Where do banks need to be?
The announcement last year by Danske Bank that they are reducing their operations in London and closing their branch in New York will have surprised many people. Historically, many banks have determined that a market presence in both locations is key to a successful international banking franchise. This may have been true in the past but is it still true today?
The development of communications technology and the ease of global travel have diminished the importance of physical location for corporate treasuries. From a cash management perspective, it is possible to organise and initiate day-to-day payments from anywhere whilst email and the internet have added new communication channels to lending banks and investors as well as operating subsidiaries. Corporate treasurers can argue with some justification that they can service their organisations better if they are located in an office on the group’s main production facility rather than in a major financial centre.
Banks also need to consider this message. Do they need a physical presence in the major financial centres? For some, the large tower block in Canary Wharf, Frankfurt or Lower Manhatten is essential, but for many others a physical presence in these places is beginning to look like an expensive overhead when it is increasingly possible to service customers through a virtual presence.
Over the next few years, banks will need to decide how they are going to structure themselves to provide services to their corporate customers. A large physical presence in a congested market may not be the solution for all. What matters is the ability to do what customers need. This may mean being on the end of the phone or available by email and only attending physical meetings occasionally. It may mean relying on other banks to provide certain services in some locations.
Just because a bank decides not to have a presence in a financial centre, it does not mean that it cannot deliver good services at a competitive price in that market. Danske may turn out to be the first of many recognising that times have changed.