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THE MAGAZINE OF THE WORSHIPFUL COMPANY OF INTERNATIONAL BANKERS
The
International
Banker
Featuring
Changing Times
for Banks
SPRING 2019
INTRODUCTIONS
SPRING 2019
The Worshipful Company
Of International Bankers
From the Editor
How did we get here? Brexit in the Company where members have
continues to enter the world of the opportunity to volunteer for,
unlikely fiction. What will future both making a difference and learning
generations make of it? The hard about others. It’s a good read.
reality for financial firms is difficult
decisions based upon uncertainty. We are also very grateful for the
How should firms provide services to financial support of Allia (see
EU clients if there is no passport? page 12 later) which has enabled
us to print this edition.
The purpose of this edition is to look
beyond these scenarios, and at the real The other good news is the
world of banking (the theme of this appointment of John Thirlwell to
edition) and of financial services. The share the editing role with Mark Cazaly
Editorial Panel made difficult choices and myself. We would welcome your
on the articles. There are important ideas for future contributions.
contributions from David Duffy, the
CEO of CYBG and now Virgin Money,
from Marshall Bailey, Chairman of Christopher Bond
LCH, from distinguished members Editor – The International Banker
on digital banking, charity bonds and The Magazine of the Worshipful
much more; on how the Company is Company of International Bankers
celebrating the first Lord Mayor, Peter bondchristopher@btconnect.com
Estlin, of which we are the Mother
Company; and of the many activities
EDITORIAL PANEL
Max Asmelash Robert Merrett (Middle Warden) THE WORSHIPFUL COMPANY
John Bennett MBE (Junior Warden) Alan Ramsay OF INTERNATIONAL BANKERS
Nigel Brigden Karina Robinson (Senior Warden) 12 AUSTIN FRIARS, LONDON EC2N 2HE
Mark Cazaly (Deputy Editor) Alexander Rottenburg
Moorad Choudhry John Ryan CLERK: NICHOLAS WESTGARTH
Simon Hill Mark Sismey-Durrant (Master) DIRECT LINE: 020 7374 0212
Tim Jones John Thirlwell (Deputy Editor) FAX: 020 7374 0207
George Littlejohn Andre Villeneuve EMAIL: clerk@internationalbankers.co.uk
Michael Llewelyn-Jones (Past Master) Brian Winterflood MBE
Ali Miraj
2 THE INTERNATIONAL BANKER / SPRING 2019
INTRODUCTIONS
Contents
The Master’s Message CHARITY AND EDUCATION
A wider purpose 04
The Lord Mayor’s Appeal
Caroline Wright describes an important initiative 20X
The Homelessness Project
LOOKING OUTWARDS Tim Jones describes the St Mary-le-Bow project 21
Why we should all consider charity bonds
Integrating Virgin Money Tim Jones and George Littlejohn describe some
David Duffy, CEO of CYBG, considers the challenges
exciting developments 22
and opportunities 06
The Sheriffs’ Challenge
What is the Circular Economy? Tom Newman on an exciting initiative 23
ING on how banks need to understand this movement 08
The KC Wu Fund
The future of banking and customer Tom Newman describes what this and why it is important
contact – is it all going digital? to the Company 24
Moorad Choudhry and Claudia Anton ask if there
is a role for the human face 10
The Mansion House Scholarship Scheme
Mark Henthorne interviews Adviser to the trustees
Building a new British Bank Nicholas Westgarth 25
David Duffy of CYBG explains 11
Setting up the HSBC Retail Bank
Ian Stuart, CEO, describes a unique experience 13
LOOKING INWARDS
Surviving 39 years in the City: a story of our
life and times
Timothy Skeet looks back at turbulent times 14 The role of the Lady Mayoress
Lindy Estlin, Lady Mayoress, shows its
Brexit independent nature 26
Professor John Ryan looks at German approaches to
Brexit15 The importance of Liverymen
Michael Llewelyn-Jones describes the Company’s plans 28
Should we replace Libor?
David Clark on the popular but troubled benchmark 16 The new Chief Executive of the Association
of Foreign Banks
LCH prepares for the future Dr Catherine Raines talks to Daniel Yates 29
Marshall Bailey, Chairman, describes its approach 17
The Associates section
Should pension funds make Mark Cazaly, Deputy Editor, describes an active group 30
sustainable investments?
A pension trustee and a pension member Looking ahead to this year’s Company
give their views 18 events
Various members of the Events Committee 32
How should we use investment platforms?
George Littlejohn and Max Asmelash look at this Our Real Tennis Team
critical infrastructure 19 Michael Llewelyn-Jones on a new Company activity 34
The Clerk’s column
Nicholas Westgarth explains the view from
Austin Friars 35
THE WORSHIPFUL COMPANY OF INTERNATIONAL BANKERS 3
INTRODUCTIONS 4 THE INTERNATIONAL BANKER / SPRING 2019
INTRODUCTIONS
From the Master
A Force for Good – A Defining Sense of Purpose
“For nearly all of its 2000-year history, the corporation has combined a public purpose with its
commercial activities. It is only over the last 60 years that the idea that profit is the only purpose
of business has emerged.” Colin Mayer, Said Business School, Oxford University, blog
On 28th February, Christine Lagarde, This generation has very different have instigated the Pan Livery
Managing Director of the IMF, spoke expectations from their parents. Movement which might help address
at the World Traders’ 2019 Tacitus Research suggests 75% of millennials this. The recent emphasis by the Lord
Lecture, questioning the Financial would take a pay cut to work for a Mayor on more regional outreach is
Sector for having “strayed from its purposeful company (Fleischmann evidence of this as is the extension
original, noble purpose”. Her thesis Hillard Fishburn). Issues of relevance to of the Mansion House Scholarship
was that “we can build a better this purpose appear to be: automation/ Scheme to include placements starting
financial sector – one that is safer, digitisation and the future of work, in Sheffield (see article on the MHSS
more sustainable and ethically sound. A climate change and the environment, later). Our work with The Brokerage
financial industry with a broader sense mental health and vulnerability, diversity on reaching schools in need of
of purpose.” She invoked an image of and inclusion and social responsibility. support will benefit from their revised
Mary Poppins sprinkling a little magic Profits, returns to investors and long strategy - widening their span to outer-
around to ensure strength in the system term careers are perhaps too micro and London schools in deprived areas, in
and an “ethics upgrade” which delivers self-centred for this generation which recognition of the fact that many inner-
“virtuous behaviour that is intrinsically is interested in the bigger societal and London schools are now better served
motivated – done even when no one global issues of the day. with multiple corporate outreach
is watching”. Strong words indeed, programmes.
