February 2016

The Broker Channel – Born again Bankers

Banks are undeniably feeling the heat to maintain profitability in a market suffering from uneven credit growth, regulatory imposts, lower asset quality and escalating wholesale funding costs.

As such, the mantra of “it’s a lot easier to cut costs than it is to increase profitability” is well and truly in vogue. This is generally code for head count reduction.

In the second half of 2015, Australia’s Big Four and Macquarie Group shed a combined total of 1,475 staff members between them. This hardly seemed possible after the 3,300 jobs that were shed in 2012 and almost unlikely considering the fact that jobs had in fact been added in 2014.

It seems that no one is safe as broad based downsizing continues. Even retail branches have closed or been consolidated as bank executives slash costs, seeking savings in every nook and cranny.

The problem is not unique to Australia either. Around 186,000 bank employees have been let go in the UK in addition to Europe’s largest banks reducing headcount by over 100,000 since the 2008 Global Financial Crisis (GFC). Advances in technology have seen the inception of cognitive software that is replacing various roles in call centres, customer service roles and lending.

But now, customer facing roles are in the cross hairs. This is despite banks themselves acknowledging that closer customer relationships are highly coveted, and generally provide better revenue outcomes.

Expense reduction continues to take place as the majors proceed to separate investment banking and proprietary trading functions from their retail franchises. In many cases, for example Barclays exit from Australian and Asian markets, the big banks have wound them down completely with Barclays CEO Jes Staley stating that the Bank seeks to “focus more on the most profitable lines of business”.

While it is difficult to quantify job losses in any one area of a bank’s business, it does appear that business banker numbers are in decline in most instances. Since 2008, East & Partners research shows that there has been a 66 percent reduction in the number of CFOs and corporate treasurers who have had direct dealings with their bank in the previous month.

All in all, only 18 percent of enterprises had experienced personal contact that was proactively driven by the bank. These numbers suggest that banker numbers have been trimmed substantially, with remaining staff struggling to maintain customer contact numbers within their burgeoning portfolios.

Now most people will be of the vein that it’s hard to shed a tear for bankers who face losing their job in an industry with very few current vacancies - “they had it too good for too long”.

However, these aren’t the Wolf of Wall Street stereotypes who made hundreds of millions of dollars at the expense of their customers. These were people who often cared about their clients and would more times than not, do the right thing by them to help grow their business. They were collateral damage of a downturn in lending and perpetual need to consider shareholders by maintaining dividend yield outperformance.

Where do these business banking Relationship Managers end up?

In the fallout of the GFC and the subsequent credit crunch, the majority of Australian banks shunned brokers at the time as means to manage their loan books, keeping their powder dry for existing clients who they had a direct relationship with. In recent times, there has been a revitalisation of the broking industry, particularly in the equipment finance product suite.

In the last three years there has been a 35 percent uplift in the use of brokers in sourcing finance. This growth now means that 61 percent of all equipment that is financed is done through the broker channel, and an important medium for banks to increase their balances.

As a result, business bankers frequently find themselves resurrecting their careers as brokers. They have existing connections on both the sell side and buy side to be successful, but also the added advantage of knowing exactly what deals will be given the nod by the credit approval team. It makes for a natural transition where they can lean on their experience and skill set.

The use of brokers is more prevalent amongst businesses with turnover less than A$20 million per year, where credit accessibility and cash flow remains a key concern. The proportion of small business owners using brokerage channels has increased by almost 20 percent over the past three years, with more than half of all businesses financing equipment purchases through an intermediary. The key driver nominated by research respondents for this shift is better pricing.

While service levels from banks continue to be stretched, and business decision makers expect more interaction and a deeper engagement with their banker, the broker channel continues to expand healthily and emerge as a valuable source of growth for banks.

Ironically Banks appear to be sourcing business from the very people they once let go.

Broker Sourced Proportion of Total Equipment Financing
Average % Reported

East & Partners Asset and Equipment Finance Markets Report

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