Week in review: shifting business models
Banking business models
The week saw more signs of a shift in banking models, with all banks still under pressure from the fallout of the financial crisis. Goldman Sachs’ results were telling; although their profits exceeded expectations, this was despite revenue falling even more than expected. The most worrying sign is the return on equity (RoE), which came in at 3.7%. With all the regulation constraining capital and leverage, it is becoming increasingly clear that RoE targets of 15% are unattainable. The effects of the crisis (financial and sovereign debt) are widespread: even custodian banks are feeling the effect of a decline in trading and a shift to cash.
On a positive note, it seems banks are waking up to the transformative potential of technology. In the UK, the Payments Council is looking to set up a database linking customers’ mobile phone numbers to their bank account, to enable money transfers using mobiles. In Spain, BBVA has again teamed up with Google, but this time to market economic indicators that are based on search statistics. Faced with the slowdown in their traditional business models, I would expect many more such initiatives in the coming months.
The regulatory debate continues
Meanwhile, regulators everywhere are still working to shape the industry’s regulatory framework. The European Commission launched a review of its policy on bank structure, prompted by the proposed ringfencing of retail banks in the UK. China nicely illustrated the macro-economic impact of these regulations by explicitly relaxing its regulatory constraints to give its economy a shot in the arm. At any rate, if this piece by The Reformed Broker on BofA’s appointment of a “Chief Image Officer” is any guide, the political pressure for more regulation is unlikely to abate soon.