delivered with distinct charm. So the question is what this all means
for a modern Livery Company such as If we are to have a real and lasting
At our own Banquet, the day before, ours. We aim to be a force for good in impact on the issues that matter to
Bob Wigley commented in a similar society – but are we good enough? That future generations of our members,
vein questioning our current capitalist is a challenging question… perhaps we need to challenge our
focus, exclusively on profits and thinking, to do more individually and
returns, ignoring the impact of business Our activities, represented by our four collaboratively (with other Livery
on stakeholder interests – customers, aims – Charity, Education, Fellowship Companies) for bigger impact and to
colleagues and the communities in and Promoting the Profession guide fulfil a higher sense of purpose.
which the business operates. He stated our outreach programmes and our
“The expectation is that businesses members’ experience within our As Mme Lagarde said “serving others
should operate ethically and consider Company. It is through these activities, – with dignity, with a kind heart, with
more sustainable long-term approaches our charitable donations and our many honesty, and with a wicked sense of
and measures and have what has member volunteer hours that we humour – that is what the financial
become known as Purpose”. deliver our sense of being ‘good’. We industry should be all about”. Just like
do this in common with other Livery Mary Poppins!
Companies which collectively donated
£67m last year for charitable purposes
This theme of responsible and an estimated 75,000 of pro bono
business purpose chimes a volunteer hours each year.
chord with today’s younger We must ask ourselves whether
generation. By 2025 three individually we have sufficient
impact on the areas that matter, or,
in every four people in the whether working together with other
workforce will be millennial. Companies, we might achieve more.
The Lord Mayor and City Corporation
THE WORSHIPFUL COMPANY OF INTERNATIONAL BANKERS 5
LOOKING OUTWARDS 6 THE INTERNATIONAL BANKER / SPRING 2019
LOOKING OUTWARDS
The Operational challenges arising
from the integration of Virgin
Money for Clydesdale
DAVID DUFFY, CHIEF EXECUTIVE OF CYBG, LOOKS AT THE CHALLENGES – AND OPPORTUNITIES
CYBG has been on an exciting journey since I joined the Bank Right at the start of this deal we knew the areas that would
in 2015. In just three years, we have demerged from National come under scrutiny and we have carefully considered our
Australia Bank (NAB) and completed a successful IPO in a approach. For example, we have had questions from
challenging market. We’ve launched our award-winning digital customers, the media and stakeholders about our IT systems.
banking service, B – one of the fastest growing digital banking We are fortunate that our IT integration is much less complex
brands in the UK. We’ve made a £350million investment in our than other recent industry migrations. No new technology is
technology capabilities, including developing our own Open required and our iB platform, which will be the destination for
Banking ready iB platform, and pledged to make £6bn of the majority of our products, is fully scalable. We are also in
funding available to SMEs in the three years to 2019. Banking complete control of this timeline – there will be no big bang
is transforming with customer behaviour and expectations moment, so we can maintain an absolute focus on excellent
changing at a rapid rate and UK consumers need a bank that is customer service throughout.
able to compete with the traditional incumbents by offering
them something truly different. The majority of mortgages and many savings accounts will be
transferred at the point of customer renewal through the
Against this backdrop, last year we launched a bid to acquire usual customer process onto the new platform. For the 100k
Virgin Money – and following strong shareholder approval, we current accounts, we will use the tried and tested Current
completed the transaction in October 2018. In bringing CYBG Account Switching Service, which we are extremely familiar
and Virgin Money together, we have created a true national with. And for credit card customers, we will retain Virgin
competitor to the status quo. The combination of these two Money’s modern TSYS platform, which will be integrated
firms offers us greater scale but the combination is about so securely into our iB platform over time.
much more than that.
We also announced our intention to move our retail business
to the Virgin Money brand, meaning the loss of the Clydesdale
and Yorkshire names. With its powerful, customer focussed
brand, it makes sense to move to the Virgin Money brand.
Together we have complementary products, Clydesdale Bank and Yorkshire Bank have been around for
a national footprint, the right technology 180 years – they are well loved – and we will maintain a strong
focus on our local communities as we transition to Virgin
and, of course, a globally iconic brand with Money, given the powerful local heritage of those brands.
99% awareness ratings and an unsurpassed
reputation for great customer service. Branch closures are never far from the headlines as banking
providers try and achieve a balance of changing customer
behaviour and the continued move towards digital. The
acquisition was attractive because there is limited overlap
and most of the branch network is complementary. However,
As with any acquisition and integration, there is a lot of hard it is likely that there will be a small number of branches that
work ahead, which will throw up a range of opportunities and will close in the future. This will never be a decision we take
challenges. We have outlined that the integration process lightly, and we will aim to reassign staff where possible and,
will take us three years to complete. It is important to give if we can, ensure there is still an offering for customers in
ourselves – and our customers – time to do this properly. that location.
Our top priority throughout this whole journey is to ensure
a smooth transition for the business and our customers. We I have worked in financial services organisations around the
have a number of shared services that need to be combined World but what I have been most impressed with since joining
– IT systems, legal teams, HR departments, customer services CYBG, and now Virgin Money, is the knowledge, expertise and
and offices spread across the UK – so there is plenty to attitude of colleagues. I am confident that together we are
get through. And despite only being a few months into the going to offer something truly different to UK consumers and
integration, I can already see the business taking shape. transform the UK banking industry.
