You should have a scientific approach in banking, but it should also be linked to the way human beings feel
Doing well in banking requires much more than a narrow set of technical skills, according to Jean-Laurent Bonnafé, chief executive of BNP Paribas.
“To become a banker you need to study maths and history, because you have cycles,” he says. “Part of it is metrics and part of it is just human nature. Behind Brexit, for example, there’s human nature. When you start to believe that a certain situation is definitively under control, then maybe you find yourself at the beginning of an issue. You should have a scientific approach in banking, but it should also be linked to the way human beings feel.”
It is a feeling that might speak to the differences among French bankers, whose ranks include stereotypical equity derivatives geeks, as well as bankers more comfortable hobnobbing with the Parisian business and government elite, like Emmanuel Macron, the Rothschild banker turned president.
Bonnafé, soft-spoken and bespectacled, is on the face of it more akin to the engineering type. He was educated – just like his peer at UniCredit, former Société Générale banker Jean Pierre Mustier – at the École Polytechnique and École des Mines. Nevertheless, his comments display a thirst for a wider scope of knowledge, especially history. Is there a period of time that particularly interests the head of the biggest bank in continental Europe?
Seven Years War
Bonnafé points to the Seven Years War, an 18th century conflict that pitted the monarchies of France, Austria, Sweden and Russia against those of Britain and Prussia. While battling over scraps of Germany, the war also saw Britain emerge as the dominant colonial power in North America and India. But only a few years later the ideological force of the American and French revolutions swept away that old world of dynastic conflict, with the US ultimately eclipsing both France and Britain.
What is interesting for Bonnafé is how states and governments – or perhaps a set of institutions or an industry – can believe they are the centre of the world, while ignoring that something much bigger is coming (nationalism and liberal democracy, say). It is not long before the pettiness of more myopic struggles becomes clear. China’s initial dismissal of the economic and military rise of Europe is another example from the early modern era.
Bonnafé sees contemporary parallels to the Seven Years War today, including the EU’s difficulties and, in the world of banking, as the incumbent powers ignore the rumblings of digital revolution heralded by financial technology companies – the American colonists of today, perhaps.
Bonnafé also sees other risks emerging, including in Asia, where he worries that some parts of the banking industry may be too close to public officials and not transparent enough.
As far as his own bank is concerned, Bonnafé is relatively satisfied with the business model and how it is developing.
“We are attracting talent; we are diversifying; we are disciplined,” he says. He thinks the bank is keeping abreast of the opportunity technology brings to lower costs by sharing platforms for activities such as payments that may not be essential to the bank’s core role as a financier, adviser and risk manager.
Given its net income in 2018 of around €8 billion after exceptional items, BNP Paribas’ market capitalization should be between €80 billion and €100 billion, he says. In fact, it is closer to €57 billion. But concentrating on European banks’ share prices “is a very narrow way to look at the situation,” he says, as it is largely to do with a lack of comfort with European risk in general, thanks to the underdevelopment of Europe’s own capital markets and the consequent reliance on US investors.
Since the 2008 crisis, says Bonnafé, banks have had to ramp up their capital and liquidity buffers, and spend much more on anti-money laundering compliance and foreign sanctions, as well as cybersecurity. BNP Paribas’ equity base has more than doubled, while its liquidity buffer has increased from about €60 billion to about €300 billion. Its annual compliance spending has risen from about €7 million to around €200 million; and it now spends about €400 million a year on cybersecurity.
He acknowledges that the costs of running a bank have gone up in Europe – but not without benefit. “Over the past 10 years governments have collectively increased the safety of the banking industry,” he says.