Do you expect there to be further consolidation in the world banking industry? Neuber: The process of consolidation we have recently seen in global banking will continue at an accelerated pace. Apart from certain other factors, this trend will be driven both by increasing price competition (which will be further heightened by Emu) and the need for substantial investment in product development (in areas ranging from electronic banking to risk management) as well as the required service quality in the investment banking area. In response to these challenges, banks will seek to leverage economies of scale while at the same time sharpening their business focus.
Will there be large-scale cross-border – as well as domestic – bank mergers?
Neuber: The ongoing consolidation in the financial sector will lead to further mergers both on a national and international level, involving both banks and non-banks such as insurance companies. Institutions will use such mergers to manage costs through economies of scale, to extend their regional presence and customer bases, and to round off their product ranges. However, mergers always pose a management challenge and will not be successful unless the diverse corporate and national cultures are carefully integrated.
Do you see banking consolidation putting any downward pressure on professional salaries?
Neuber: As far as our bank is concerned, we have not seen any indications of such a trend. However, we would not exclude the possibility of such a development in certain areas which have shown signs of a certain overheating in the past.
What is a bank?
Neuber: I feel that this is a question that every bank has to answer for itself.
Westlb has positioned itself as a European bank with a domestic focus on Germany. We are a typical wholesale bank working in the tradition of Germany’s universal banking system, and we continue to strive for a profitable market position in all major markets. Westlb is committed to achieving and maintaining leading competitive positions by providing high-quality services and optimum customer care.
As securities markets continue to grow worldwide, is there a future for bank lending to companies?
Neuber: Corporate lending will remain at the very heart of every customer relationship, providing the platform for our cross-selling efforts. Having said this, the relative importance of the traditional lending business will decline, both in terms of volume and profits, against the background of the steadily expanding securities business. We have already adopted strategies to adjust to this development. However, the question is not whether to opt for either business, but rather how to blend securities and lending products into customized solutions benefiting our clients. This will be the key challenge going forward.
How important is it for your bank to expand in non-banking areas such as insurance and asset management?
Neuber: As the term implies, Germany’s “universal” bank system has traditionally spanned a much wider spectrum of products and services than is customary in the Anglo-Saxon countries. Asset management, for instance, is seen as a typical banking function in my country. Our bank has been active in this business for a long time and we intend to step up our efforts in line with our customers’ increasing requirements. In contrast, we have no plans for an expansion into the insurance sector which is fully and competently covered by affiliated companies of ours.
What or where is your bank’s biggest risk?
Neuber: As an international bank, Westlb must take risks _ after all, taking risks is an integral element of banking business. The important thing is how to manage these risks both effectively and efficiently. The past few years have seen Westlb make significant progress as regards the risk-weighted allocation of our resources. Having said this, these efforts needs to be pursued further, in particular with regard to innovative products and cumulated risks, eg against the background of the current situation in Asia.
How important will proprietary trading be to your bank going forward?
Neuber: The extent of our proprietary trading has largely been determined by two major factors: first, the increasing requirements of our customers; second, the underpinning of our standing in the national and international financial markets. Going forward, we will maintain this strategic orientation and expand this field of business in line with our customers’ needs. This effort also includes our global, 24-hour book management.
What is the most important qualification or quality need to be a bank CEO?
Neuber: I would like to emphasize three key qualifications: (a) the ability to recognize market trends at an early stage and to take strategic decisions in response; (b) the ability to motivate people, given that a bank’s strength derives from its human resources; (c) an understanding of technical innovations and their implications for banking business.
I feel that these factors are indispensable when it comes to positioning one’s bank in today’s markets, which are evolving at an ever faster pace, and particularly if one wants to contribute pro-actively to market developments.
How important is it for a bank CEO to have an intimate understanding of derivatives and risk management?
Neuber: A bank’s risk management efforts are a strategic task, which makes them a natural area of responsibility of the board and its chairman. In fact, effective risk management hinges on a detailed understanding of the many risk categories in modern banking.
How would you like to see the regulation and supervision of banks improved?
Neuber: Banking supervision is currently characterized by highly detailed – hence, complicated – mechanisms. This kind of over-regulation has not only placed an enormous cost burden on institutions but has also rendered supervision inefficient. This development should be reversed. Quantitative banking supervision should focus more on broadly defined, general criteria and be complemented by a more qualitative supervision focusing on a bank’s management processes. To do justice to the increasing complexity of banking business, the focus should shift to institutions’ internal control mechanisms (in analogy to audit procedures in other areas).
How will the introduction of the European single currency affect your bank?
Neuber: Competition in the banking sector will increase considerably, given that a single currency will make banking services and products more transparent on a cross-border basis.
Multinational corporate customers will increasingly rely on group-wide netting and pooling arrangements. This concentration on the financing side results in less need for local funding, causing companies to pare down the number of banks they do business with. This trend will give added momentum to the ongoing concentration in the banking sector.
On the product side, demand for certain products will cease, eg for swaps involving currencies replaced by the euro. On the other hand, the depth created through the convergence of the member countries’ securities markets will boost product innovation, meaning that the variety of traded securities will increase considerably. Faced with these trends, banks are challenged to adjust and restructure while pushing ahead with product innovation at the same time.
Why have banks been much more profitable in the 1990s than they were in the 1980s? Will this continue?
Neuber: Success has always come to those banks which have followed clearly defined business strategies. Higher volumes, enhanced efficiency and increased reliance on standardized services have combined to drive profitability in the nineties. Banks have also moved into new and profitable fields of business, eg investment banking. In addition, they have focused more strongly on developing customized added-value services in response to customers’ increased needs.
Going forward, banks will be challenged to maintain this higher level of profitability through a clear focus on customers, products and regions, and through effective application of technologies and cost-controlling techniques.
How will technological developments change the shape of commercial banking?
Neuber: On the customer side, we see higher demands being made as far as electronic networking with banks is concerned. Traditional electronic banking solutions are increasingly being replaced by electronic commerce services which are integrated with customers’ in-house systems. At the same time, customers increasingly expect comprehensive solutions which are offered on a cross-border basis and in a kind of “just-in-time” mode. Also, certain banking transactions, especially in the trading field, would be impossible without the use of state-of-the-art technology. In addition, workflow solutions are enabling new forms of work and cooperation transcending the conventional restrictions of time and space. The bottom line is that information processing capacity has become a major factor of success in international competition.
