Tuesday, 30 November 2010

"These things happen" says NAB CEO after payments system crashes

Four million customers of National Australia Bank in Australia were left without access to their money for over a week after a corrupt file took down the payments system. The incident arose on Wednesday night  resulting in payments, ATM and POS transactions grinding to a halt. In some cases multiple transaction entries occurred  and in others they did not happen at all. This meant that the likes of mortgage payments and utility bills weren't paid and in many cases employees did not receive their salaries. Cameron Clyne, CEO of NAB said "Unfortunately in any large organisation these things happen from time to time". But is he right?

Whilst he might be right that unexplained incidents do occur with IT systems, what is not expected is for it to take over six days to be able to fix the problem. As NAB starts to investigate the cause of the problem questions need to be asked as how the payments system was designed with a single point of failure, whether there was any backout/recovery in the system and when and whether robust disaster recovery testing had last been carried out.

Many banks for too long have underinvested in their legacy systems, bolted on changes without any reference to the integrity of the overall design and crossed their fingers and hoped that the systems don't fail. Ironically NAB has recently kicked of a AUS$1bn technology refresh.

The impact for customers of not being able to access their money apart from the monetary implications is one of high levels of emotional stress and a loss of faith in the banking system. Queues were seen to be formed outside banks as customers tried to get their money. Fortunately there wasn't a run on the bank and the other banks stepped up to assist by waving charges for non-payment and other such actions. But the damage to the banking system was done and it will take some time to repair.

The total impact for NAB, both financial and non-financial will only be known over time.

The processing of payments is the one basic task that banks are expected to perform, flawlessly time after time. Indeed that is the principle reason for banks existing for many consumers and corporations.

As banks around the globe heave a sigh of relief that this hasn't happened to them, this should prompt many bank CEOs and CIOs to perform an audit on the vulnerability and the recoverability of their payment systems and their ability to respond to such a major incident. Scenario planning and simulation should all play a part in this.

No bank can afford to rest on its laurels; there are lessons to be learnt for all  from this incident in Australia.

Monday, 29 November 2010

Ever Eastward for HSBC

Last week HSBC announced what was the first of what is expected to be a number of changes to the executive management of the Group following the announcement of Stuart Gulliver as the new CEO. As further evidence of HSBC's focus on the Far East another senior executive will be moving to Hong Kong from London. A new role is being created, Head of world-wide Retail Banking and Wealth Management and Paul Thurston, currently based in the UK will be its first incumbent. This comes at a time when the wealth of Asia's millionaires overtakes that of Europe's, so the move is rational for a bank with such a strong presence both in wealth management and the Far East.

Increasingly Europe is becoming less and less significant to HSBC, with net profits from Europe representing less that 25%. The UK representing only a portion of this. With the move of more senior executives to Hong Kong, increasing taxation and regulation in the UK, the review of HSBC's Headquarters location in 2011 may be far from a formality.

Would the last person out of HSBC's head office in Canary Wharf, please switch the lights off.

Friday, 26 November 2010

Citi plans to wake the sleeping parrot

The FT reports today that Citi is planning to resuscitate its retail presence in Europe by opening flagship stores in the UK, France and Germany. Just as with the Norwegian Blue in the Monty Python sketch, Citi's retail presence in Europe is well beyond resuscitation, a new birth is required.

Citi has never been clear what it wants to be in the retail market in Europe. It appears to have grown in Europe without any clear joined-up pan-European stategy. Now there is an opportunity for it to re-think what its proposition is to European banking customers and to leverage far more effectively its global, cross-border brand and its high net worth positioning for Europe. Hopefully a slimmer and re-energised Citi will be able to do this and to truly compete in the retail market against the likes of HSBC, Santander and Barclays, for the business of the global, mobile, modern Europeans. There is no doubt that there is a need for more competition for these customers, but it is going to take a lot more than opening 'Apple-style' branches to be a contender.

Thursday, 25 November 2010

Australia lead 1-0 and it's not in the Ashes (yet!)

When Robert Peston of the BBC said that the appointment of Ana Botin as the CEO of Santander in the UK was a 'cultural' revolution, It's a Financial World pointed out that he was wrong (see the posting on  November 3rd 'Women in Banking').

