Banks try to put past sins behind them at Davos
By Alexander Smith, ReutersDAVOS, Switzerland -- Leaders of the world's largest banks have gone some way to persuading investors that their industry's near-death experience is over, even though the public still don't trust them.
January 25, 2013, 12:57 am TWN
However, a recent rebound in banking shares — which has pushed the Thomson Reuters Global Banks index up 5 percent this year — possibly hides a crisis still threatening the existence of many in the sector as its leaders meet in Davos.
The Libor rigging scandal, rogue trading, mis-selling, the breaking of anti-money laundering rules and debate over staff bonuses have all ensured the banks remain in the dog house, four years after the financial crisis brought many to their knees.
Banks and financial service companies were once again at the bottom of the pile in the Edelman “Trust Barometer,” released this week in Davos where many bankers are attending the World Economic Forum. Although they scored slightly better in the survey of 26 countries than last year, only 50 percent of respondents said they trust banks and financial institutions, against a 77 percent score for technology companies.
Many are producing profits for shareholders again, but the rules of the game have changed and banks and their advisers recognize it will take years to rebuild public confidence.
“Banks need to change their business models. Financial service providers need to be reminded that it all about service to clients and clients need to be put back at the core. Self-interest has to take a backseat,” Axel Weber, former Bundesbank chief and now chairman of Swiss bank UBS, said on Wednesday.
With senior industry figures predicting that only a handful of major global banks will emerge stronger from the financial crisis, the outlook for those that do not is uncertain. JPMorgan, HSBC and Bank of America Merrill Lynch are those most often mentioned among the winners, with smaller players suffering from higher capital requirements, a low interest rate environment and stiffer regulatory demands.
This has prompted action to cut costs and focus on what bankers often describe as their “core competencies.” UBS, for instance, has cut 10,000 jobs and pulled back from areas such as fixed income trading. Many banks have also staged wholesale retreats from certain businesses, such as commodity trading, or selective withdrawals from countries or regions.
Some, including JPMorgan Chairman and chief executive Jamie Dimon, say the basic banking model is not broken and that the excesses of the precrisis period have been curtailed. “You want financial services, you just don't want them to be leveraged or (to) blow up,” Dimon said during a panel discussion involving bankers, regulators and politicians.
The mantra of putting customers first echoes around the corridors in the Swiss Alpine ski resort, but this is still drowned out by protests about the unintended consequences of regulations aimed at preventing another crisis.
“We should have better regulation, but not necessarily more. We will not achieve (economic) growth unless we have a proper financial industry that lends money that fuels growth,” said Andrey Kostin, chairman and chief executive of Russia's VTB Bank.