Picture: REUTERS
Picture: REUTERS

Only a handful of banks have emerged as the “end-game winners” in the super banking leagues in the aftermath of the global financial crisis.

This was the view of Sjoerd Leenart, global head of corporate banking and regional head of central and eastern Europe, the Middle East and Africa of JP Morgan, who was speaking exclusively to Business Day last week on a trip to the country.

Leenart was responding to questions on the strength of JP Morgan’s franchise following the 10-year anniversary of the global financial crisis, which is widely regarded as having begun when Lehman Brothers filed for bankruptcy on September 15, 2008.

“In the last seven to10 years banking has changed dramatically. Before the global financial crisis, everyone was trying to expand. But the global financial crisis forced many of them to cut back and this has left just a handful of us that can service global clients,” says Leenart.

The strength of the bank’s franchise has increased in part because it avoided many of the risks in the mortgage-backed securities market that facilitated the reckless lending that took place in the US housing market. JP Morgan CEO Jamie Dimonconsciously avoided this exposure and consequently the bank did not require a bail-out in the ensuing crisis.

Over the intervening decade the bank has more than tripled its market capitalisation, from about $100bn at the low point (March 31, 2009) to the current level hovering around $350bn. The bank has total assets of $2.6-trillion.

Leenart also believes the group’s full-suite offering that spans the breadth of corporate and investment banking makes it easier for it to ride out volatility in the various markets in which it operates, giving it staying power as a partner to resident multinational corporations.

“This means that if you only offer a limited set of services you may not be able to make that relationship work, because you cannot generate a satisfactory return from the relationship.”

This has been self-evident in the local market. Credit Suisse recently announced the closure of its equities research and trading business in SA following a plan to reduce costs by the bank’s global CEO, Tidjane Thiam.

Earlier in 2018 Deutsche Bank announced it would terminate its local advisory, corporate-broking and sponsor services following two years of global losses that have forced CEO Christian Sewing to make some hard choices. But the bank will retain a presence in debt capital markets, fixed-income and treasury products.

Leenart says part of JP Morgan’s success is about knowing what they do well and being precise in what type of client they compete for. Specifically, this includes the large multinational, or local institutions (such as Eskom) that need to access global capital pools.

“Being connected globally and being able to solve problems across the globe is very important to them. From our perspective, that means ensuring that our staff are incentivised to share information and collaborate seamlessly with one another. We want to make sure our people are best in class and have the right behavioural DNA. I think we have an incredible culture around sharing and doing the right thing and it is really benefiting our clients and our franchise at this stage,” says Leenart.

The bank recently invested substantial resources in producing a hefty research report, “JP Morgan Perspectives: Ten Years After the Global Financial Crisis — A Changed World”.

The report points to some of the legacies of the global financial crisis, including the enormous increase in the tradable universe for bonds, which has increased by $30-trillion to $57-trillion over the  past 10 years. One of the outcomes of this has been an almost insatiable appetite for “lower-rated nonfinancial corporate bond issuance”.

Another unintended consequence from the policy response to the global crisis includes lower potential for economic growth, higher public sector debt and higher fiscal deficits. It notes rather worryingly that the “unprecedented” G-20 policy co-ordination that existed in the aftermath has effectively disappeared while “support for populist or extreme parties has surged, with social tensions likely to be amplified in the next financial crisis”.

On the positive side, JP Morgan found that global banks are much better capitalised and less complex from “a liquidity and risk perspective, with new tools for resolution, reducing systemic risks”.