The Bankwatch

Deloitte pick up on an interesting characteristic of banks here. Cost cutting occurs during downturns, but its spend spend spend when things are looking good.

Banks rarely get to the point of incremental efficiencies that they note here. Citi are a classic example as noted in the FT this morning.

This fits with the view that this change we are undergoing is not just another blip before we return to business as usual. There is no business as usual coming. The future is smaller, framed in different business models, contains a greater mix of small business, and smaller companies and with retail consumers working harder, longer and for less money.

All this points to realignment of the banks’ models to be more efficient, more effective in customer interaction, and more automated, with much greater reliance on online banking and mobile banking, with less on branch banking.

This time we will not hear about ‘bricks and clicks’ as we did in 2002.

Improving Efficiency: The New High Ground for Banks | Deloitte

The turmoil in the financial markets, coupled with the economic downturn, is fundamentally altering the financial services environment. In this new world, improving operating efficiency has become a competitive necessity. But while financial firms have typically moved quickly to reduce costs when the business cycle is contracting, far too often these efforts have been quickly forgotten when business picks back up.
In this report, we present research conducted by the Deloitte Center for Banking Solutions demonstrating the critical importance of operating efficiency to the fortunes of financial firms. Among the findings is that building efficient operations is not enough — steady, continuous improvement in operating efficiency are required. In fact, banks that have achieved continuous improvements in efficiency have also generally experienced far greater gains in their share prices.

There appears to be little more than speculation, and floating of ideas here, but nonetheless Virgin have just announced intention to launch a direct bank in UK, and Branson has noted his broad intention to get more involved in financials services.

Something to keep our eyes on.  A move such as this is good for financial services, and good for the broader industry including system vendors, such as my friends at SIT, because any new set up will need the flexibility of a web based approach coupled with solid banking and investment systems.

Virgin’s next chapter: Is now the time to bank in Canada? | Globe and Mail

In the contrarian view of Sir Richard Branson’s conglomerate, today is an opportune time to start a bank. And after floating the idea publicly more than a year ago of launching a Web-based bank for Canadians, Virgin is close to making a final decision, following news last week that it is selling its stake in Virgin Mobile Canada to BCE Inc.’s (BCE-T) Bell Mobility.

The scramble continues to get out of hock with the Government and Bank of America speak about repaying $45Bn by end of year.  More power to them … this would be a good thing if they can pull it off.

BofA seeks to repay $45bn by end of year | FT

BofA is on track to raise more than $35bn in capital by the end of September, say people familiar with the matter, which it must do before paying back the $45bn bail-out money it received under the Troubled assets relief programme.

The fall in GDP for Japan appears nothing short of catastrophic, yet on a visit there last week by Nobuyo, the effects of this change are not obvious to the everyday Japanese person.

One change that was noticeable in Tokyo is less foreigners (Gaizin).  The area around Roppongi and Azabajuban is normally where one can expect to see many western faces in the restaurants and bars.  No more.  Companies such as Lehman Brothers, Merrill Lynch, and AIG as well as numerous other western financial services companies had representation in Japan, however that is quickly shifting.

This still does not appear to impact the average Japanese, at least not yet.  In fact as the country ages it almost seems to fit with a reduced economy.

Japan’s economy down 15.2% | Economist

The data, released on Wednesday May 20th, showing a 4% contraction of GDP on a quarterly basis, and a 15.2% annualised slump, reflect a continuation of Japan’s worst economic performance since the mid-1950s. Not only were the first-quarter figures bad. The previous quarter’s horrendous fall was itself revised downward by more than two percentage points, to an annualised 14.4%.

Researched by Nobuyo Henderson

Japan continues to lead in terms of making changes to accommodate the current economic climate.  While the English story here is March, the other is dated today.

This is significant for the West in terms of understanding this economic situation is not going to be cured overnight, and when we speak of recovery, its important to consider what recovery means, and how long it might be before we get to return to anything like the economic levels of 2007.

Toyota Cuts Exec Pay, Eliminates Bonuses

AP) Toyota Motor Corp. is reacting to the slump in U.S. auto sales by further cutting North American production, slashing executives’ compensation up to 30 percent and offering buyouts to about 18,000 workers.

夏のボーナス19％減＝落ち込み最大、自動車は3割減−経団連調査

Relevance to Bankwatch:

One implication for banking is that a restructuring to accommodate and work within the new economy for the next few years is required.  This requires changes to economic models, cost structures, and imho a fresh look at internet and how it can be levered to develop those models.

Researched by Nobuyo Henderson

The economic numbers are not positiveat all.  First Europe and now Japan display worse falls in GDP than expected.

Japan’s economy in record plunge

Japan’s economy has seen its worst ever quarterly performance, with GDP shrinking 4% in the first three months of 2009.

Researched by Nobuyo Henderson

Things are beginning to happen.

Branson plans launch of Virgin internet bank | Observer [hat tip Finextra]

Richard Branson is to launch an internet bank in a move designed to exploit public disgust with Britain’s big banks in the wake of the credit crunch.

Branson follows Tesco, which is also planning to capitalise on disenchantment with traditional banking via a big push into financial services.

In keeping with watching for new and innovative shifts in banking, Societe Generale subsidiary Lyxor plans a big push with new ETF’s in the Japan market.  These are being offerred online only.

Lyxor (Societe Generale) plans big push of global products in Japan | FT

Rakuten

Lyxor Asset Management is planning to expand its exchange traded product range in Japan and the rest of Asia as investors in the region gradually gain more knowledge about the funds.

The subsidiary of Société Générale will introduce 15 new ETFs into Japan this year, and market them through online brokerages, Lyxor says. That will add to the asset management firm’s existing 13 ETFs currently available to Japanese investors. The new ETFs will feature funds already listed in Europe.

Researched by Nobuyo Henderson.

in what will likely be only the first of many ,Lloyds Chairman announces plans to step down prior to next Annual Meeting in 2010.  The larger issue here is the dual influence from markets, chastising Blank for the HBOS takeover, and government influences.

Both in UK and US, the influence of government is significant within large Banks, and as discussed earlier, the arrival of the political dimension is inevitable.

Blank will step down from Lloyds | FT

LONDON, May 17 (Reuters) – Victor Blank is to step down as chairman of Lloyds Banking Group (LLOY.L) before next year’s annual shareholder meeting, the part-nationalised British bank said on Sunday.

A US regulator on Friday predicted that chief executives and directors of some of the banks that underwent the stress tests could lose their jobs,

Regulator expects bank chiefs to lose jobs | FT

By Francesco Guerrera and Nicole Bullock in New York

Published: May 16 2009 00:10 | Last updated: May 16 2009

A US regulator on Friday predicted that chief executives and directors of some of the banks that underwent the stress tests could lose their jobs, in another sign of the government’s desire to have a say in the running of bailed-out companies.

Sheila Bair, chairman of the Federal Deposit Insurance Corporation, said the authorities could replace management and boards at some of the 10 banks that were ordered to add fresh capital after the tests.

“Management needs to be evaluated,” she told Bloomberg television. “Is this the right skill set? Have they been doing a good job? Are there people who can do a better job?”

Asked whether some chief executives and directors would be replaced when banks present their capital-raising plans in the next few weeks, she said: “Yeah, I think there will be an evaluation process. We’re requesting it as part of the capital plan.”