How should the bank approach a post COVID19 operating model (look at the article)
TRANSCRIPT | The Now and the Next For Banks Now, that being said, the service levels weren’t always great. We've heard a lot of stories about three-hour call center wait times and other issues as banks transitioned. But I think that the basic access to money, payments, financial planning all worked pretty well. So I think a lot of the banks were happy with that transition. I heard recently from Jamie Dimon at JPMC who commented that the bank had their single largest payments day ever with just over $7 trillion being moved, all processed by people working remotely. So I think that’s a yes answer to the question, which is the industry did transition to remote working and remote operations relatively smoothly. But the no aspect to the question is, I think that the most common response in terms of the ability to cope at this point has been regret. Regret that more progress wasn’t made to becoming more digital, to be more in the cloud, to be more automated and to have higher levels of digital sales when the industry had the chance to do so. So, regret that they didn’t move quicker over the last five years and that this pandemic has highlighted I think that there was things that could've been done that weren’t done. Rebecca McReynolds: I understand that Accenture has analyzed the likely impact on banks across the board and you've concluded that there are four key areas that will be hardest hit. The first is credit management. Why? Rebecca McReynolds: Hi, and thanks for joining us. While every industry is being tested by COVID-19 and its economic fallout, banks are balancing dual responsibilities. First of course, they're working to serve their customers while protecting their employees and ensuring their own continuity through this pandemic. On the broader stage though, banks will also play a critical role in moderating the economic damage this crisis is expected to cause. To help banks manage both the short-term and long-term impacts of COVID-19, Accenture has identified four key areas that banks need to be focusing on right now and is providing guidance on how we can all come out stronger after this pandemic is over. Alan McIntyre, Accenture's senior managing director for banking, is here to talk about those issues and strategies. Alan, thanks for joining us. Alan McIntyre: It's a pleasure to be here. Rebecca McReynolds: Well, first of all, how ready was the banking industry to cope with this crisis? It's obvious that the pandemic is a black swan but were they prepared and equipped for this amount of turmoil? Alan McIntyre: I think the answer is both yes and no. Yes in that many bank business continuity plans ended up working very well. And whether it was trading floors to establishing virtual call centers, many of the banks that we deal with had 90 percent of their employees working productively from remote locations within a couple of weeks. ALAN MCINTYRE: THE NOW AND THE NEXT FOR BANKS AMERICAN BANKER PODCAST TRANSCRIPT Alan McIntyre: I think there are many differences between the financial crisis of '08 and '09 and where we are today. And I think one of the principal ones was that the '08-'09 crisis was first and foremost a liquidity crisis. That’s what took down Lehman Brothers. That’s what triggered many of the other crisis interventions. And I think the regulators and the central banks learned that lesson. And in this crisis, they stepped in early to ensure that their liquidity dominoes didn’t stop falling. There have been some pockets of failure like highly leveraged commercial real estate investment funds where margin calls have essentially driven them into bankruptcy and foreclosure. But in general, I think the liquidity tap was turned on very quickly and effectively. And ultimately, lack of liquidity can kill a bank very quickly. But I think the contrast with where we are now is that this crisis is going to be characterized by a multi-year credit event. So it's going to be more of the small thousand cuts as both consumers and corporates struggle to make loan repayments. I think the other thing to highlight about this crisis versus '08-09 is that this is first and foremost a public health crisis, triggering a crisis in the real economy, rather than a financial-sector-generated crisis then following through into impaired assets. I think you can see the credit crisis on the horizon here. You can see preparations being made. The top five US banks have taken $24 billion in new credit provisions. But I think the reality is that the real impact won't be felt for a number of quarters because some of the fiscal stimulus and some of the forbearance that’s been put in place with respect to payment holidays, the fiscal stimulus checks to both small businesses and to consumers—that those are going to create somewhat of a phony war, I think, over the next couple quarters. But that is going to wear off probably in Q3, Q4. So if you think about the economy, both consumers and businesses needing a fixed dollar amount of capital to get through this crisis, then later in the year, the onus to provide that is going to move from public to private. And I think that’s why we think credit management is going to be a critical differentiator here and that credit management is very quickly rising to the top of most banks' agendas. Rebecca McReynolds: So instead of waiting for government action, should banks be more proactive in providing credit extensions and similar customer support? Alan McIntyre: I think that the immediate priority for a lot of banks is to be seen as good partners of the public sector and provide efficient transmission mechanisms for fiscal policy. I think a good example of that in the US is the Small- Business-Administration-backed Hero Protection program that at this point is providing over $700 billion of small-business forgivable loans. And I think one of the things that we got right was that the incentives provided to the banks to participate in that type of program were meaningful and hence, the US banks have all went in. I think a good contrast here is with the UK, where the banks had to take on more of the risk for business continuity lines and the initial efforts were a little bit of a bust because the program wasn’t attractive. But as I said, I think that while the immediate focus has been on being a good partner for the public sector, sometime later this year, that’s where it's going to be game time for the banks I think in terms of picking up the emphasis on providing credit extensions and some customer support. And that’s where it's going to be front and center. I think one of the most interesting questions about this crisis is how surgical the banks are going to be in providing that support. In the short term, a lot of the public sector support has been broad-based but I think the reality is, post-COVID, that the economy is going to look very different. So the question of where banks provided proactive credit support versus where they maybe take a step back and say, this is a sector that’s not going to look the same post-crisis as it did last year. I think you take commercial real estate as a good example of that. The chances are we're never going back to having the same number of people working in large offices that we did in 2019. So at some point, the commercial real estate sector will need to get restructured. So I think that the fallacy that everything will go back to the way it was before, that would lead to higher credit losses than a more nuanced approach. So, I do think that the banks will be proactive in managing credit. But, I don’t think that we'll really see the differentiation happen bank to bank until later on this year. And I think that’s where a lot of the data and analytics firepower that the banks have developed over the last decade is going to be turned towards credit management and figuring out the right strategies to take to provide the right support to the right customers at the right time, while also trying to do the right things on a macroeconomic basis for the bank's shareholders. Rebecca McReynolds: What's the upside for banks for doing all this? Alan McIntyre: I think the upside is principally to be seen as heroes rather than villains, to be seen as a sector that helps moderate rather than amplify this crisis and to be perceived as advisors and supporters. I think that in times of financial stress, most consumers don’t turn to their banks for advice. We've recently done research that suggests that only 14 percent of customers look to their bank for advice in a period of financial stress. So that indicates a pretty material trust gap. So I think this crisis, given that it wasn’t generated by the banks, provides an opportunity to close some of that gap and I think it will require an appreciation of long-term customer value rather than short-term profit maximization. I think there's upside for banks here in being good partners both for the public sector and for their own customers to help navigate this crisis and as I said, absorb some of the financial stress, rather than being a source of that financial stress. Rebecca McReynolds: The second area of concern is revenue compression. We're already seeing that, right? Alan McIntyre: Yes. I mean we expect, if you look globally, for banking revenues to be down 5% to 7 percent in the next year. It's probably going to be higher in Europe and it's going to be lower in Asia with North America being somewhere in the middle. And that revenue compression is coming from a couple of different sources. One is that the emergency interest rate cuts that we've