2013: What’s the Outlook for Financial Institutions

Lewis Warren

Q&A with Lewis Warren, J.P. Morgan Global Client Executive for Financial Institutions, Healthcare and Federal Government

Global News & Views: 2012 was a challenging year for financial institutions. How do you think your franchise is feeling about 2013?

Lewis Warren: Right up to the end of last year, most banks globally were concerned about the U.S. going over the fiscal cliff and the compliance deadlines for Dodd-Frank and Basel III. The cliff was avoided, the Dodd-Frank 1073 mandate deadline has been extended, and the Basel Committee has taken a realistic position that gives banks more time to meet new capital requirements. We are still waiting to see what happens with the U.S. debt ceiling, of course, but I think overall the industry may be feeling more positive about our prospects in 2013.

Our clients hope for a stabilized environment while remaining somewhat anxious about the continuing fiscal debates in the U.S. and Europe. And as we move from debate about regulation to implementation, they realize how much work there is to do — especially in the securities firm sector, and obviously with other banks, as well. In addition to this work on compliance, there’s now an intense focus on optimizing ROE. Clients across their sectors want to provide good returns to their shareholders in the new regulatory and economic reality. Where will their growth come from? What businesses will be the most profitable?

So while we see some anxiety on the client side, we also see excitement. Like us, they are excited about the new products and services rolling out this year and about finding new ways to attract and delight their customers. And like us, they are optimistic about prospects for the sector going forward.

GN&V: When you and your team met with clients at Sibos and AFP last fall, what were the key themes of your discussions?

LW: In addition to regulation, globalization is nearly always at the top of the list when we talk to our clients. Banks and other financial institutions are continuing to expand overseas, in both developed and emerging markets, in order to better serve their clients abroad. They are all asking J.P. Morgan how we can help them accomplish those things. Thanks to our reach and our incredible global network, we have found that we’re well aligned with our clients’ strategies.

GN&V: Where are financial institutions focusing within that broader concept of globalization?

LW: Our financial institution clients are looking for growth, especially in the developed U.S. market. We’ve seen the sector becoming more and more international through a number of recent acquisitions and consolidations of Financial Institutions, and as funds, insurers, and securities firms open more offices overseas. As we see it, our clients are looking for help meeting their increasingly complex cash management needs. How do I deal with trapped cash? How can I get insight into my cash across the globe, and leverage it where it is needed? How do I manage my bank network, and how are my banks making it easy for me by providing consistent service, pricing, etc.? What is the right treasury model for my business? We have great conversations with our clients on these topics, and offer a great product set and advisory capability that enables us to give good answers to these questions.

GN&V: How do you think you and your clients are handling the ongoing reality of the new banking regulations?

LW: Getting the Basel III liquidity requirements deadline moved from 2015 to 2019 shows us how regulators are handling this reality. They have acknowledged that this is a more realistic timeframe for the banks. With this extension, J.P. Morgan and our clients can stay focused on powering global business and sustaining the ongoing global economic recovery. Financial institutions won’t have to worry so much about their immediate ability to lend, and their clients will benefit from the credit that will continue to be available.

Our non-bank financial institution clients are asking us how we will change the way we do business, and the great thing about our franchise is that our answer is: We are focused on our clients, and we know that our clients are focused on their customers. We will continue to provide you with the solutions you need and the first class service you expect, at a good price.

That being said, there are significant challenges for clients in the new regulatory environment. Securities firms face a complete overhaul of the way they do business under Dodd-Frank, including changes in the cash settlement process for margin calls and settlement. Like us, they are working to ensure that they continue to serve their customers' needs and we are helping them. Our bank clients are facing an overhaul as well. They have been focusing recently on the Dodd-Frank rule for disclosing fees and charges related to cross-border payments initiated by U.S. consumers. To help them meet those requirements, we're offering a solution that includes the creation of the required disclosure (by linking directly into a new database of required fees, taxes and payment timing), planning assistance, and ongoing support. We are also surveying our global banking partners for information that is needed to help make our solution's database as robust as possible. See related article: Dodd-Frank 1073: A Solution and a Community Alert.

Another reality that we sometimes lose sight of is that our clients are global, so their challenge is not just a question of U.S. regulations. Our clients have to navigate complex, changing, and sometimes unique regulatory environments across 40 or 50 countries. This might be the toughest reality, but it is another place where J.P. Morgan can be of help. We have the expertise on the ground to help clients navigate financial systems across China, India, Europe, and Latin America as they look to do business and hold and move money across these locations.

GN&V: You said the industry is feeling more positive as a whole as we go into 2013. What do you think they feel most positive about?

LW: As our Chairman, Jamie Dimon, has told J.P. Morgan Chase shareholders, a more tightly regulated environment can have the positive effect of creating new levels of efficiency across the industry. Financial institutions in the new environment know that no matter what they are dealing with in terms of regulation, they are still going to have to provide a superior client experience. In every case, that’s going to include the ways they unlock value and increase efficiencies in their own operations, and at the same time minimize the client’s involvement in red tape. As an industry, we should feel good about the ways technology is combining with human expertise to make everything we do more efficient and more transparent — and more centered on what the client really needs. The interest in innovation we’ve seen at conferences like Sibos is also an interest in finding solutions together. At J.P. Morgan, we are engaging our clients very intensively in our solution-building. In the Financial Institutions, Healthcare and Government segment, we are planning more forums and advisory council meetings that give clients an opportunity to tell us what they’re thinking about and dealing with, and how they expect their banker to help them. The input and feedback go straight into our service and product development initiatives.

GN&V: We’ve started the second decade of the twenty-first century. What do you think it holds for the industry?

LW: Obviously, what we bring to our clients — funding, consultation, solutions and services — will always be needed, and the best providers will always find the best ways to meet the global needs of their customers. Right now, our community needs to find ways to do the great things that we’re already doing, but faster, more transparently, and with a very keen approach to risk management. We’re still living in “interesting” times, as the Chinese saying goes: uncertainties and volatility in world markets are having a considerable impact on consumers and businesses, and on the banks and insurers and asset gatherers that serve them. As we move forward together, we’re going to have to be focused on helping each other meet the challenges of the world as it continues to change. It’s within that framework of collaboration and communication that I think we’re going to find our greatest opportunities.
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