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In May a central bank official asked a European bank chief executive when his bank was going to reopen. His answer was quick: “We haven’t closed.”
With tens of thousands of staff working from home, that bank has helped raise half a trillion dollars of capital for governments and corporations during the crisis.
Many others can tell a similar tale. Whatever the lockdown has done to the coronavirus, it certainly hasn’t stopped deals. Bankers say they are working harder than they can ever remember.
In the beginning it was weird and frustrating, “but everyone has now metabolized the situation that we have,” says one.
Covid-19 has got everywhere – even language is infected.
There has been regulatory flexibility around off-premises trading and the recording of transactions and communications. Systems are now catching up.
For all the technical wizardry that has allowed markets to function with bank staff mostly working remotely, there are still difficulties. Some banks are restricted to their proprietary video conferencing systems. They were not built to be shared easily with rivals.
Back- and middle-office functions have been challenged, as Owen Jelf, partner at technology and management consultancy Capco, points out.
“Markets have tended to operate well, but there will have to be accelerated investment in areas that are not as automated, like know-your-client and on-boarding,” he says.
The outsourcing that had been a source of savings and efficiency gains now looks more like operational risk. Lockdown in India, for example, is hurting the trade servicing operations of banks, says Capco’s principal consultant, Murray Longton.
The result is slower processing and more trade exceptions, where errors or missing information at some stage of a transaction put it in limbo until they can be resolved.
“It’s shone a light onto what works and what doesn’t,” says Longton.
Banks will need to look at what other big manual processes can be digitized.
With the smooth functioning of financial markets deemed essential by governments, banks in many jurisdictions have been able to keep staff in their offices. Traders have often stayed at their office desks, where they can use their dealer boards and a bank of six screens rather than the two they might manage at home.
Client-facing staff are used to executing deals remotely in normal times, since they are often accompanying issuers on the road. During lockdown, syndicate bankers have often returned to the office for execution. Temperatures are taken and desks disinfected daily. Some things are frightening; mostly they are straightforward.
“We prefer to have syndicate in the office for booking the trade and managing the risk,” says a debt capital markets head at a European bank.
It’s a familiar theme. Swap and hedge execution demands personal interaction – and a lot of phone lines.
“It’s very difficult to do from home unless you have the exact same setup,” says one banker.
For some the occasional change of scene has been welcome.
“I take a black cab – it’s empty in here, safer than being at home,” is a typical view in mid May in London.
Others have been doing week-on, week-off shifts, with banks rotating their staff in and out of the office.
Even investors – who bankers often portray as slow adopters of anything – have embraced the new world.
“You might have thought that not having physical roadshows was not going to work,” says one equity investor, “but if a company has an investment case that is credible in this environment, there are plenty of people like ourselves who are happy to get involved without having seen the whites of their eyes.
“If I really do need to look into their eyes, I can actually do that on Zoom.”
It might take some bankers longer to learn to spot all the advantages.
“It’s too bad our colleagues from London can’t join us for client meetings,” says one Paris-based banker on an internal team catch-up.
“Not at all,” replies one of the London crew. “I’ve had five meetings this week that would have taken five months to organize before.”
As with many things during this crisis, it’s all about perspective.
Barriers are being broken down. Less-seasoned staff are getting more exposure to clients and to their own senior colleagues. Bankers on a video conference with a client now think nothing of patching in for a few minutes a junior who might have a particular insight to bring.
There are two common features to all crises: one is that they do end, even though when we are in them we feel that they will never end, and two is that we have to be careful about saying the world will be totally different- Jean Pierre Mustier, UniCredit
The webcam’s inescapable eye brings other benefits too. Conference calls on the telephone encourage the mind to wander, says a senior advisory banker in New York: “But when you are on a video call, you are locked in 100%. It’s a powerful device.”
Diversity might be another area where gains are seen. Reid Marsh, head of banking for Europe, the Middle East and Asia Pacific at Barclays, hopes that one thing to come out of the crisis will be that working from home no longer comes with a stigma.
“People were reluctant to do it because they thought they would be disadvantaged, but this industry has lost a lot of its workforce over the years to that attitude,” he says.
Some might be tempted back – assuming the jobs exist. It might not happen that way, however.
“Our industry has never wanted people to be more flexible,” says a DCM banker. “The main reason is a real one – it’s easier to exchange ideas in the office. Even if remote working works, it is less efficient when speed is of the essence.”
When Euromoney first talked to locked-down bankers in March, the attitude was ‘let’s make this work’. That gave way to pride in April at how the extraordinary pace of issuance had been achieved in spite of the challenges.
People already had war stories of managing large books of demand remotely, or corralling hordes of investors over unfamiliar platforms. It turned out that capital markets banking in lockdown was not just possible but could also be enjoyable.
This is changing now. Gone is the initial bravado of lockdown banking as a competitive sport. In its place is a sober realization that a longer-term adjustment is needed. For some, that may not be enjoyable at all.
