I recently moderated a panel at a private event we hosted in London and the biggest takeaway for me: the speakers seemed to have accepted the fact that things can not go back to the way they were. Reform – for better, or for worse – is in the air.
The event was focused on ‘Smarter Banking’ and we had two industry luminaries – Lindsay Tomlinson (former BGI CEO, currently BlackRock Managing Director) and Bill Winters (former co-CEO of JP Morgan Investment Bank) debate the future of the industry. Several themes emerged from this debate:
- The purpose of the industry: The government and the industry have yet to define the industry’s purpose, its raison d’etre – and as a result there are many different opinions on what the new era will look like
- Shrinking industry returns (for now): The expectation is around 10-11% (down from around 25-30%)
- A need for more trust: There is a “crisis of legitimacy” – the industry has historically managed its own interests versus those of its clients – this will be reversed going forward
- Compensation fixation: It will come down, but only to a point – even in the Bible, people griped about how much money lenders were paid
- Role of government: Governments need both strategic vision and purpose otherwise they’ll go too far – it’s not about new rules it’s about new behavior
My biggest question going into the session was which ‘stage of grief’ is the industry currently in. Our research plots the stages that firms in the mature* markets are currently going through:
- Denial (this isn’t happening to me!)
- Anger (why is this happening to me?)
- Bargaining (I promise I’ll be a better person if…)
- Depression (I don’t care anymore)
- Acceptance (I’m ready for whatever comes)
When we asked participants ‘what keeps you awake at night’ 85% stated business model uncertainty. As the industry moves through the stages from denial to acceptance, the industry must solve its business model identity crisis. Although there seems to be a nearly universal nostalgia for the past, 90% of executives agree that both the past – and the returns that come along with it – are over (at least for now until we do it all over again).
While the debate is far from over, we will continue to explore these themes with our clients and partners as we determine what we should research next.
What are your views on the future of the industry – has the industry really accepted the new normal or is it still in denial?
*Note that the most often cited quote from our interviews in the developing economies goes something like this: “I’m not so sure they’re mature. In my opinion we’re all developing economies and we’re all just starting or starting over.”