Global Banks Reassess Anglo-Saxon Model
This is the second in a 12-part series of “The Korea Times ― the Boston Consulting Group (BCG) Joint Project” designed to identify new realities in the post-crisis world and provide winning strategies for leading Korean firms in 11 key industries. In cooperation with BCG, The Korea Times will look into a wide variety of issues both in the global economy and major indstries. ― ED.
By Lee Hyo-sik
Staff Reporter
The global banking industry is searching for the new course of direction in the post-crisis era as it slowly emerges from the worldwide credit crunch and the subsequent financial market meltdown in late 2008.
Industry players are now facing a new set of rules and different market environments in line with the tightening banking regulations pushed for by the U.S. and other governments around the world. They are also tasked with cleaning up bad assets and finding new sources of growth amid the increasingly competitive and sophisticated
global financial market.
A group of Anglo-Saxon financial institutions are largely responsible for the worldwide mess from which the entire world has been suffering over the past year, with their investments in subprime mortgages and other financially engineered products through excessive leverage.
In more than a year since the outbreak of the international financial turmoil, market conditions are increasingly returning to normal and the banking sector is on a path of recovery. Multinational banks are seeking to regain their past glory but the goal seems to be easier said than done, due to increasing market and regulatory uncertainties.
The U.S. and other advanced countries have moved to tighten their grip on the financial industry in a bid to prevent the reoccurrence of the global financial meltdown. They are pressuring lenders to refrain from investing in risky assets and cut leverage, which will worsen the banks' bottom line.
President Barack Obama has unveiled a plan to limit the scope of banks' investment activities and impose a penalty tax on lenders to let them go bankrupt with a minimum impact on the economy, instead of bailing them out with taxpayer money. British Prime Minister Gordon Brown is setting his eye on the introduction of a ``Tobin'' tax on short-term cross-border capital transactions to reduce volatility in international money flow.
Additionally, financial services firms are facing a daunting task in nurturing new engines of growth and broaden the customer base amid the increasingly competitive and fierce marketplace.
In a recent report, the Switzerland-based UBS highlighted five key themes that will affect the global banking sector fundamentals and performance in 2010; regulatory reform, asset quality, loan growth, margin pressure and dividend payments.
``The sector has recovered from the crisis over the past year. But a series of pending regulatory changes around the world will likely weigh down on the growth of the banking industry in 2010. Banking fundamentals remain challenged by elevated credit costs, depressed loan growth and margin pressure,'' the investment bank said.
It projected banks that have successfully raised capital and boosted presence in emerging markets will emerge as a winner this year.
With the U.S. moving to separate investment banking from commercial banks, among other regulatory measures, the Boston Consulting Group (BCG) said banks should prepare and execute separate business strategies for retail, commercial and investment units.
``For the retail sector, lenders should renew focus on quality assets, deposits, and branches. They should expand based on M&A, strengthen key foreign market presence and reinvest branch network. They also need to improve productivity by channel innovation and cut operation costs,'' the consulting firm said.
To boost the corporate banking, the BCG suggested that lenders refocus on pricing, the productivity of the sales force and other fundamentals. ``They need to work harder to maximize revenues from cross-selling, strengthen transaction banking business and maintain rigorous relationship with customers by regain trusts and offering a range of low-risk financial products.''
To revive the badly damaged investment banking, the BCG said banks should take less risk, enhance business stability and reinforce investment banking capability via M&A. ``Investment banks should also boost positive synergy with the commercial banking unit and foster new growth segments.''