1 / 20

Bank Productivity What’s Happened Since 1998?

Bank Productivity What’s Happened Since 1998?. 11.17.03. Background. A 1998 paper entitled “Bank Productivity: Promises Unrealized” examined the drivers of bank efficiency Surprisingly, efficiency gains over the previous four years were driven primarily by income growth

jett
Download Presentation

Bank Productivity What’s Happened Since 1998?

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript


  1. Bank ProductivityWhat’s Happened Since 1998? 11.17.03

  2. Background • A 1998 paper entitled “Bank Productivity: Promises Unrealized” examined the drivers of bank efficiency • Surprisingly, efficiency gains over the previous four years were driven primarily by income growth • Costs had actually increased as banks expanded branch networks and new distribution channels • Tonight we will determine whether the last four years has shown a change in performance 1 Published in Creating Value in Financial Services (2000 – NYU Stern School of Business)

  3. Productivity programs of the 90s • Process redesign • Overhead value analysis • Centralization • Mergers & acquisitions • Strategic sourcing

  4. Bank mergers have slowed considerably US Bank Mergers Source: SNL Database

  5. Bank Concentration Source: SNL Database

  6. $48B 6.4% CAGR $38B 27.8% CAGR $14B Average Bank Assets (top 120 banks) 1998 2002 1994 Source: SNL Database

  7. 13,723 9,144 7,887 1987 1997 2002 Source: FDIC Statistical Abstract of the U.S. Change in Number of US Banks

  8. 66,185 1.87% CAGR 60,320 5.78% CAGR 45,537 2002 1987 1997 Source: FDIC Statistical Abstracts U.S. Bank Branch Growth

  9. 65.6% 61.4% 57.8% Cost to Income Ratio 1998 2002 1994 Source: SNL Database

  10. 64.3% 59.7% 58.0% Normalized Cost to Income 1998 2002 1994 Source: SNL Database

  11. C/I Improvement CAGR 33% 26% 23% 18% Source: SNL Database

  12. Bank Asset CAGR Map 12% Stalled & 12% Under-performers 53% Out-performers & 24% Latecomers 19% Stalled & 19% Under-performers 17% Out-performers & 45% Latecomers 14% 48% 8% 30% 22% Stalled & 0% Under-performers 11% Out-performers & 67% Latecomers 19% Stalled & 42% Under-performers 31% Out-performers & 8% Latecomers Source: SNL Database

  13. What’s driving C/I? 5.3% 5.2% 5.1% 3.4% 3.1% 3.1% 1994 1998 2002 1994 1998 2002 Costs/Assets Income/Assets Source: Creating Value in Financial Services, Nov 1999 (Normalised Revenue & Costs)

  14. Another “gross” industry measure indicates only marginal improvement Average Annual Increase in Labor Productivity, 1994-1998 and 1998-2002 25.3% 24.1% 19.3% 12.8% 10.4% 6.8% -1.1% 1.4% 3.1% 0.5% 1.8% 1.0% -0.5% 0.6% Radio & TV Banks Department Stores Grocery Stores Non-store retailers Computer & Peripherals Electronics & Appliance Stores Source: Bureau of Labor Statistics

  15. What happened between 1998-2002? • Recession – cost cutting (layoffs, projects deferred, reduced IT spend) • Declining interest rates yielding improving margins • Improved fee income from record-breaking refinancing • Continued mergers/scale • Channel migration

  16. What will happen in the future?

  17. Case Study – Abbey Bank (UK) • Position -- Abbey is the sixth largest bank in the UK ($200+ billion in assets) -- second largest provider of mortgages and savings in the UK • Staff -- Abbey National employs 28,300 FTEs • Customer Focus – principally consumers and small businesses • Service Channels – all of the typical channels (750 Branches, 12 telephone centers, internet, 3,000 ATMs, etc) and several retail partners such as Safeway, Costa Coffee and Homebase

  18. 54% 46% 54% 47% 41% 56% Abbey National HSBC Lloyds Barclays Royal Bank of Scotland Bank of Scotland (Halifax) Cost to Income Ratio (2002) Source: 2002 Company Annual Reports

  19. Project approach Timeline and Tasks Timeline and Tasks 2 weeks 2 weeks 2 weeks 2 weeks 2 weeks 2 weeks 2 weeks 2 weeks 3. Data Gathering / 3. Data Gathering / 1. Initial Overview 1. Initial Overview 2. Data Gathering / 2. Data Gathering / 4. Analysis and 4. Analysis and 3. Data Gathering / 3. Data Gathering / 1. Initial Overview 1. Initial Overview 2. Data Gathering / 2. Data Gathering / 4. Analysis and 4. Analysis and Analysis: Phase II Analysis: Phase II and Data Requests and Data Requests Analysis: Phase I Analysis: Phase I Recommendations Recommendations Analysis: Phase II Analysis: Phase II and Data Requests and Data Requests Analysis: Phase I Analysis: Phase I Recommendations Recommendations • • Conduct deep Conduct deep - - dive dive • • Compile results Compile results • • Develop Operational Develop Operational • • Conduct Conduct operational operational and follow and follow - - up data up data Baseline Baseline site site tours tours • • Conduct joint Conduct joint clarification clarification meetings to review meetings to review • • Conduct in Conduct in - - depth depth • • Develop high Develop high - - level level interviews interviews results results interviews with interviews with operational map operational map • • Compile data in Compile data in appropriate parties appropriate parties • • Develop Develop Operations Operations • • Meet key contacts Meet key contacts operational operational flows flows Strategy Strategy and Plan and Plan • • Review data received Review data received • • Review existing Review existing • • Meet with businesses Meet with businesses for clarification for clarification documentation documentation to understand to understand • • Develop initial Develop initial operational operational • • Submit Submit initial data initial data performance flash performance flash requirements requirements requests requests report report Deliver preliminary Deliver preliminary • • Finalized Operational Finalized Operational Operational Baseline Operational Baseline Baseline Baseline • • Operational Strategy Operational Strategy

  20. Strategic cost positioning Acceptable investment Current Organization Over time Operating costs Income Target Target Target Non-strategic/ dormant/closed products Core products New strategic products

More Related