Time to look to the 1950s for a little banking inspiration?

Take a look at what 2017-style 1950s banking/wealth management might look like.

Key priorities for banks in the 1950s were customer selection and satisfaction.

Should we go back to the 1950s to gain inspiration as to how we should structure some of our banking and wealth management enterprises?

The current model has delivered fantastic wealth for Australian bank shareholders but there is now extreme turmoil with the government planning quasi nationalisation via a new tax, price monitoring and executive registration.

And globally banks are reigniting their traditional love affair with high-risk strategies.

This week I was yarning to the people from investment manager Cooper Investors who have developed a global banking/wealth management portfolio selecting bank investments that model themselves on the 1950s, when the key priorities were customer selection and satisfaction; decentralised decision making and the belief that balance sheet integrity is more important than balance sheet growth.

Cooper emphasise that they are not into conventional bank bashing and include our major banks in their appropriate portfolios. But Cooper are fascinated with the high low risk investor rewards that come from returning to the 1950s strategies aided by modern technology but without the regulation that held back banks at that era.

The best way to understand what 2017-style 1950s banking/wealth management might look like is to take three modern high technology organisations that embrace it.

The first is a Swedish Bank, Handelsbanken, which operates full service branches in Sweden, the UK, Denmark, Finland, Norway and the Netherlands. The branch managers are limited to customers in their branch’s geographic area. Just as importantly the mangers must know personally all their customers and in the case of business loans have the talent to be able to “kick to tyres” to evaluate a small business loan.

For the most part the manger and not head office decides whether to loan to a customer — after all the manger is the best judge of that customer.

The manager gets no growth incentives or bonuses but is rewarded with shares, which can be cashed in on retirement. It’s a longer-term reward system.

In the UK “modern” banks are closing branches so Handelsbanken is opening in some of the areas where they shut. Viewed over a 10-year period the Handelsbanken loan losses are far less than conventional banks with their sophisticated centralised systems.

I remember well the 1950s when Australian bank managers “ kicked the tyres”. In my father’s locality, the ANZ bank manager was well known by all the local businesses. It was a big family event when the bank manager was coming to visit dad’s factory and father would get dressed up. Despite the preparations the bank manager thought basket making was too risky for anything but working capital loans and he was probably right. That 1950s skill to personally evaluate small enterprises or ‘kick the tyres’ has been lost by most bankers worldwide.

A second bank that operates along the same lines as Handelsbanken is First Republic, which is based in California. In the case of First Republic the branch manager does not have the same autonomous lending authority as Handelsbanken but the central credit check group works closely with the managers so there is not an constant adversarial war which often occurs in conventional banks.

In Australia I think the nearest we have to Handelsbanken and First Republic is Bendigo Bank and Bank of Queensland but their branch mangers have no where near the same authority, and in many cases they can attract customers outside their areas. The disastrous Bank of Adelaide takeover by Bendigo bank shows the company has a growth ambition not seen in Handelsbanken and First Republic.

The nearest bank to use 1950s techniques is Heartland in NZ which specialises in areas where most big banks do not vigorously compete, including farm and livestock finance, small equipment lending, personal and vehicle loans. Its top executives are often drawn from the experienced ranks of conventional banks.

In wealth management London based St James’s Place applies the same customer oriented highly decentralised decision making practices as the three 50s banks.

Instead of empowered bank managers St James’s Place gains its distribution via so called ‘partners’ who are briefed to have a deep relationship or partnership with their clients. The ’partners’ are very autonomous but St James’s provides the systems and all its investment products are sold through them. There is great care in selecting ‘partners’ and maintaining a close relationship with them.

Banks and wealth management companies around the world are racing to reduce costs by creating electronic customer relationships and closing branches. Bonuses and rewards for volume growth abound which is completely contrary to the 50s strategies. But, as you can see, there is an alternative, rewarding and low risk strategy that Cooper Investors has uncovered. But no Australian bank can embrace it without a totally different management approach.