Across the world Australia appears to be leading the UK, once again,  in ensuring that women have a place at the table in banking. Gail Kelly has been running Westpac, one of the 'four pillars' since 2008, having previously run St George's Bank, one of the challenger banks until it was acquired by Commonwealth Bank of Australia (CBA). Now each of the Australian banks has come out with a target for the percentage of women who should be in senior management positions. CBA has targeted increase the number of women in senior management positions to 35 percent by 2013, while Westpac Banking Corporation is targeting 40 percent by 2014, Australia and New Zealand Banking Group aims to have 40 percent of women in management by the end of next year, while NAB says 28 percent of its management positions are currently filled by women.

In the UK we saw last week the launch of the 30% Club who's aim to see women having 30% of the seats at board tables.

The fact is that there is clear evidence that increasingly women are in senior positions within banks across the globe. However this is not really the point. What is most important is that there is a diversity of views on the senior management teams and that those views can be expressed freely and openly. There is little doubt that if a number of the banks had had  a more open, less alpha-male culture on their executive committees and boards that many of the mistakes that brought about the global financial crisis could have been avoided.

So whilst the aspiration of the Australian banks by setting targets is to be praised, these targets should be broadened beyond simply women and to ensuring that a broader set of perspectives, whether it be based on race, experience or gender are actively brought onto the senior management teams and boards of banks across the globe and that discussion and disagreement is actively encouraged rather than shut down by a culture of fear. By doing this a repeat of the global banking crisis will be far more effectively avoided than by simply relying on draconian regulation.

Tuesday, 23 November 2010

The Independent Commission on Banking requires a time machine

Claire Spottiswoode, a member of the UK government-initiated Independent Commission on Banking has suggested that a recommendation of the Commission may be "reversing what happened on that day a few months back when Lloyds took over another bank,” referring to HBOS. The comments were made at a meeting in Leeds held by the Commission to seek public input into their investigation.  The Commission is due to publish its non-binding recommendations in September 2011. Undoubtedly the Government will need some time to consider the Commission's recommendations. By which point, it is highly likely that the Lloyds TSB and HBOS integration will have completed, resulting in one set of IT, one common back office and a rationalised management structure. Without inventing a time machine (and don't forget that DeLorean was also UK Government funded) reversing the integration at that stage would not only be prohibitively expensive, but quite possibly impossible. Given that the bank is 41% owned by the tax-payers, it is highly questionable whether this would be a good use of money, as ultimately the tax-payers and the consumers would be paying for it.

It is probable that the suggestion was not intended to be taken literally. Lloyds Banking Group has already been instructed by the EU, as a consequence of taking state funding following the banking crisis, to dispose of around 600 branches. These will be made up of the Lloyds TSB branches in Scotland, Cheltenham & Gloucester branches and then additional existing branches to make up the remaining market share that has to be disposed of.

Ms Spottiswoode's assertion is based on the presumption that there too much power lies with a small number of large institutions. Should there be a question of the Commission recommending a more significant disposal of Lloyds Banking Group branches, then any interested potential purchaser of the 600 branches would most likely want to factor this into the timing of their making an offer. Ironically rather than increasing competition in the UK retail banking market this could slow it down.

The Independent Commission on Banking has a very challenging task - inventing a time machine might just be easier.

Monday, 22 November 2010

Irish Banks to shrink

Brian Cowen, the Irish Primer Minister declared that Ireland's banks will become "significantly smaller" as a result of the financial bail-out by the IMF and the EU. This is as was predicted in this blog ("Time to break up Bank of Ireland?") on Monday 15th November. Mr Lenihan went on to say that the Irish banks would have to sell all non-essential foreign assets. Whether the Bank of Ireland's UK operations can be regarded as "essential assets" needs to be clarified, but whilst they are seen as an alternative source of income and an area of long term growth for the Bank, it is unlikely that there will be any other outcome than they will be put on the block.

Fortunately for any potential purchaser, the Bank of Ireland has already wrapped up these assets and put a bow on them by, at the beginning of November, putting them into a separate subsidiary, registered in the UK and regulated by the FSA.

The Bank of Ireland UK assets consist of a banking licence, guaranteed distribution through the 11,500 Post Office outlets and an established, trusted brand (The Post Office) which isn't seen as one of the banks that brought about the financial crisis. For any would-be new entrant to the UK banking sector this could represent a more attractive option than acquiring either Northern Rock or the 600+ branches that Lloyds Banking Group must dispose of, both of which would be more complex to acquire and establish, not least of all because of the challenges of taking on a large branch network with all the people and technology issues associated with that.