For those long used to working in the same teams at the same firm, remote working is no barrier to successful cooperation. It’s the others that senior bankers worry about.
“I really feel for new joiners trying to get to know their teams,” says one regional head. “They are at a disadvantage, whatever we put in place to help them.”
It is a similar story with clients, particularly in those advisory businesses that depend on the closest communication and greatest trust. Deal originators and M&A advisers are used to travelling to maintain their relationships. For them, it wasn’t the closing of their offices that was the problem, it was the closing of air routes and clients’ offices.
Many are itching to get back on the road. That may not be straightforward, even if international travel eases up.
“We will need to see what clients want: we might be ready to travel, but they might not want us in their office,” says one advisory banker. “I have found clients pushing back against that.”
If there is one thing that is certain to be retained from the lockdown environment, then it is some reduction in business travel.
“We already had Swedish clients asking us: ‘Why are you flying here to pitch me a green bond?’” says one DCM head. “The travel piece of this job will absolutely change.”
A challenge for managers is to ensure that teams are maintaining the same focus in their client relationships, even if in-person visits are impossible.
“The industry has moved to a very different form of interaction,” says Mo Assomull, head of global capital markets at Morgan Stanley. “The physical side might not be there, but the interaction with clients needs to be with the same level of intensity and understanding.”
If anything, contact needs to be more regular given the lower impact made by a virtual call. Some say they are calling clients every few weeks who they would once have visited every few months. Clients are having to be more forgiving of the occasional mix-up – often because what is proving trickiest for banks to keep slick is internal communication.
The industry has moved to a very different form of interaction- Mo Assomull, Morgan Stanley
“If you call a client and find that another colleague has called them, in the old world that would have looked so stupid,” says one originator. “But now everyone is far more reasonable in their expectations.”
For their part, issuers are delighted by their ease of access through virtual channels. One bank chief executive met 135 investors online in just one week in a recent round of roadshows. He tells Euromoney it would have typically taken a month.
Some start with an advantage when it comes to online pitching. When Norwegian video conferencing company Pexip floated in Oslo in May, it used its own systems to market its story to investors.
It was able to roadshow virtually in more than a dozen cities – a traditional approach would have seen it travel to just a few. And, according to chief executive Odd Sverre Østlie, the engagement in the meetings themselves was far more productive.
“We understand that it is sometimes important to meet in person, but when you are doing an investor roadshow, it’s a hectic schedule,” he says. “Most of a meeting is typically spent staring at a printed PowerPoint deck; and then you run to the next meeting and start it all over again in another building.”
Better by far, he says, to do it online – and preferably using Pexip’s platform, which has a loyal public-sector, large enterprise and military customer base.
It is clear that pitching deals to investors and executing them has hardly been disrupted by the transition to online and remote working. And for the most part, bankers can do a decent job of maintaining client relationships.
But can they start new ones?
The short answer, say many, is: ‘no’. The longer answer is that it probably depends on the type of product and the type of relationship.
“If it’s commercial paper you are talking about, the client won’t care who they are dealing with – it’s almost an electronic relationship,” says one advisory banker.
But in M&A, the logic goes, trusted relationships are years in the making and established through physical contact more often than not.
The more important the client’s requirement, the more you need to get on a plane to crack that account.
“It might take two to four years for a chief executive or CFO to trust you with the strategic move that will probably define them for the rest of their careers – you just can’t accelerate that,” adds the banker.
And the idea that the face-to-face establishment of a client relationship can be circumvented online just because a corporate is already a client of another team is fanciful to many corporate finance bankers.
“If you are in a business that is doing complicated and intimate things for clients that might have major issues, I don’t care if somebody two businesses across from you already has a relationship with the same company – that chief executive will want to see the whites of your eyes,” says the banker.
Others agree. Jelf at Capco notes that while they are limited to online interactions, clients will stick with organizations that they have worked with and trust.
“It may well be harder for banks to gain market share,” he says.
It is partly for this reason that while many bankers publicly declare themselves delighted with new-found efficiencies and savings, and commentators argue that business in all sorts of sectors has been transformed in irreversible ways, some are more cautious about predicting how many of the changes will persist.
“There are two common features to all crises,” says Jean Pierre Mustier, chief executive of UniCredit. “One is that they do end, even though when we are in them we feel that they will never end; and two is that we have to be careful about saying the world will be totally different.
“Let’s not underestimate the fact that human beings revert to what is familiar. Things will clearly be different, but the change is likely to be less extreme than some might think.”
Investment banking is also highly competitive, at both an institutional and a personal level. It is inconceivable that the individuals in it will have abandoned their instinct to gain an edge over the course of a three-month or even a six-month lockdown.
And if in future that edge is to be gained by being the firm or the banker that gets physically in front of the client before others do, that is exactly what they will do. Privately, senior investment bankers already acknowledge this.
As banks pay more attention to employee wellbeing, a tricky balancing act is on the way.