By Margot Patrick and Simon Clark
At beleaguered European banks, coronavirus is fast-tracking
plans for fundamental restructuring after years of poor
Many of the region's most prominent lenders are tearing up old
business models, cutting business lines or doubling down on
domestic markets as they try to find a formula that works for
HSBC Holdings PLC is returning to its Asian roots and calling
time on weak returns in continental Europe and the U.S. with a plan
to shed 15% of its workforce. The Netherlands' ABN Amro Bank NV,
once a top-15 global bank with deep roots across the world, is
getting out of trade financing and cutting off corporate customers
outside Europe. Switzerland's Credit Suisse Group AG and UBS Group
AG are stripping out layers of administrative workers to free up
money for investment in technology or new business.
Banks around the world have been squeezed by the pandemic. In
the U.S., Wells Fargo & Co., for example, is slashing costs and
cutting staff to try to ride out the crisis, moves that could hold
clues for how other large U.S. banks may respond. Wells came into
the crisis in worse shape than some U.S. rivals but in better shape
than many European lenders, which have toiled for years as margins
were squeezed by low interest rates in the wake of the last
financial crisis. As a result, banks in Europe were among the most
vulnerable institutions as the coronavirus pandemic sent already
challenged economies into a tailspin and pushed loan-loss
provisions to their highest level in a decade.
Finding and then sticking to the right business model now is
seen as crucial to banks' longer-term survival and to get buy-in
from investors. "European banks face a profitability crisis," said
Citigroup Inc. banking analyst Ronit Ghose. "In response to
decadelong low returns, European banks have been busy
restructuring, but it is hard to shrink to greatness."
Investors' low expectations are reflected in the banks' share
prices. European banks trade at less than half their book value,
while U.S. banks trade at more than four-fifths of book value. The
Stoxx Europe 600 Banks Index is down 36% this year while the
broader Stoxx Europe 600 Index has fallen 12%.
France's BNP Paribas SA and Société Générale SA are among
national champions that are scaling back global ambitions to focus
on their home economies.
In the U.K., Barclays PLC, for years styling itself as a mini
JPMorgan Chase & Co. spanning retail and investment banking, is
under pressure from an activist investor to slash its trading
Some of Europe's banks, including HSBC, ABN and Credit Suisse,
have new CEOs this year who have seized on the pandemic as a
catalyst to make changes to their banks' business models.
HSBC Chief Executive Noel Quinn hit pause on planned job cuts at
the lender when the coronavirus hit but said those have to
accelerate now to pull out costs. Around 35,000 of the bank's
235,000-strong workforce will go -- by exiting much of continental
Europe and shutting U.S. branches -- as part of a continuing global
retreat to refocus on its more profitable Asian heartland.
In an interview, Mr. Quinn said he plans to invest in technology
to cut costs. He hired John Hinshaw, a former chief information
officer at Verizon Wireless and Boeing Co., late last year to help
the bank become more digital. Country lockdowns led more customers
to online banking and phone apps, and that trend is likely to
accelerate, according to bankers and analysts.
"Banking is still banking but technology has an increasingly
important role to play in it," Mr. Quinn said.
ABN Amro is returning to its roots, too, with the ambition of
new CEO Robert Swaak to be "the best Dutch bank" with a focus on
northwest Europe. He said earlier this month that ABN will exit
corporate banking in the U.S., Asia, Australia and Brazil, and a
trade-finance business that traces back to colonial times.
Geographical diversification used to be seen as a way to offset
weakness when one market cooled, said John Ahern, a partner at
Covington who advises banks on regulation. "In coronavirus, you
have a global economy almost in shutdown. You're not leveraging an
advantage and can be exposed to too many challenging markets," he
Barclays Chief Executive Jes Staley for years has argued that
geographic and business-line diversity makes banks more resilient
in a crisis, after helping steer JPMorgan through the last
financial crisis. He crafted Barclays to emulate his former
employer, with a large U.K. bank serving businesses and households,
an international credit-card arm and investment banking in London
and New York.
Mr. Staley claimed victory for his strategy in the second
quarter as profit from Barclays' corporate and investment bank rose
16% to GBP694 million ($908 million) while its U.K. unit swung to a
GBP123 million loss.
Activist investor Edward Bramson didn't agree. He argues that
Barclays' trading revenues are volatile and poor quality because
the bank doesn't have the large corporate-client or
wealth-management businesses that drive trading flows at bigger
rivals like JPMorgan.
Mr. Bramson's firm, Sherborne Investors, says it is the largest
Barclays shareholder with a 5.9% stake. He renewed calls this month
for the bank to follow the example of Deutsche Bank AG and downsize
its trading arm. Deutsche Bank shares have risen 13% this year,
while Barclays shares have slumped 40%.
Mr. Bramson said Deutsche Bank had shown that trading businesses
can be pared down without fatal effects, and described Deutsche
Bank's investment bank as "a more viable business than before."
Barclays declined to comment.
The wave of restructuring could be the precursor to
long-talked-of consolidation, bankers and lawyers say. The European
Central Bank has said it would ease the way for future mergers, and
gave its blessing to a takeover by Intesa Sanpaolo SpA of local
Italian rival UBI Banca SpA.
Meanwhile, banks that went through lengthy restructurings before
are finding ways to be leaner through the pandemic.
Thomas Gottstein, CEO at Credit Suisse since February, said the
pandemic was the trigger for making further changes to lower costs
and free up money for investment after an earlier restructuring
under predecessor Tidjane Thiam. Credit Suisse and rival UBS so far
have fared better in the pandemic than most other European banks
because of their historically low-loss Swiss loan books and focus
on banking for the world's rich.
Credit Suisse is combining several market-trading businesses and
integrating its risk and compliance functions to invest in growth,
Mr. Gottstein said.
Write to Margot Patrick at firstname.lastname@example.org and Simon
Clark at email@example.com
(END) Dow Jones Newswires
August 23, 2020 08:14 ET (12:14 GMT)
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