It shouldn't be understimated how difficult and the level of risk associated with taking on a large branch network would be for a new entrant. As has been recently seen by the acquisiton of the English-based Royal Bank of Scotland branches by Santander, the customers don't always like the idea of being sold to another bank without their say-so.

For a new entrant acquiring the Bank of Ireland UK operations the acquisition could, certainly in the short term, be almost invisible to the customers. They would still be able to go into the same branches (post offices) that they have always done, with the same branding over the door and the same staff serving them. This would give the acquirer the time to decide what to do with the back office processing and to be able to evolve the service over time and in a controlled way.

As the OFT said in its recent report, the challenge for any new entrant is to establish a branch network, to create trust in the new brand and to persuade customers to transfer their banking relations to the new bank. With an acquisition of the Bank of Ireland's UK Operations each of these challenges becomes easier than for the alternatives.

The bailout of Ireland and the Irish banks could just be the catalyst to create new competition in the UK banking market.

Wednesday, 17 November 2010

Burger King Banking - is it a Whopper?

Vernon W. Hill II, the founder of Metro Bank, the first new high street bank in the UK for over 100 years, likens growing Metro Bank to growing a Burger King franchise. He should know as he owns a large Burger King franchise in the US. He also successfully grew Commerce Bank in the United States to 500 'stores'. What he means by the similarity of growing a Burger King franchise is that every 'store' looks identical, operates identically, has the same level of service and operates as a retail outlet. In Metro's case some of the gimmicks are giving away free pens (Barclays has been quietly doing that for some time in their branches), free dog biscuits and cash counting machines built to look like one arm bandits.

None of this is particularly new either in the US, the UK or the rest of the world. We have seen over the last decade or so banks attempting to become more like retail outlets whether it is the Abbey experiment with branches co-located with Costa Coffee outlets, which lent heavily on the experience of Washington Mutual with its co-located branches with Starbucks or the Australian branches with their offer of waxing your board while you are doing your banking. We've also seen banks recruiting senior executives from the retail sector to drive that retailing mindset into the branches. As tax payers no one should be allowed to forget the impact of having a retailer running Halifax Bank of Scotland had on that particular bank.

The point is that on the surface it may seem that a bank branch is just like any other retailer, but it only at the surface that that analogy works. When you go into a burger king to go to buy a standard product that is entirely disposable, highly commoditised and which you own for only a very short time. For a product such as this a bright, open plan store with little or no privacy is entirely appropriate. However opening a current account or a loan or a mortgage is nothing like a burger. Buying these types of products is a  long term, for many a life time, acquisition, intensely private (sharing how much you earn or are worth continues to be one of societies taboos that simply isn't going away) and are not quick purchases. So when you sit down in an open plan office, where the people on the street outside walking past can see the screen that the banker is operating as he types in your salary or looks at your overdraft, and the person at the desk next to you is ear-wigging on your conversation don't forget to ask whether your value added account comes with fries!

Monday, 15 November 2010

It's a financial world: Time to break up Bank of Ireland?

It's a financial world: Time to break up Bank of Ireland?: "Given the dire state of the Irish economy and the freefall in the share price of Bank of Ireland, now would be a ideal time for a player who..."

Time to break up Bank of Ireland?

Given the dire state of the Irish economy and the freefall in the share price of Bank of Ireland, now would be a ideal time for a player who wants to enter the UK banking market to make an offer for Bank of Ireland's UK banking operations.

What they would get is an established network of 11,500 outlets, a brand (The Post Office) that is trusted and, most importantly, isn't seen as a 'bank' and also isn't seen as one of the organisations that got the country into the current mess. Buying the UK operations has recently become easier, not just because of the problems that the Bank of Ireland faces in its domestic market, but because since November 1st the UK operations have become a separate subsidiary with its own board and regulated by the FSA. By creating this entity separation becomes easier.

As the recent OFT report on barriers to entry stated two key factors inhibiting customers switching to new entrants is brand loyalty and customers' preference for a branch network. By the acquisition of the Bank of Ireland UK operations these two barriers can be swiftly overcome.