THE WORSHIPFUL COMPANY OF INTERNATIONAL BANKERS 7
LOOKING OUTWARDS
Driving change: how banks
can support the transition
to a circular economy
BY LEONIE SCHREVE, GLOBAL HEAD SUSTAINABLE FINANCE AT ING
The concept of the circular economy the services offered to customers. Walk the talk
has become an increasingly popular Within the circular economy, new
business model in recent years. But business models arise. Existing It’s one thing to raise awareness
despite its obviousness, widespread companies might transition from selling and share knowledge of the circular
implementation still has a long way products to offering products as a economy with clients; it’s another
to go. In order to start realising this service; platforms emerge to facilitate to put it into practice. And that’s
vision, we need to first understand collaborative consumption through exactly what ING is doing with the
exactly what it means to move from sharing assets; or new technologies are construction of its new global head
a linear to a circular model and how developed to substitute virgin materials. office. For example, the thousands
banks and other financial institutions As a result, both new and existing of tonnes of concrete from the old
can accelerate this transition. Circular businesses need funding to develop, building are being recycled to build
economy is about rethinking how we scale or produce their solutions. the new one, with the rest being
use raw materials and resources to used for a new nearby highway.
create a sustainable economy free of Although capital is available for funding, ING’s new headquarters will have the
waste and emissions. deploying the right type to the right highest BREEAM certification level
initiative can prove challenging. (outstanding) in terms of sustainable
building standards. The building will also
Another challenge to consider is that be energy-neutral.
it is simply easier for businesses to
It means shifting from the continue with traditional resource-
current linear model of “take, intensive production and distribution
methods. In part this is because, unlike
make, waste” to an economy the traditional linear business model,
And, of course, it’s about
where we “reduce, reuse, the circular business model involves financing circular business
new forms of collaboration and
recycle and regenerate”. transaction with companies along, and
models: for example, ING
even outside, existing supply chains. financed Black Bear Carbon,
By getting involved at an early stage
a circular company that
in the process, banks gain a better converts used car and truck
The circular economy isn’t only about understanding and can play a key role
sharing or recycling, it’s about change; in helping create durable new circular
tires into raw materials for
taking a different approach to how business models; therefore, ING new products.
we design, sell, value, assess risk and took the lead in the set-up of a
finance. ‘circular supply chain accelerator’
(CiSCA) together with Accenture
Strategy and Circle Economy. CiSCA
The role of financial services helps large multinationals and their ING Sustainable Investments, a
small and medium-sized suppliers portfolio specifically designed to drive
Financial services have an important shift to a circular economy by new business models and technologies
role to play in creating a healthy and conceptualising business models, in the scale-up phase, took an equity
sustainable world. Not just by reducing identifying economic value drivers, stake in this innovative and circular
direct footprints, but through the testing business cases, assessing risk, scale-up. ING’s role as advisor and
choices made in lending, investing and and financial structuring. sole underwriter in a merger between
8 THE INTERNATIONAL BANKER / SPRING 2019
LOOKING OUTWARDS
Shanks and Van Gansewinkel to form
Renewi, now one of Europe’s leading
circular economy companies that
turns waste normally destined for
incineration or landfill into valuable
products, also shows our commitment
to stimulate the circular economy.
Industry-wide guidance
As it stands, the market lacks guidance
on how to uniformly apply circular
economy thinking in the financing and
transition phases. By launching the
circular economy finance guidelines in
2018, ING took the lead together with
ABN AMRO and Rabobank, to develop
guidelines in what constitutes circular
financing. The industry needs to find a
way to measure the impact of circular
economy activities and establish how
much these initiatives contribute to the
transformation from a linear business
model to a circular one. Furthermore,
it is also important to measure the
improvement a company makes in its
journey to becoming circular.
These are pivotal considerations in
realising the goals of a truly circular
economy. Imagine a world free of
waste and emissions? I believe we can
make this happen by driving positive
change; but only when we collaborate
as an industry to help define, recognise,
select and stimulate circular economy
initiatives can we make a lasting impact.
THE WORSHIPFUL COMPANY OF INTERNATIONAL BANKERS 9
LOOKING OUTWARDS
The future of banking
and customer contact:
is it going all digital?
DR MOORAD CHOUDHRY ASKS IF THERE IS ROOM
FOR THE HUMAN FACE
In Good Technology, the band The Red There will always be niche service
Guitars sing “We’ve got computers… providers that target specific customer
that can find us friends.” That was types and a narrower range of
indeed prophetic, seeing as that track products. But the global economy, and
was written in 1982! The march of its requirements in the banking space,
technology is inexorable, across every extend beyond this niche range.
industry and every facet of society, and
banking is no exception. Consumers Consider this random sample:
now have as standard such features as
mobile app, voice recognition, real-time •A
company with 10 employees wins
updates, contactless – the list of new an export order, and is required
innovations is impressive in its own to invoice in the buyer’s currency.
right and also for its relentlessness. The company wishes to address wholesale requirements. Some are
the foreign exchange impact on its amenable to a FinTech or Amazon
And it’s not only at the customer end. earnings; solution, but others are not. Can we say
Banks are now using machine learning •A
retired couple wish to borrow on a with certainty that all these customers
systems in their risk management second charge against their home to can be serviced wholly with digital
processes, from areas such as credit address health care costs; technology? That would be a bold claim.
grading to fraud detection, as well as to •A
challenger bank wishes to optimise
predict customer behaviour. Alongside its cash management and considers a This is not a thinly-disguised luddite
these developments we observe the structured deposit with tailored tiered argument. There is, for example, no
running down of traditional aspects of interest rates; need for a bank that wishes to provide
banking, with reductions in branches •A
21-year old new jobholder wishes a full-service provision to have a branch
and human contact. to borrow to fund a programme of on every high street. (One can argue
professional development; that it is possible to serve, on a face-to-
In an objective assessment we must •A
n SME importer is uncertain face basis, 90% of the United Kingdom
ensure the debate remains free of whether a funded trade bill or population with no more than 20
generational issues. This is not about unfunded letter of credit is the best branches). And there is great customer
whether someone in their 80s only solution to provide comfort to its benefit being had with all this good
uses a cheque book while the Gen X counterparty. technology.
person only uses a smartphone. What
we consider is not if it is desirable that We have suggested just five scenarios But the future of banking is not only
banking goes all-digital, but whether, but we could easily have described 50 the future for 18-30 year olds requiring
from a customer perspective, it is or 500. And that is before we discuss a current account. It is about ensuring
actually possible. large corporate banking or global that the needs of global commerce
continue to be met so that societal
development continues on its upward
This article addresses the key question on the future of path. Some transactions can be fully
automated with a computer algorithm.
banking - is customer contact going all digital? Is the bank Others, due to their nature, cannot.
of the future one which never meets or speaks personally We can expect customer contact, for
anyone other than the niche provider,
to its customers? to retain an element of the human for
some years yet.
