the author of this work in accordance with the Copyright, Designs and Patents Act 1988. First published 2009 by PALGRAVE MACMILLAN Palgrave Macmillan in the UK is an imprint of Macmillan Publishers Limited, registered in England, company number 785998, of Houndmills, Basingstoke, Hampshire RG21 6XS. Palgrave Macmillan in the US is a division of St Martin s Press LLC, 175 Fifth Avenue, New York, NY 10010. Palgrave Macmillan is the global academic imprint of the above companies and has companies and representatives throughout the world. Palgrave and Macmillan are registered trademarks in the United States, the United Kingdom, Europe and other countries. ISBN 978-1-349-31409-6 ISBN 978-0-230-27506-5 (ebook) DOI 10.1057/9780230275065 This book is printed on paper suitable for recycling and made from fully managed and sustained forest sources. Logging, pulping and manufacturing processes are expected to conform to the environmental regulations of the country of origin. A catalogue record for this book is available from the British Library. A catalog record for this book is available from the Library of Congress. 10 9 8 7 6 5 4 3 2 1 18 17 16 15 14 13 12 11 10 09
Contents List of Figures List of Interviews vi vii 1 Introduction 1 2 From Sub-Prime to Quasi-Nationalization: The Unique Elements of a Banking Crisis 4 3 Generic Lessons from the Turmoil: What Can We Do Better in the Future? 13 4 The Lessons for Future Risk Management 22 5 The Evolution of Business Models 28 6 The Role of Leadership and Culture 48 7 How Might Future Bank Profits and Returns Evolve? 53 8 Case Studies of Successful Strategic Models 60 9 Summary and Outlook 94 Bibliography 108 Index 109 v
List of Figures 2.1 Global financial system: built to bubble 6 2.2 The particular incentives and opacity of the US sub-prime made it the San Andreas fault of global banking 7 2.3 CDOs became highly concentrated... 8 2.4...and highly leveraged 9 2.5 In a nutshell there is not one crisis but three 9 2.6 This created a vicious circle that sent the broader financial market into a downward spiral 10 2.7 This is an unprecedented crisis... 11 2.8 Components of a crisis buyers of AAA asset-backed securities (%) 12 5.1 What might a winning portfolio look like 47 7.1 Profit trends from previous banking crises 55 8.1 Growth in Goldman Sachs book value per share 1999 to 3Q08 65 8.2 Profile of JPMorgan Chase net income contribution by line of business for 2008 73 8.3 Santander s risk-weighted assets by geographical area September 2008 77 8.4 Santander s response to the banking crisis 79 8.5 Breakdown of Standard Chartered s pre-tax profit by geography and function first half 2008 82 8.6 UBS s wealth management positioning by national market 86 8.7 Wells Fargo s national branch network following Wachovia acquisition 91 vi
List of Interviews (number in parenthesis indicates more than one interviewee) Banco Santander BlackRock Investment Management Boston Consulting Group Citigroup (2) Crédit Suisse Deutsche Bank Financial Institutions Consulting Financial Services Authority (2) Fitch Ratings (2) Freeman & Co. Goldman Sachs (2) HSBC JPMorgan Chase (2) Keefe Bruyette & Woods McKinsey & Co. Office of the Comptroller of the Currency Robin Monro-Davies Sandler O Neill & Partners LLP UniCredit UBS vii