Selling their UK operations is not something that Bank of Ireland would want to do. The UK is seen as a growth market and where future profits will come from, whereas any growth in their domestic market share would be severely frowned upon. However should the Irish economy deteriorate further, as seems to be likely, and Bank of Ireland require further funding from the government, then the disposal of the UK operations may no longer be optional. As has been seen with both Royal Bank of Scotland and Lloyds Banking Group, there is a price to pay for governmment funding in terms of forced disposals. For an entrant with access to capital this could make for a very sweet deal.

Wednesday, 10 November 2010

Money! Money! Money! The Swedish bankers in Britain

When you think of the Swedish - most people probably first think about Abba, but once they've got those irritatingly happy and persistent tunes out of their head, the picture of the Swedish is of a quiet, unassuming, sensible race with a blood thirsty history as the Vikings of invading Britain, raping and pillaging. Well the Vikings have invaded again, though this time their approach has been with a much lower profile. Since 1982 Handelsbank, one of Sweden's leading banks with 700 branches in 22 countries, has been quietly opening branches all over the UK. It may surprise you, as it did me, that there are now over 80 branches across the country. Not only that but in 2009, Handelsbanken was voted the top bank for customer satisfaction and loyalty in the UK. Why have Handelsbanken been so successful in keeping their customers happy? The answer is simple - they have turned back the clock and made their bank managers the bank i.e. their bank managers are empowered to make decisions there and then and don't have to refer decisions back to a Head Office, thus they can truly provide a great service to their customers.

Handelsbanken continue to open branches across the UK achieving their goals of both being more profitable than their competitors  as well as having happier customers and lower costs.

In days of old the Vikings would sneak up and attack at night surprising their enemy; the traditional UK banks you have been warned!

Tuesday, 9 November 2010

Don't bank on the Post Office

At a time when the Government is saying that it is encouraging greater competition in the UK banking market, wanting there to be more choice for customers, the decision not to allow the Post Office to launch its own bank seems to go against all they have been saying. The official reason is that it would be 'time consuming and too capital expensive'. With a network of 11,500 branches across the country the Post Office would be ideally placed to take on the big banks, with an established and trusted brand and ease of access, two of the key critiera for access to the banking sector, according to the OFT report on the barriers to entry, published last week. The timing of this decision seems premature when the Independent Commission on Banking has only recently started work and is not expected to report it's conclusions until next October.

What the Government is doing is enabling more customers of the high street banks to access their current accounts in branches of the Post Office. What they don't say is that by doing this they will encourage the high street banks to close more of their branches, particularly those in more remote or poorer areas. How is this really helping those on low incomes or the unbanked to get access to Financial Services?

Friday, 5 November 2010

Switching SME banking relationships is easy - the OFT report says so!

Yesterday the OFT published its report on the barriers to entry and exit in Retail Banking. For those who haven't read the report in detail, some interesting responses from SMEs surveyed that little media attention has focussed on:

76% of SMEs who had switched thought it was very easy or easy to switch suupliers
4% of SMEs who had switched thought it was difficult
49% of SMEs  who had switched said it cost less than £100 and a further 21% didn't know how much it cost
49.6% of SMEs use more than one bank for their businesses
Of those who put their business with only one bank 78% had either not even thought about it or thought it was too much hassle to have a relationship with more than one bank
57% of SMEs are not disatissfied with the service they receive from their banks.

What the banks should take from this is that there is no room for complacency, SMEs can and will switch and there is a long way to go to improve satisfaction with the service provided.

Thursday, 4 November 2010

The competition in UK Retail Banking is coming ... but when?

Gary Hoffman, the CEO of Northern Rock, today announced that he is leaving the bank to join NBNK Investments, the new banking start up. NBNK in their turn have promised not to bid for Northern Rock for at least twelve months. However NBNK have been vocal about wanting to bid for the Lloyds Banking branches that the EU has dictated that they must dispose of as the cost of taking state funding to stabilise themselves after the acquisition of HBOS.


Meanwhile JC Flowers has been buying building societies starting with Kent Reliance with the aim of creating a cluster to take on the big banks. They too have, in the past, expressed an interest in acquiring Northern Rock when the government decides to dispose of it.


At the same time Blackrock has been pulling together plans to create one of the UK's biggest credit card companies by buying both Egg and SAV Credit, owner of the Marbles credit card.

And then of course there is Tesco, which has made no secret of the fact that it is building a full service banking operation.

The list goes on with the likes of Bank of Ireland creating a separate UK subsidiary regulated by the FSA, National Australia strengthening its UK offering, Virgin buying a small bank to get a banking licence and Metro Bank rolling out its offering one branch at a time.