10 THE INTERNATIONAL BANKER / SPRING 2019LOOKING OUTWARDS
Changing perspectives - choice
of banking vs. choice of banks
CLAUDIA ANTON, CHARTERED BANKER, MBA, OXFORD SAID BUSINESS SCHOOL FINTECH ALUMNUS
Seamlessly integrated in our lives, technology aims for NatWest’s app “Mettle” gives businesses “a new way to
simplicity, powering the “fourth revolution of humanity”, as manage their finances, combining a current account with
Chris Skinner speaks of, in the Digital Human book. invoicing, payment chasing and bookkeeping.” Creates “an
Current financial services are not simple and adaptable: circa innovative end-to-end platform for businesses.” The platform
3.5 bn people worldwide have limited access to financial is 11:FS Foundry a “modular set of components that lets you
systems, unbanked or expensive, jobs are created by small build digitally native propositions to scale and at speed.”
and medium size businesses, new generations are more open OakNorth is a UK bank for small and medium size companies
to start their own business, life expectancy increases but so offering business and property loans. It is based on Mambu,
does the discrepancy of resources, education, health, financial “solution as a service banking engine”, cloud native with a
wellbeing. The Office for National Statistics, estimates of marketplace of solutions that can be integrated.
the UK, England and Wales, Scotland and Northern Ireland’s
population was “at its largest ever, at 65.6 million in 2016 and Tandem Bank is “on a mission to free you of money misery”.
is projected to reach 74 million by 2039”. However, “one in The app, card and savings account “help you spend less
five UK adults has no financial goals” and “only 14% plan for time worrying about money and more time enjoying life.”
the years ahead and 4% plan their life in terms of decades”. The cloud technology behind is Agiliti from Fiserv. Tandem
demonstrates social impact, with “customer lifetime benefit”
for the value customers receive from cashback on cards,
savings on foreign exchange or prompts to switch mobile
operator.
Are we designing purposeful financial
services for everyone, with social and For optimists or pessimists, risk takers or not, enthusiasts
or indifferent, new technologies and business models and
environmental impact? risks matter. Spill-over effects can be beneficial, as network
efficiencies in the ecosystem, or detrimental, as concentration
or in the context of algorithms, could find a better service
than at your bank, could change banks automatically, affecting
Imagine if we used advanced technology to build plug and
banks liquidity stability.
play smart products and services, adaptable to personal and
business style. Imagine an ecosystem with all players pro-
active. A new financial ecosystem is created.
Clear Bank, “UK’s first new clearing bank in more than Imagine a green field of opportunities at
250 years”, brings “service transparency, state-of-the-art
technologies and innovative services to make payments faster,
your fingers; Greenfield banking is changing
automating business processes and reconciliation, with new perspectives, with choice of banking vs. choice
levels of cost efficiency”. The cloud technology is Microsoft
Azure, “the challenge that the incumbent banks face is legacy
of banks.
systems” whilst advanced technology makes it possible that
“if you need to make a payment to a business or to a relative
it needs to happen instantaneously”, explains Nick Ogden,
founder of Clear Bank.
Starling Bank with “online banking, built for you to fit a mobile
lifestyle”, has users of smartphone, retail and businesses.
Starling Bank entered the business community with a
decision-making tool with Artificial Intelligence and Machine
Learning insights. Amazon Web Services cloud is their
technology.
11A clear focus on
SRI
AN UPDATE FROM THIS EDITION’S SPONSOR
It’s fair to say that Socially responsible investment (SRI) is charities needed to supplement seed funds and donations
now a mainstream investment strategy. You can easily see with more mainstream capital, and it developed a range of
this growing trend when looking at the number of social finance solutions. In 2014, Allia created its first
dedicated ethical funds; or wealth managers’ investment “mainstream” investment product in which institutional
themes for 2019 highlighting industries like tech that and retail investors could participate. This was Retail
deliver sustainable solutions or smarter, less polluting Charity Bonds plc which allowed charities to borrow term
infrastructure. Not to also mention the increasing number funding from the capital markets, by offering investors a
of large institutional investors who run all their tradeable Eurobond with daily market pricing. Allia also
investments through an Environment, Social and administers a social bond programme for the Scottish
Governance (ESG) filter as a matter of routine to ensure Government, lending money to housing associations to
they all meet an acceptable standard. stimulate the development of more social housing in
Scotland.
Companies are obviously equally sensitive to the calls
from stakeholders to run their businesses in a responsible Allia is now taking the next step on this path and acquiring
and transparent manner. They have a wide range of a controlling shareholding in City & Continental Limited, a
advisers who can guide them on how to meet the ESG fixed income stockbroker. Allia aims to grow its impact
requirements of investors. However, the businesses that finance business at C&C, expanding its capacity to originate
struggle to access these funds are often those delivering and distribute sustainable and socially responsible
the highest social impact. investments. However, it will also try to fill a gap by
offering advice to charities and social enterprises on
business planning, financial sustainability and funding.
Ensuring these mission-led businesses are
Ensuring these mission-led businesses are financially
financially robust is vital robust is vital – they run many of our essential services,
such as care for the elderly; education for those with
mental or physical disabilities; affordable housing; respite
Allia is a social enterprise now celebrating its 20th for those suffering from domestic abuse. Creating
anniversary. In this time, it has supported hundreds of mainstream products that can channel socially motivated
start-ups, charities, small businesses and impact ventures investment will help accelerate and multiply the impact
to grow - transforming the communities in which they these businesses can deliver, while also creating an ethical
work. It recognised early on that social enterprises and product with a commercial return for investors.
