FUTURE RISK CAPABILITY: understanding opportunity and threat

minimising future risk       creating sustainable advantage       creating opportunity

SPLITTING THE BANKS                  September, 2011

So ... the announcement has been made. The much maligned, but heavily relied upon, UK banking sector is to undergo a significant and fundamental change that will see the separation of the retail and investment arms.

This article is NOT about the pro's and con's of such a move. This article is about the willingness and ability of the banks to take on the challenge - and be successful.

The reason for the focus is simple. From experience, there is a significant level of resistance to change within the sector. And to be fair to the banks (fair?) for decades successive governments have reaped the massive rewards gained from a booming and vibrant sector. I know there are some who cannot see the reason for change. I know there are many who don't want to change. And yet change there will be. However, the resistance to change will be a barrier with the result that some parts of the sector will embrace change, while some will engage in the least possible effort and likely wait until the last possible moment.

This will be a problem.

As someone who is engaged in complex business change, organisational separation and efficiency, I can speak from experience when I say those who have to be dragged "kicking and screaming" usually incur the greatest cost - and the greatest loss of business. Those who are proactive in the pursuit of change, those who have foresight in a fast changing world, are always the ones who are ahead of the curve - and gain that all important market share. With regard to this particular sector, banks are becoming extremely sensitive to consumer pressure and regulatory demands. Make no mistake, the pressure and the demands are on the increase - and, as we know, it will soon be easier for customers to change banks. Consumers WILL walk. The past recession has clearly shown everyone - everyone - that the concept of corporate loyalty to customers is just a myth.

Banks (and the rest of the finance sector) really do need to take on board the level of expectation from customers, the regulators and politicians - and willingly make that change. Resistance to change is set to become THE biggest differentiator between the banks. The end point is 2019. There will be some who argue the threat is not therefore within the foreseeable future and so there's no need to do anything about it. These delaying tactics will only chip away at market share and at profitability as customers do walk to the best deals, the most responsive and customer friendly banks - those with the lowest risk profile in a now recognisably risky world.

Following the last recession, customers will most definitely place their funds in the least risky environment.

Splitting the banks may or may not be the best idea. But it's going to happen. Therefore something very special is required for it to be made a success of. Individual banks need to:

• understand and agree a strategic course of action

• go to the market for the skills required - they should NOT make the mistake of thinking they can separate using their own internal resources. Organisational separation is complex, it is risky, and calls for skill. It needs people who know what they are doing if they are to deliver two separate organisations out of one - and both still functioning and in profit

• start the planning

• begin the process

• keep their eyes on the strategic goals and not be diverted by any other pressing need

Will they do this?

Hmm ... now that's a question, isn't it?

Exactly in keeping with every other sector, banks are good at banking. Of course they are. But ... they are not so good at anything else. In truth, why should they be? The skills required for separation are outside those required for core banking. The fact that they, for once, will have to look outside their own limited view of the world will be an anathema to some. Yet if they don't do it they will fail. They will fail rapidly and spectacularly. Do they think they are indestructible? Of course some do. And yet recent corporate history has shown that the mighty do fall ... and leave in their wake the very, very unpleasant bones of past dinosaurs.

Banks have one shot to get this right. This means they have to get it right. Hindsight never is a good friend to intransigence. Alt3 is in a good position to help.

Regards

JS

If you don't understand the risks, how can you prepare? Can you afford to let the issues be blurred?

The turbulent 21st century

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central@alt3.co.uk