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New heroes- Retail banks!

Grappling with the aftermath of the 2008 financial crisis the retail-banking sector has weathered many storms in recent years along with the impact of digitization and competition from digital challengers. COVID-19 being the disruptor-in-chief, banks now have to be bold and innovative to transform the material threat it will face and turn it into an opportunity for increased market share. Living through the pandemic together, we can say that the coming year will be bring a major hold on the economy and all of our lives too, in a broader sense. But the financial crisis of 2008 recession’s catalyst for crisis and timescales of impact are different from todays, there are still lessons to be learned.

After taking measures post-2008, including increased regulations and tough decisions, causing the sector to scale down, streamline and increase capital buffers, the banks are much stronger now. Banks cannot rely only on the efficiencies, however, and will need to be proactive to minimize collateral damage from the current crisis. To help manage their responses to intense systemic shocks, banks are tested every year and prepared for the contractions of only about 5 to 7 percent. The United Kingdom’s economy contract by 25 percent in June, even though it was expected a bounce back is probable with an intense recession. 

“New decade, new crisis: lessons learned from the Global Financial Crisis and why this time it’s different” Kearney’s recent report suggested after being tested. As the Governments introduced far tighter regulatory regimes for the financial sector, ensuring capital adequacy and proscribing excessive risk-taking. The cost savings of around £70 per customer per annum will need to be achieved, compared to £20 per customer after the 2008 crisis. And these levels of efficiencies will not be met without radical reform of the business model.

The models pre crisis will have to be adapted after post crisis realities too. Many outdates elements have been exposed by this COVID-19 and with some considerable competition from these challengers, the customers might not be inclined towards the traditional methods and reject them and favor the digital alternatives. Already there can be seen migration to digital and cashless accelerate with the pandemic and the world of traditional banking rapidly evolve its practices to cater to new customer preference. Digitalizing is not just critical for customer appeal but it is very essential to realize the operational efficiencies needed to remain financially competitive. Operations departments have to become even more automated, with new AI (artificial intelligence) and robotics systems speeding up transactions which will facilitate every aspect of the retail banking, from improving the customer experience by predictive sales modelling and gauging clients’ price sensitivity to improving risk management to minimize financial exposure in the future. Kearney estimates that across Europe, banks will need to reduce their costs by €35 billion to maintain their current 2019 cost-to-income ratio, so taking measures to cut costs and adopting new operating models to streamline processes will be essential for survival in the post-pandemic marketplace.

The banks should now take cues from fintechs, the main lesson being to be bold and experiment with new tools. Even though compliance regulations imposes additional costs, there are possibilities to innovate. This pandemic aided the traditional banks to take a rapid shift towards digitization so that the customer experience can now be Omni channel with banks always available to customers without the need for them to drop into a branch and with payments and transactions able to be processed online. It offered an opportunity to become the heroes if and when the sector showed resilience, adaptability and vision to act as the primary catalyst for the economic revival and the Retail banks can became the Heroes if they are not suborn and hear their customers more than ever now.

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Goldman banker hired by the Citi bank

Citigroup has hired Luisa Leyenaar-Huntingford from Goldman Sachs. This new hire is to co-head its global infrastructure franchise. Because, it seeks to win more business from cash-rich investment firms focusing on infrastructure deals. Leyenaar-Huntingford will be based in London. Responsibility will be shared with Todd Guenther in New York.

The pair will work closely with industry teams covering healthcare, industrials, natural resources and clean energy transition (NRCET), technology and communications. Leyenaar-Huntingford helped in the establishment of the Goldman’s infrastructure franchise in her time at the Wall Street bank. They will team up with Citi’s Iberia co-head of banking, capital markets and advisory (BCMA) Jorge Ramos will continue to be a senior member of the global infrastructure franchise.

The infrastructure sector is poised for further growth, according to the memo. The memo was released by Citi’s global co-heads of the alternative assets group Anthony Diamandakis and John Eydenberg, and its EMEA head of BCMA Nacho Gutierrez-Orrantia. There was significant private investment demand across the globe to deal with environmental, energy, transportation, waste, communication, digital and other social needs.

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Banks make slow progress on UK gender pay

Major banks in Britain made a slight dent in their gender pay gaps. Several insurers went backwards. Companies in Britain with more than 250 employees have been required to publish the difference between the pay and bonuses of their male and female employees. They got a reprieve due to the pandemic, last year. The financial services sector has shown one of the largest genders pay gaps in Britain. The lack of women in senior jobs is the main reason.

Pay gap data from 21 major financial institutions showed a narrowing in their average mean gender pay gap. This is just 0.4 percentage points. Banks alone had a pay gap which narrowed by one percentage point. Ann Francke, chief executive of the Chartered Management Institute said that the UK’s financial services industry has often been singled out. It really does have to get its house in order. Goldman Sachs had the widest gender pay gap in the year to April 2020. Goldman posted a gender pay gap of 51.8%. The bank told the staffs that narrowing the gap further was a critical priority. A spokesperson for banking lobby group UK Finance said, that there is clearly more still to be done.

FTSE 100 insurers Prudential, Legal & General and M&G reported a widening in their pay gaps. Prudential’s UK gender pay gap widened to 45.2%. M&G also reported a widening in its pay gap in the most recent year to 30.5%. The M&G spokesperson said that they are determined to narrow their gender pay gap and will do this by achieving better representation of women in all roles at all levels of our organization. Legal & General’s mean gender pay gap widened to 30.8%.

The insurer said that the legal & general is tackling the underlying causes of its pay gap. This is by creating a more diverse workforce and a more inclusive culture through sustained, long-term action. Admiral had a gender pay gap last year of 12.8%. The 21 firms surveyed were Barclays, HSBC, Lloyds, NatWest, Standard Chartered, Bank of America Merrill Lynch, Goldman Sachs International, JPMorgan, Morgan Stanley, UBS, Credit Suisse, Deutsche Bank, PGMS (a Phoenix unit), abrdn, Schroder Investment Management, St James’s Place, Legal & General, Prudential, Admiral Group, Aviva and M&G.

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BOJ to lower inflation target-Japan’s finance minister

Japan’s outgoing finance minister, Taro Aso, said that he had proposed lowering the central bank’s 2% inflation target. This is when the prices took a hit from plunging oil prices. He was the finance minister for nearly nine years. The slump in oil price was among the main reasons the government could not officially declare an end to deflation. In his final news conference as finance minister, Aso said that he proposed to Governor Kuroda that, with oil prices falling this much, it would be hard to achieve 2% inflation. Hence, the target must be lowered at some point. He stated this by referring to Bank of Japan (BOJ) chief Haruhiko Kuroda.

Aso also said that the governor said he would do his best to achieve the target. This is stated by adding that policymakers must scrutinise at some point, why the BOJ’s inflation target of 2% has not been met. The remarks highlight how the government and lawmakers distanced themselves from the BOJ’s target years ago, despite central bank reassurances that achieving the target was possible by maintaining or increasing stimulus.

Aso was deeply involved in negotiations with the BOJ. After Kuroda took over as governor, he deployed a massive asset-buying program. This is for pulling Japan out of deflation. Aso supported the BOJ’s stimulus efforts. He is a member of the cabinet. And also, had raised many doubts that monetary policy alone can reflate the economy out of the doldrums. New Prime Minister Fumio Kishida is set to form a cabinet.

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