12LOOKING OUTWARDS
Building a new British bank
IAN STUART, CEO, HSBC UK
It may only be 130 miles from Canary the automotive, food and aerospace
Wharf to Birmingham, but HSBC’s industries. We needed a solid base from
decision to move our UK bank which to operate and somewhere with
Our new Headquarters at 1
headquarters out of London and to the a large, talented workforce to recruit Centenary Square represents
West Midlands was a bold statement of from. As part of the relocation we
our intent. Whilst the regulatory change moved around a thousand roles with
a £200m investment in the
of ring-fenced banking legislation didn’t the headquarters. Birmingham had a regeneration of Birmingham.
require physical separation of UK retail large financial services sector already
operations from our Group, we saw in place, which we knew HSBC could
this as a once-in-a-generation chance to slot into.
build a new British bank that was closer Our building is one of the greenest in
to more of our customers. For us, a key When considering relocating the city, the first to be constructed
part of this was moving decisions and colleagues, we wanted to find to Leadership in Environmental and
decision makers away from desks in the somewhere that they would want to Energy Design Gold accreditation with
City and embedding them in another move to. We needed to offer an area sustainability at the heart of its design.
one of the nation’s great cities to allow with a fantastic quality of life – with We’ve worked hard to deliver a truly
us to develop a deeper understanding affordable and decent housing, and the flexible working space for colleagues
of the immediate challenges being amenities our employees would want – which encourages collaboration and
faced by the customers, companies and culture and a cosmopolitan vibrancy. well-being. HSBC University’s new
communities we seek to serve. We received tremendous support European campus is also based in
from local councils and agencies in the building which will offer training
One of our first big decisions was on the West Midlands throughout the and development for colleagues from
the location of our new home. HSBC process. The West Midlands Growth across the UK and Europe.
has a good track-record in establishing Company supported us during our
headquarters outside of London; First relocation, providing us with market 2018 was a momentous year for HSBC
Direct is based in Leeds whilst M&S information, introductions to the local UK; we’ve launched a new bank for 14.5
Bank is in Chester in the North West. business community and a relocations million customers and we’ve moved
We needed a new base that offered us support for our people. Throughout into our new home. It has been a huge
connectivity and the right talent pool the move we’ve been made to feel very undertaking and it now puts us in a good
from which to draw our people. welcome by civic leaders and the wider place for the next steps on our journey
community. to become the UK’s bank of choice.
In the end all roads led us to
Birmingham. Of course there is a
historical tie for HSBC to the “second
city”. Our roots in the UK began here
in 1836 with the opening of the first
branch of the Midland Bank, which
eventually became part of the HSBC
Group in the early nineties. These
foundations meant we already had
around 2000 colleagues based in the
region. But the decision was based on
much more than the historical link.
Birmingham is at the very heart of the
nation with good connections to the
rest of the country. Ninety percent of
the UK population live within a four-
hour drive and it has one of the fastest
growing and youngest populations
in the country. It is already the home
of UK manufacturing and a hub for
13LOOKING OUTWARDS
Bumps and Bangs
in the City
TIMOTHY SKEET LOOKS BACK AND WONDERS
WHAT LESSONS ARE THERE
Recently I was asked to talk to a group working) sudden demise, the fall of rules, Fintech disruption, trade wars,
of young bankers on how to survive a Barings (not involved- I missed that populist politicians and Brexit. All this
long career in banking. This certainly one), and Lehman’s first brush with has crammed a still unfinished decade.
got me thinking. My own career seems death during the Russia crisis (yes, I Bankers remained unloved and widely
to have been like an extended obstacle was there too!). The Euro was born, held responsible for much of the crisis.
course. Indeed, somehow I managed and I ended the nineties at Dresdner
to be present at many of the dramatic Kleinwort Benson (‘DKB’), with a good As BoA painfully restructured Merrill,
events that have been features of the job, or so I thought until Deutsche and I joined RBS. This seemed a safe bet.
financial markets over most of the past Dresdner tried to merge. Newspaper As it had already failed I reasoned
almost four decades. headlines talked of torching us at DKB, that lightning would not strike twice.
so we all jumped ship to avoid the Nevertheless, corporate restructurings
It all started back in the early eighties. flamethrowers. became a part of daily life and by
Some may recall the Latin American mid-decade I received the call to
debt crisis, Big Bang, and Black Monday, There was no merger. Y2K, the recycle myself at a time when many
to mention but three dramas from that non-event computer glitch, saw people simply hung up their boots. As
era. Besides witnessing those events, the noughties dawn, and early on a I explained to my young audience this
my own budding career saw me deal corporate restructuring at Barclays career was certainly a bumpy ride. But
with bankrupt clients, witness at a fraud saw my boss and most of my team ‘let it’s not finished yet- today I remain an
trial and end the decade losing my job. go’. This was set to be another exciting active banker with Bank of China. And
decade. The Dotcom bubble inflated by the way, I thoroughly enjoyed my
and burst as I next started at ABN with career- well, most of it!
a great group of people and prospects,
My own career seems to or at least that was until ABN sought a
have been like an extended new owner in what became a poisoned
potion for RBS.
obstacle course.
With another corporate restructuring
looming, I signed up mid-decade with
The eighties also saw Basel I, heralding Merrill Lynch, a seemingly impressive
the rise of banking regulation, which investment bank. Typical, however, of
marks its 30th anniversary this year. my usual brilliant timing, I started there
By the end of that decade the City just in time for the next great financial
had radically changed. The venerable crisis. In 2007-2008 markets tanked,
merchant bank where I started out Lehman collapsed, and Merrill was
was a largely spent force, although I swallowed by Bank of America.
had already gone to be part of the fast The current decade opened to the
growing American City investment restructuring of Greece, banking
banking presence. scandals erupting and Central Banks
wielding QE and rewriting economics.
The following decade was punctuated
by a further series of dramatic This decade brought also huge bank
events. Black Wednesday’s currency capital expansion (Basel III/ minimum
crisis, Kidder Peabody’s (where I was total loss- absorbing capacity), bail-in
14 THE INTERNATIONAL BANKER / SPRING 2019LOOKING OUTWARDS
Why Germany won’t offer
compromise on EU core principles
PROFESSOR JOHN RYAN, LSE IDEAS AND BREXIT PARTNERS, GIVES CLEAR REASONING
The powerful role of German business A No Deal exit could become a major from other factors such as a fall in
was brought into the Brexit debate problem for the Federal Government. British investments in Germany are not
during the referendum campaign by reflected in the figures.