There certainly appear to be more players looking to enter the UK retail banking market than at any other time in recent history. This on a day where the Office of Fair Trading publishes its report on barriers to entry in the retail banking industry and basically says the reason that there isn't enough competition in the UK market is fundamentally down to the consumer and the small business owner being too apathetic to change their bank. So it was all our fault all along - silly us!

As the Independent Commission on Banking takes its year to look at competition, concentration and stability in the UK banking market, the big banks can all point to the new entrants who say that they're going to shake up the market and ask what the problem is - this is a market that is vibrant with competition. The only problem is that, so far, it is all talk and we're no closer to being told when any of these players will actuallly open an account for a customer.

Wednesday, 3 November 2010

Women in Banking

So Ana Botin is tipped to become the CEO of Santander in the UK. Robert Peston blogs that this is a cultural revolution and that there aren't women in senior positions in the banks. The reality is that there are fantastic people in senior positions in banks who happen to be women. Is Robert living in the dark ages where we have to draw attention to the gender of the person? Just some of the examples of fantastic bankers are: Deanna Oppenheimer who runs Barclays Retail bank across the UK and Western Europe. Deanna when she was at Washington Mutual virtually designed how retail banking is seen across the globe with the modern open plan branch design.Her COO also happens to be a woman as well. If you move over to Lloyds Banking Group the head of the Retail Bank (and seen as a potential candidate for the CEO role until that was filled today) is the very talented Helen Weir. Running the Lloyds Bank and Bank of Scotland branch networks is Joy Griffiths, a  banker who has made her mark in Australasia and America before bringing her talents to the UK, and running the integration of the two retail banks is Helen Rose. I could go on, but Robert having women in powerful positions in banks is not news and neither is it worthy of mention.

If anything the story about Ana Botin is how long she has been groomed by her father, the Chairman of Santander, for the top job. The legend goes that as a young child she would sneak into the board room at Santander, hide behind the curtains and listen to the board meetings. Ana is a very bright, intelligent and articulate banker - there is no doubt that she has what it takes to be the CEO of Santander UK.

Santander boss Horta-Osório to be new Lloyds chief executive

A great and imaginative move on the part of Lloyds Banking Group bringing in Antonio Horta-Osorio  in as the new CEO of the Group. Bringing with him the experience of integrating several UK banks, negotiating with the UK government and most importantly a global perspective. In many ways Lloyds Banking Group and RBSG have tried to emulate Santander, where Horta-Osorio comes from, with their manufacturing model to retail banking, so to bring one of the architects of the Santander strategy is a great coup. Hopefully his coming on board will inject a more outward looking strategy and maybe we will see a return of Lloyds to Latin America, once a key strategic plank of the old Lloyds Bank.

Aviva to exit Asia?

Does Andrew Moss know something that all the other Financial Services organisations don't? With his announcement yesterday that they would look at selling their Asian businesses just as everyone else is placing their bets on Asia being their future - this is a very contrarian move. Only time will tell whether this is a wise move, but the smart money is on that this isn't.

BBVA takes a stake in Garanti Bank

What a smart move by BBVA - what a shame that our UK banks aren't being as strategic in recognising the growth potential in Turkey. Turkey has a vibrant growing economy, with an educated, young population. As one of the few countries that is self-sufficient, it has enormous untapped potential. Other European and US banks have recognised that potential - Citibank, ING and Dexia amongst them, but the UK banks (with the exception of HSBC) continue to shy away from Latin America and the north african countries. The danger is that the UK, as it has in so many other ways will be left behind while the rest of the world surges ahead.

Tuesday, 2 November 2010

Today Lloyds Banking Group was the first of the UK banks to give a third quarter indicator of results. Unlike the US, UK banks don't need to report financial numbers each quarter, they only have to indicate direction of travel. Not really surprisingly all the indications are that Lloyds Banking Group will record a profit for the year. There will be a similar story told by each of the UK banks over the next couple of weeks. The banks are back, which should actually be good news for all of us; after all we as UK tax payers and pension contributors hold sizeable shares in each of the banks and when they gain we gain. In a time when it is easy to make the banks the scapegoat for all our current woes, it's not popular to praise the leaders of the banks for the way that they have run their banks since the crisis - it's time to recognise that these good results have come from a lot of hard work from a lot of ordinary people who work in our banks.