17 December 2018
The banking industry is not the same as it was before the 2008 financial crisis. Photo: Bloomberg
The banking industry is not the same as it was before the 2008 financial crisis. Photo: Bloomberg

Decoding the messages from Wall Street CEOs

For many investors, letters from company bosses in annual reports serve as useful tools to get expert insights on the macro-economic environment, corporate earnings prospects, etc.

I, too, am interested in such messages, an activity made famous by billionaire US tycoon Warren Buffett.

Now, let me share some random insights that I gained from poring over various letters from CEOs of Wall Street firms. 

– In the past decades, before the financial crisis, best students in top universities were drawn to investment banking jobs because of the generous pay they offered. But now, most of the top talents are heading west and going to Silicon Valley.

– In the finance industry, big lawsuits and related costs have exerted pressure on banks’ earnings. Some banks sought to cope with the situation by cutting staff or relocating to places with lower costs. 

– As for business development, the worst performing operation in the finance industry in the first quarter of 2016 was the fixed-income, currencies and commodities (FICC) segment. FICC businesses are more cyclical. Relatively, a traditional bank like Wells Fargo, which has larger exposure to retail businesses, is less impacted. But investment banks are facing a threat to their existing business models. 

– After the Dodd-Frank Act was put into effect, the big banks on Wall Street are required to write living wills to avoid systemic risk if they were to go bankrupt. But US regulators have returned five of the major banks’ living wills, saying that they fall short. If banks fail to meet regulatory standards within a specified time period, authorities will have right to spilt up the banks.

– Although regulators say banks should be more self-disciplined, the political mood in the US is not in favor of bank consortiums. When Hillary Clinton was asked whether authorities should start taking legal action to split up the banks if they fail to set appropriate living wills, she said “Yes”.

– As they strive to meet new regulatory requirements, banks have seen their operational costs rise. Meanwhile, some institutions don’t really have too many options in relation to trimming the expenses. I believe banks will have trouble in turning around the situation for at least 3 to 5 years.

– The banking industry is no longer the same as it was before the financial crisis. For college graduates, it’s time to rethink whether finance jobs are still the ideal ones.

This article appeared in the Hong Kong Economic Journal on April 27.

Translation by Myssie You

[Chinese version 中文版]

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General Manager, Head of Investment, Investment Management, Bank of China (Hong Kong)

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