Commonwealth Bank, Westpac Banking Corp and NAB have all sold major business, particularly on the wealth management side. Banks like ANZ no longer own their own stock broking operations.
NAB highlighted its divestment of low returning businesses including Great Western Bank, Clydesdale Bank and life insurance.
Indeed, with hindsight, the “one-stop-shop” banking model, where the bank built and operated almost all the financial products a consumer or business could want, peaked with the financial crisis.
In Australia, the major banks all bought or expanded their wealth-management businesses around the turn of the century, driven by the basic idea that growth in such businesses would be at least double that of traditional banking.
In aggregate, that strategic shift has not delivered and it is being unwound – superannuation and adviser networks are being sold, life insurance is on the blocks or sold.
The new model is for banks to continue to sell these products – because consumers do want them – but not manufacture those products themselves.
Or take something as simple as credit cards. For a couple of decades now the major Australian banks not only offered a choice of the two main schemes, Visa and MasterCard, but multiple products of each and also, often, American Express.
Today all banks are shifting towards far fewer variations and only one scheme.
Nor is this trend to simplification an Australian anomaly. If anything large foreign banks have been far more aggressive in pruning their operating models. Global banks like Deutsche Bank, Citigroup, HSBC, Barclays and JP Morgan have all vastly reduced their business units in recent years.
To the extent the ‘universal banking’ model is still in favour, the brands at the top of such structures are far more likely to outsource product manufacture or buy in new capability by acquiring financial technology start-ups.
This tidal current towards less complexity of course has its own implications for staffing levels.
In a new paper from the Peterson Institute for International Economics, “Recent US Manufacturing Employment: The Exception that Proves the Rule”, Robert Lawrence analyses the relationship between productivity and employment.
His analysis finds “a trade-off between the ability of the manufacturing sector to contribute to productivity growth and its ability to provide employment opportunities”.
“Spending patterns in the United States and elsewhere suggest that the productivity slowdown is real and that thus far fears about robots and other technological advances in manufacturing displacing large numbers of jobs appear misplaced,” he writes.
Of course that’s not necessarily re-assuring for the job market because it implies if productivity improvement does occur – whether via new technologies or removing duplication in roles and processes – then employment is likely to come under pressure.
In financial services, history tells us expansion in operating units (and complexity) occurs when revenue growth is strong, allowing investment (even speculation) in mergers and acquisitions and new capacity with increased costs outweighed by higher income.
With structurally weaker income, management focus will continue to be on absolute costs and simplification. As ANZ’s Elliott puts it: “doing fewer things better”. This was illustrated by the below slide from the ANZ Full-Year Result investor pack.