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
asic 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
egret. 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
anks 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
y COVID-19 and its economic fallout, banks are
alancing 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
oader 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
eady 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
etween 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
eal impact won't be felt for a number of quarters
ecause some of the fiscal stimulus and some of
the fo
earance that’s been put in place with
espect 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
illion 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
isk 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
eing 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
anks are going to be in providing that support.
In the short term, a lot of the public sector
support has been
oad-based but I think the
eality is, post-COVID, that the economy is going
to look very different. So the question of where
anks 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
e turned towards credit management and
figuring out the right strategies to take to provide
the right support to the right customers at the
ight 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
anks for doing all this?
Alan McIntyre: I think the upside is principally to
e 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
esearch 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
equire 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, abso
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