The Bankwatch

Tracking the consumer evolution of financial services

Universal banks show beginning of shift away from retail to corporate

Some strategic shifts amongst the ‘universal banks’ (HSBC, Citi, Lloyds, Bank of America, JP Morgan).

The first is cost cutting.

Global colonisers stage retreat to corporate banking | ft.com

Increasingly, the heads of so-called universal banks – those that combine high street banking with corporate and investment banking – are deliberately shifting their focus away from foreign adventures in retail branches and on to corporate business instead.

HSBC is not alone. Citigroup, its main global competitor, is busy pulling out of a host of retail markets where it is overstretched, such as Spain, Greece and Belgium, and refocusing on just 100 cities around the world. Barclays, too, is on the retreat, announcing that retail banking operations in Russia and Indonesia should close.

Some of the reasons are obvious. Many banks have come out of crisis mode and are now in a cost-cutting phase – often under the direction of new management.

This is based on the economic realities setting in.

On top of the cost-cutting agenda is the pragmatic realisation that the global economy is moving in slow motion and that strategies need to look for whatever business expansion opportunities there are. Scant gross domestic product growth means scant consumer loan growth.

The other shift noted in this FT piece is within the investment & corporate banking groups of those banks, and that is being driven by both regulatory changes and a desire for greater risk transparency.

In a market that is more nervous of credit risk, corporate lending has the appeal of offering a bank far more transparency than consumer lending on the finances of a borrower, both directly and via credit-rating data. It may also be less capital-intensive.

But the draw is also part of a much more fundamental change – the redrawn lines of the global regulatory landscape. As investment banks are penalised with higher capital charges for trading activity, they need to find more solid sources of business with lower capital requirements.

Relevance to Bankwatch:

The fallout from the banking crisis is beginning to play out.  A shift of investment from retail to commercial banking does not bode well for innovation in consumer banking.  My earlier view of banks sorting out into utilities (majority) and innovators remains.

Written by Colin Henderson

May 9, 2011 at 19:56

Posted in Uncategorized

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