* Bank shares up five pct this year
* However, banks remain at bottom of "Trust Barometer"
* Lenders must put clients first again - UBS chairman
* Bigger banks are unintended result of tighter regulation
By Alexander Smith
DAVOS, Switzerland, Jan 23 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.
However, a recent rebound in banking shares - which has
pushed the Thomson Reuters Global Banks index up five 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
recognise 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
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 JP Morgan Chairman and Chief Executive Jamie
Dimon, say the basic banking model is not broken and that the
excesses of the pre-crisis 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.
Others at Davos say banks have largely put their shops in
order and are now concentrating on trying to make money.
"Generating earnings in this environment is not that easy;
we have gone from crisis mode to normal boring stuff about how
will the business grow," one senior banker told Reuters.
But others such as Weber think an overhaul is still required
for the industry to reinvent itself. "Banks need to get a new
strategy...at the same time we need to deal with the legacy. You
need to separate from the past, that's a necessary condition. We
need to move forward in a different mode," Weber said.
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
One of the unintended consequences of the regulatory drive
which has followed the financial crisis is, say bankers, greater
consolidation of the industry.
So rather than preventing banks from being "too big to fail"
after the collapse of Lehman Brothers, the drive to require them
to hold more capital and more liquid assets in the event of
markets drying up, has had the opposite effect.
"The irony is that the big are getting bigger," the senior
banker said, adding that the costs of developing IT was an
example of where scale was critical. "If you don't have a
substantial business, it just kills your margins," he added.
The industry has fought back against some of the regulations
and earlier this month successfully convinced the Basel
Committee on banking supervision to push back the date by which
they must increase their so-called liquidity buffers.
BEHIND THE BOUNCE
A period of greater stability in the euro zone has been one
factor behind investors' interest in bank stocks. European banks
dominate the top 10 risers in the Thomson Reuters Global Banks
Index, with seven spots.
Shares in the benchmark Eurostoxx 600 banks index had
already risen 23 percent last year, clawing back much of the 33
percent loss in 2011. Gains came as banks tackled costs and
investors took heart from the European Central Bank's promise to
do "whatever it takes" to preserve the euro.
Analysts had expected a more muted start to 2013, but
Europe's banks have risen another 7.5 percent in the year to
date. Banks on the troubled "periphery" of the euro zone have
enjoyed the biggest 2013 increases. Eight of this year's top 10
performers are from countries such as Italy, Ireland, Greece,
Portugal and Spain - those which have gained the most from
relative euro zone stability.
But some in the industry say this may provide only temporary
respite for the banks that are no longer able to compete on
scale with the big "universal" global banks.
"We will see more do what UBS did. It is pretty hard to make
the numbers work. None of the investment banks are having an
easy time of it at the moment," the senior banker said.