Leave campaigners as they brushed off Germany stands to be the hardest hit
predictions of hampered trade with member of the EU if the UK crashes Despite this gloomy outlook in a No
the EU in a post-Brexit world. They out of the bloc without a deal. A study Deal Brexit scenario, German business
argued that German carmakers would by economists at the Halle Institute has held strongly to its pro-EU-27
surely make their interests heard. Thus, for Economic Research (IWH) and stance. Business associations have
Brexiteers assumed that German big the Martin Luther University of Halle- expressed concerns and have urged
business would lobby its Government Wittenberg shows that a hard Brexit politicians to find solutions in order
in a way that frictionless trade would could put some 100,000 German jobs to maintain frictionless trade and
continue to be guaranteed. on the line. Workers in Germany’s car maintain jobs, but not at the expense
industry would be at particular risk in of compromising the integrity and
This was to be a falsely optimistic the regions of Wolfsburg and lower principles of the single market.
view by Brexit campaigners; still Bavaria, where Volkswagen and BMW
it was carried into the following have factories. German elites and the public are on the
Government led by Theresa May after same page when it comes to the future
the referendum. As symbolism plays The United Kingdom was among the relationship between the EU and the
an important role in diplomacy, the top five export destinations for German UK: that the EU should try to maintain
Prime Minister took her first trip abroad companies in 2017 and saw over €85 a good relationship with the UK but it
not to Brussels, but to Berlin in July billion ($96 billion) worth of goods should not make any compromises on
2016, seeking goodwill by the German shipped from Germany, Europe’s largest its core principles. Chancellor Angela
Chancellor and favourable conditions economy and exporter. The study only Merkel understands that the success
for the upcoming Brexit negotiations. captures the jobs that would be lost of the UK and the EU are interlinked,
because of a slump in exports resulting both politically and economically, but
Germany‘s key industry is that of from, among other things, customs that her political interest in keeping the
automakers. Within Europe, the UK duties that would be levied by Britain EU-27 together outweighs any interest
is by far their biggest market. Auto on German exports in the event of a of the German car industry.
manufacturers based in Germany No Deal Brexit. Job losses resulting
export three times more cars to Britain
than they do to China, according to
their trade association’s data.
The auditing firm Deloitte
believes that the number
of German cars sold to
Britain could drop from
800,000 to 550,000 annually
after Brexit.
The latest developments regarding
the potential No Deal Brexit have left
German policy makers and public
unprepared for how it may affect them.
THE WORSHIPFUL COMPANY OF INTERNATIONAL BANKERS 15LOOKING OUTWARDS
Libor and Libor Alternatives
DAVID CLARK, CHAIRMAN OF THE WHOLESALE MARKETS BROKERS ASSOCIATION,
REVIEWS THE PUZZLE
For over 50 years, Libor has been a the time of the financial crash in 2008 achieve this by the end of 2021. Much
market solution to an interest rate and were laid bare in the revelations in work is going on and SONIA in the UK
problem. As the Eurodollar market took 2012 that led to the Wheatley Review and SOFR in the US are being used to
off in the 1960s and boomed in the 70s of Libor. But the reputational damage try and generate curves.
and 80s the need for a rate fixing curve had been done. The reality was that
was agreed by all stakeholders – buy the unsecured cash markets that had The term rates derived from these
side, sell side, central banks, regulators nurtured the growth of Libor had all but have not yet generated enough liquidity
and the general public. First in loan disappeared, probably never to return. to offer a realistic alternative but are
markets and from 1970 in debt capital What sort of rates could support Libor likely to do so as markets innovate
markets, Libor became the ‘cost of submissions? around them. Preparing to transition
money’ measure for global financial to an alternative benchmark has
markets in multiple currencies. Libor Two pieces of work have dominated created concerns about how risk-free
has had many stress tests. the search for alternatives to Libor. rates can be adjusted to ensure that
The Wheatley Review suggested they replicate the credit and hedging
the introduction of the ‘waterfall’ characteristics of Libor. Changes to
approach to Libor submissions made complex documentation and fall backs
Libor survived the collapse by banks. This enables panel banks to are required to minimise the number of
of Bretton Woods and the include in their submissions data from counterparties that may lose out from
rates products other than unsecured the basis risk differences that will arise.
disruptive years of Oil and interbank cash, such as short-term Libor will continue to be used until such
Cold wars, hyper inflation, as paper and non-bank deposits as well as problems are addressed. When they are
deriving rates from short term capital a number of alternative curves are likely
well as double figure, inverse market instruments. to emerge, which could be used instead
and negative interest rates. of, or alongside, Libor, and its future will
When no observable traded data then be decided by the market place
exists, expert judgement based on a that created it.
set of agreed rules is permitted. The
It facilitated the advent of interest
second was the publication in 2013 of
rate futures in the Eurodollar market,
the IOSCO Principles which are widely
interest rate swaps and many other
used and attest to the health and
innovations. In the 1980s, it became
integrity of a benchmark. Both of these
the benchmark curve of choice when
formed the basis of significant changes
others in government bonds and short
in the submission rules set out by ICE
dated derivatives were also available.
Benchmark Administration (who took
It earned its place in financial markets’
over the administration of Libor) as
resilience.
well as the governance of the process
through an Oversight Committee.
Will history record that it could not
survive the reputational battering that
As a result, Libor is still fixed and used
it has had resulting from conduct abuse
daily as the primary benchmark in the
by individuals in bank trading rooms,
vast rates markets. Central banks and
or evolve in different circumstances
regulators are particularly keen to find
to be a pricing tool fit for the 2020s?
an alternative to Libor based on risk free
The conduct issues surfaced around
rates and are looking to the market to
16 THE INTERNATIONAL BANKER / SPRING 2019LOOKING OUTWARDS
The Responsibilities of Bankers
MARSHALL BAILEY, CHAIRMAN OF THE LCH CONSIDERS THIS IMPORTANT SUBJECT
Bankers – I am one – find it easy to Knowledge of the financial system
forget that the complex financial issues remains the domain of genuine experts.
we deal with in day-to-day life remain Without fair and effective wholesale
a mystery to many. Money was – financial markets, governments would
relatively recently – a barter system, be unable to raise capital efficiently
where price transparency and through bond markets, companies
equal access to information were would be unable to export through
rudimentary. It has evolved rapidly trade finance structures or foreign
into the interoperable systems and exchange trades, and working families
technologies deployed today. would be unable to save and invest
for their retirements. At whatever
LCH, formerly known as London level, money remains critical to the
Clearing House, the global clearing functioning of our society. We have
house, of which I am Chairman, cleared a duty to explain this, and to educate
over a quadrillion US dollars of notional ourselves and others as widely as
in 2018 in one product possible.
area alone.
