Had lunch with a few of my ex-colleagues, some who are still currently working in the banking sector. We starting talking about the state of the financial industry and where it is heading.
It was nothing by bad news about the decline of banks and how it is going to get worse. Expenses are increasing by the day : the compliance team is now a big cottage industry, policing everything that front office sales and trading persons are doing, sometimes to the point of being overly paranoid and ridiculous. Revenues are also decreasing : strict new rules prevent banks from earning income and capital-intensive policies like Basel 3 are making most trades impractical for banks to participate and execute. A classic widening of JAWS – expenses growing faster than declining profit. When revenue doesn’t come in by Q3, then expenses have to be cut – more blood on the floor, starting from the top…
There is no end in sight as global banks scramble to react to a world that has been turned upside down by zero/negative rates since GFC 2008. Coupled with shrinking liquidity, wide market swings are created – see recent Brexit example. Traders are now unable to make money too, as their risk limits are cut to the bone. Nowadays, everyone is trying to keep their jobs and just aim to earn base pay. Zero is the new bonus benchmark.
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