The Bankwatch

Tracking the consumer evolution of financial services

Consolidation of Banking: Danielson | Book review

Consolidation of Banking was a genuine surprise to me. I expected this to be dry and academic. However the opposite turned out to be the case.

The book covers the history and events in North American banking since the ’30’s and here is where the surprise came in. It details the changes and the reasons for the changes. It covers in some depth the impacts of foreign Banks, in the US and globally. The global aspect caught my attention, and this differs from the usual US centric view of the world in the US.

The result is a good view of the mechanics of what drives banking, ie shareholder value, and results of reaching a certain level within domestic markets that curtails growth opportunities, and leaves foreign expansion or break up as the only two available strategies to make a big difference.

Some somewhat random notes I took away. There are tons of stats and thinking behind every one of these:

  • 5 banks own 50% of the US market
  • European Banks got to that scale within their own markets earlier, because there were fewer of them within their relative markets
  • big 5 US names:
  • CitiBank
  • Bank of America
  • JP Morgan
  • Wachovia
  • Wells Fargo
  • Foreign Banks in the US
    • largest number of branches: Royal Bank of Scotland
    • largest asset base: HSBC
    • countries with largest Banks in the US: UK, Japan, Canada, Spain, Holland
  • drivers of success going forward:
    • demographics and acceptance of ‘remote banking’
    • increasing costs associated with large branch networks
    • large banks focussed on increased growth from own customer base
    • globalisation, and new thinking from foreign banks

    But the one takeaway from the ‘whats next’ conclusion section was this. The above factors are ongoing strategic drivers, but nothing drives change in banking more than economic bad times. The immediacy from bad times, leaves management no choice in the face of fickle and impatient investors.

    We are entering those times in a very special way in that all banks are affected by the credit crisis, and some severely. There will be recessionary impacts on customers too. We can expect big changes in Banking ownership, and it will likely have a global context. It will also have a distinctly remote banking (Danielsons expression) aspect. I read that as internet … yes ATM’s too, but some distinction using internet is expected. ING have promoted a whole industry around high interest, non branch savings accounts, but surely such a product design approach is limited in strategic value, particularly to the current players.

    Relevance to Bankwatch (my take):
    We are entering a perfect storm of converging influences:

    • economic crisis (losses) driving lower shareholder returns in Financial Services
    • permanent demographic shifts, bringing acceptance of internet, and web/ mobile lifestyle; translation – seeking something better
    • maturation of ‘industry strength’ web tools, and capabilities (web 2.0)
    • unlimited creativity of web based companies many of whom are increasingly seeing Financial Services as the next beachhead in industrial disruption

    An easy read, and valuable reference for every bankers office.

    [Note] I was fortunate enough to get a copy this book, courtesy of Carol at Danielson Capital. The Chairman is the author. Thanks Carol.

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    Written by Colin Henderson

    March 16, 2008 at 14:56

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