The 2008 global financial crisis and the
government bailouts in the UK, the US
and elsewhere put tremendous strain
More importantly, LCH on taxpayer resources, and produced a
compressed more than $774 drain on our economies from which we
are yet to recover. A lost decade. than all other net exporting industries
trillion of this risk, saving Worse still are the bad behaviours combined. However, this is not
customers around $39.5 of too many people in important sufficient for our industry to ignore our
positions in our banking systems. Trust duties to society. We will always require
billion in capital. is essential in any financial system. Many ‘a social licence to operate’ if we are to
– but not enough – have taken on board maintain a healthy economy.
Governor Carney’s wisdom that “trust
This not only brings balance sheet arrives on foot, but leaves by Ferrari.” What matters most is that the banking
benefits to customers, but frees ‘Conduct costs’ of the 20 big banks system (writ large) fuels the economy
up capital to invest in the real included in a global research project through its ability to enable individuals
economy. And as Governor of the in the five years to December 2016 to create value in their lives. Whether it
Bank of England, Mark Carney, said amounted to some £246 billion – twice be students borrowing for university or
recently:“Derivatives can seem far the annual budget of the UK National young couples buying goods or getting
removed from the everyday concerns Health Service. on the property ladder, the day-to-
of households and businesses, but they day businesses in the real economy
are essential for everyone to save and Clearing is the so called “plumbing of all pass through our banking system,
invest with confidence.” the financial system” - the intricacies either directly or indirectly. The entire
of central clearing remain critical to population of developed nations use
The removal of risk also contributes to all, but are understood by few, despite our services to raise money to invest
the financial stability and safety of the its systemic nature. However, most in jobs, create products and innovate
market as a whole. Numbers this size can and should understand retail for the future. We might use terms like
“hurt the brain”, as Lord (Howard) and commercial banking. Why? As listed capital formation and structured
Davies, now Chairman of RBS, remarked TheCityUK, the industry-led body debt finance, but ultimately all this
when, as Director of the London School representing UK financial services, does is provide more efficient ways of
of Economics, he reviewed Chinese points out, the sector contributes helping people pursue their dreams.
banks’ balance sheets. At much smaller nearly 10% of the UK’s total economic And this is true wherever you live,
scale, but every bit as important – and output and employs over 2.3 million whatever the average income of your
potentially hurtful - to those concerned, people, with two-thirds of these jobs neighbours.
are the private pension assets of outside London. It is the largest tax
potentially vulnerable individuals in the payer, the biggest exporting industry
UK, and much else. and generates a trade surplus greater
THE WORSHIPFUL COMPANY OF INTERNATIONAL BANKERS 17LOOKING OUTWARDS
Should Pension Funds make
sustainable investments?
THE TRUSTEES’ VIEWPOINT - NIGEL BRIGDEN THE MEMBERS’ VIEWPOINT - MARK CAZALY
Before I retired, I was the staff member representative Ethical standards are moving up the priority list of the
on the bank’s pension fund for a number of years, which younger generation when it comes to dealing with
was responsible for both the defined benefit and defined businesses. As employers, service providers or taxpayers,
contribution schemes. the generation coming of age post-crisis is more
discerning when it comes to the companies it chooses to
With regard to the defined benefit scheme my role, as do business with or support in one way or another. And
the staff member representative, was to ensure that the that’s no different when it comes to where their pensions
members’ interests were protected especially with regard are invested.
to the constant changes in benefits that employees hoped
to enjoy when they eventually retired. This, as I think we The last few years have seen many organisations criticised
all appreciate, was and remains a negative experience, for where their investments are, particularly if they have
with the ultimate benefits continue to reduce or a least taken a moral stance on an issue while been seen to profit
defined in every sense of the word. However, we all from it. Ethically savvy millennials are making sure their
hoped that with careful management by the trustees and own investments conform to their own moral standards.
their professional advisors, the negative effects of the One of the biggest investments many of us will ever make
markets could be controlled to a degree. is our pension. With ethical investments gaining ground
as a mainstream asset class, people are increasingly
With regard to the defined contribution scheme, the questioning how they make provision for their retirement.
role was simpler in that we needed to concentrate our
attention on the recommended funds, their performance
and content. The staff had the ability to choose from
a limited range of selected funds, which hopefully they
Many people wouldn’t feel comfortable
would be happy with. We only recommended the funds knowing their nest-egg is built on the back
we had selected; it was up to the staff to choose which
fund to choose. There was always the question of ethical
of a business which treats its employees
investments and whether or not our portfolio(s) met our unfairly or is damaging the global climate.
standards, and this was always on the agenda when we
met our fund/investment advisors.
The questions upcoming pension plan holders are likely
to be asking are what are the ethical standards of their
This has a very subjective viewpoint pension portfolio and what governance do trustees have
but one which was discussed to ensure in place to ensure these are set at the right level - or even
given consideration at all.
there were no funds/investments which
perhaps both the bank and members While the tipping point of ethical credentials being a main
driver setting investment priorities is still some way off, as
would object to. more and more people and asset managers start asking
questions, the trajectory is clear.
The discussions were quite straightforward. Our principal
objective was always to protect the value of our assets
and hence the benefits the members would receive on
retirement. The ethical decision was always secondary,
but still important. Fortunately, in today’s markets, there
is more than enough choice to enable this not to be a
significant obstacle.
18 THE INTERNATIONAL BANKER / SPRING 2019LOOKING OUTWARDS
The FinTech
Report
MAX ASMELASH, COURT well as CodeBase’s three core cities the help of a financial adviser. Adviser
OBSERVER, LOOKS AT FINTECH in Scotland, part of the Barclays platforms run more than £300bn, and
START-UPS partnership involves delivering are chosen by advisers but are paid
mentorship and business support to for by consumers. Retail investors
The capital markets ecosystem is 16 “Barclays Eagle Labs” throughout and financial advisers use investment
undergoing a major shift in data the UK, designed to encourage platforms to access suppliers in one
management, with savvy and more entrepreneurial flair and ability across place, to execute, review and change
demanding clients, operational the country. The aim is to help the their investments.
restructuring projects, increase in “hipster, hustler, and hacker” teams
platform capabilities and ever-evolving that make up most tech, including The DTC market remains concentrated
regulatory policies (and practices). FInTech, startups. (The hipster is the - a single platform clutches nigh-on
Digitalisation of the markets is offering one with the ideas; the hustler gets the half the market. In the adviser sector,
unprecedented opportunities for those cash; and the hacker, the geek, makes none of the top four touches even
firms willing to improve efficiency, it work). 20% market share. The Financial
manage risks more effectively, and Conduct Authority has been studying
provide added value to customers Financial services executives are all too how competition is developing in this
via the innovative new channels and aware that these disruptive elements growing sector.
platforms which the digital age brings within the industry are reshaping the
into play. landscape of what is to come both for In an interim report published last
themselves as leaders, and for their Summer, it identified a number of
In many cases, these forces of change firms. This environment suits a strategy issues.
have moved rather too fast for some play of future-proofing these disruptive
major financial institutions, which has pathways which may cause potential
brought the sector to a crossroads. chaos if not managed proactively. With
New entrants are using the advantages Europe facing a whirlwind of change
of cloud-based infrastructures to because of the impact of Brexit and
Most notably, it argued
reshape their models as they grow, other EEA states in worrying conditions, competition in the market
and more importantly to scale up the realignment of the new European
aggressively without the cumbersome regimes should create a new breed of
was not working as well as it
requirements which a traditional tech-focused services and products for should for some consumers
investment bank would need to the capital markets.
undergo to enforce such changes via
- although it did find it to be
their grinding legacy systems. GEORGE LITTLEJOHN working well for most.
ANALYSES RETAIL PLATFORMS
Sitting on the sidelines is not an option
for established contenders, and In the retail markets, platforms have
they face two crude options when it become significant players. In the
comes to deploying “FinTech” in their UK, assets under management have The FCA said it was particularly
ecosystems – build their own, or buy in doubled since 2013 to £500bn, driven concerned about some consumers -
start-ups before they become scale-ups by rising markets and increasing levels namely, those who want to switch but
and the price rockets. Each has merits, of investment. Over the same period, find it costly to do so; DTC platform
each down-sides. 2.2 million retail customer opened users who want to choose a platform
accounts, and platform revenue based on price; DTC platform clients
Innovative approaches abound. reached £1.3bn in 2017, up from who use model portfolios; those with
Barclays, for instance, has built a £750m in 2013. There are two main large cash balances; and “orphan”
strategic partnership with CodeBase, types of investment platform. Direct clients, that is, those who are no longer
certainly Britain’s, and possibly to Consumer (DTC) platforms run advised but still use an adviser platform.
Europe’s, biggest tech incubator. As around £200bn, and are used without
THE WORSHIPFUL COMPANY OF INTERNATIONAL BANKERS 19CHARITY & EDUCATION
The Lord Mayor’s Appeal
CAROLINE WRIGHT DESCRIBES AN AMAZING INITIATIVE
Pompey, Julius Caesar and Marcus seeks to give the young the chance of year £450,000 was raised for charities,
Licinius Crassus were the members a better life. It builds iconic buildings 5,000 new volunteers recruited and 300
of the First Triumvirate created in in deprived areas where a host of fun plus charities benefited. The initiative’s
Ancient Rome in 60BC. Lord Mayor and skill-building activities help local momentum means that the target of
Peter Estlin, the former Lord Mayor children. The LMA’s support has not having over 400 companies participate
Charles Bowman and future (subject to only meant the funding to build more on September 24, 2019 looks very
election) Lord Mayor William Russell, centres, but also a higher profile likely.
are the current Triumvirate of the City for the charity and more corporate
of London who are busy revolutionising involvement. Today’s City of London is the site where
the Lord Mayor’s Appeal (LMA). They the Roman settlement of Londinium
aim to help one million people thrive Meanwhile, various initiatives using was established. At a time where the
over the three years they are in office. the convening power of the LMA are City’s key position is under threat from
making inroads in the areas of diversity the uncertainties of Brexit, it is worth
Weaving together the professionalism and skills. The Power of Inclusion remembering that its skills date back to
of business, the goodwill of employees breakfasts and workshops showcase Roman times. They have not only been
and the expertise of dedicated charities, successful programmes in corporates used to trade, but to benefit society
the LMA is working on finding solutions to an audience of other corporates. in myriad other ways – and the Lord
to some of London’s most pressing Rather than just a talking shop, these Mayor’s Appeal is a clear example of that.
societal issues. These include mental breakfasts give practical tips on how
health, deprivation, diversity and to access untapped talent and keep it Senior Warden Karina Robinson is
inclusion and the skills deficit. onboard. the Chair of the Lord Mayor’s Appeal
Advisory Board.
In mental health, support for the In the City itself, the Autumn City Giving
Samaritans has translated into the Day initiative has grown from a cake
creation of a digital programme to stall in Guildhall Yard a few years ago,
help employees support colleagues to an annual event where over 300
experiencing mental health problems. companies participate and showcase Last year £450,000 was
their charitable activities. From Bank raised for charities, 5,000
of China’s market stall to Tour de City,
where lycra-dressed City staff compete new volunteers recruited and
A side effect has been that in relays on stationary bikes, companies 300 plus charities benefited.
raise money for their charities and
over 90% of users now those of their employees. In the last
recognise the importance
of looking after their own
wellbeing – an important
result given that one in four
people in the World will be
affected by a mental health
issue in their lifetime.
The LMA also supports Place2Be, which
provides mental health support in
schools. During the last academic year
its funding helped the charity recruit
and train 400 volunteer counsellors
and reach 100 schools. The LMA’s third
charity is Onside Youth Zones, which
William Russell, Charles Bowman, Peter Estlin
20 THE INTERNATIONAL BANKER / SPRING 2019You can also read
