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Ave Imperator, Morituri te Salutant

Dangelo, Mark
(Mark Dangelo is managing principal and creator of Innovative Relevance® (, including books, industry reports and articles. He is a known as a strategic management consultant, outsourcing advisor and analytics specialist with extensive process, technology and financial results. He is a frequent contributor to MBA NewsLink. He can be reached at or at 440/725-9402.)

For the past several years, the concept of a “golden age” of financial services has been used as a guide for some and rallying point for others. “Everyone” remembers the “good old days” when credit was easy, spending consumers were confident and “sophisticated” investors demanded mortgage-backed securities with very limited due diligence.

Most recently, premier financial publications have been featuring op-ed articles and interviews on a return to basics, a “new normal” banking environment, and even THE future for banking. With estimates ranging from four to eight years of upcoming financial litigation and total judgments projected in excess of $250 billion--not including looming corporate bankruptcies and claw backs--it is understandable why banking advocates are eager to talk about tomorrow. 

Yet, has the reality of emerging country growth, an ongoing decade of repair for housing and employment and the lingering back-office decay of processes and systems brought forth from countless M&A actions, been aligned with the banking consumers of today, let alone tomorrow? With more than 100,000 finance jobs lost just in the past eight months, it remains unclear who and how necessary changes will be performed. 

Additionally, are those who were raised on and educated by this so-called Golden Age of financing really the facilitators for rebirth amid a bottoming process likely to ebb and flow until at least 2015? If they were successful by chance or design during the current four year crisis--that is, they were not as bad as their peers--is that sufficient rationale for their future actions? Stated differently, “am I willing to follow or invest in their initiatives now?” 

After four years of uncertainty--and battle lines continually defined, broken and reformed--many industry personnel are now reflecting, “What is the fight all about anymore – our jobs, our future, our industry, our government, or our leaders?”

Looking at Yesterday and Today--in 60 Seconds
The foundation for the current financial system supply chain, from origination through securitization, was driven by principles of globalization, leverage, exotic financial instruments, bigger is better and off-balance-sheet investments. For roughly 25 years, these strategies of execution stimulated executives to seek out and embrace unknown risks as they were praised by media personnel, their boards and corporate investors of their “savvy.”

Today, consumers continue to deleverage against four dilemmas--housing, business transformation, employment and technology relevance. As a byproduct innovation of the Great Recession, banking has gone increasingly mobile with dollar volumes expected to triple in three years to more than $700 billion annually. 

The use of on-balance-sheet financing--for example, with covered bonds--have increased their acceptance under Basel III guidance, while regulations post-Dodd-Frank continue to evolve under political constraints and market making realities. Moreover, domestic and international regulations and accounting standards have continued to diverge heralding forth a new patchwork of sovereign governance.

Using 2006 as a baseline, numerous estimates currently place residential lending down more than 60 percent from its peak, commercial lending down by one-half and new housing starts off nearly 75 percent, resulting directly in more than 500,000 domestic jobs lost and indirect positional losses of 3 to 5 million. Equity and bond trading venues have consolidated as high-frequency trading and algorithmic traffic now accounting for one-half of daily volumes. Additionally, the amount of triple-A securities has been significantly reduced by new guidance, while the ratings of sovereign debt demonstrate fragile markets that have become increasingly tightly coupled. 

Holistically, the markets that were once independent or quasi-dependent on each other has become increasingly causality linked resulting in once respected banking leaders advocating “anti-American” or “competitive disadvantages” when it comes to regulations, restrictions and retribution. It appears that the “financial emperors” of the past continue to wrestle with their own and more importantly the validity of systemically important private and public institutions, including the once-venerated Federal Reserve.

The use of “big-banking-data” both internally created and externally linked has led to complex arrays of challenges and questions when trying to predict tomorrow. Today, this financial data is greater than 1,100 exabytes and is growing 130 percent to 160 percent per year due to rapid advances in cloud computing, shifting mobility and “i” usage, as well as aggressive data gathering technology.

The bottom line is that the battles being fought across the media today are less and less about the past and more importantly about the future. Nowhere is this clearer than with housing, as homeownership rates will continue to fall, especially once the dispositions of the GSEs are finally dealt with starting in 2013. 

As Asia continues to reject once-valued American guidance in favor of their domestic agendas, a new set of “financial emperors” will emerge as evidenced by the largest change in the top 25 bank rankings during the past three years. So what is the plan of attack moving banking forward for these new financial empires? Who will lead the domestic markets to a revitalization of past glory? 

The world of tomorrow requires something vastly different--not more of the same wrapped differently.

Planning the Roadmap of Tomorrow
So what makes tomorrow different requiring new guidance and leadership? The indicators have been there for nearly a decade, but in a rush to profits they were often disregarded. 

A few of tomorrow’s operating principles needed for success include:

• Be nimble and quick recognizing that “small is beautiful”--and size is not a substitute for organizational profitability or sustainability. Targeting of organic or acquisition growth must not lead to complexities that cannot be assessed or risk mitigated in times of crisis. In the end current banking, like the Mastodon, will transform through evolution or by (regulatory) hunting making their species extinct.

• Work within emerging regulations while creating serious discussions on new markets and job creation. The world of financial services will increasingly be utility-focused for traditional products--that ground will not be yielded regardless of who is elected. Important efforts on the future products to restart markets is where capital should be spent and concentrated--U.S. covered bonds, accounting standards, capital ratios and liquidity. It is the latter (global instrument liquidity) that represents one of the greatest opportunities for debt, risks and transparency. Without liquidity, where will housing finance be in the private sectors?

• The population shifts, aging and economic growth as highlighted by the IMF clearly show the challenges and opportunities for banking efforts as dependence on domestic lending shifts to wealth preservation. The principles of house holding, fee-based incomes, cross-selling have all taken different paths, especially when analyzed against demographical shifts and needs.

• Confidence and bravado are no substitution for strong planning disciplines and outstanding execution linked to consumer markets. A single, focused initiative--application rationalization, organizational change, process reengineering, mobility adoption and migration, privacy and security--will have solid impacts. However, they can be greatly leveraged when married with other efforts--risk management, strategy, architecture, scenario planning and business modeling.

• It is about technology, technology and more technology. In the past, technology used to play second string to process design. That is, it was the enabler for process and solution designs. The past five years of advancements have shattered the 1980s belief resulting in an equal or greater value to profits and relevancy. Tomorrow is about the pairing of the processes, technology, and associated apps to reach and exploit the aforementioned four principles.

For the tens of thousands of financial services personnel around the globe who lost their livelihood since 2007 many of them fought the “good battle,” working tirelessly year in, year out for their organization. Their efforts and innovations, as learned from lessons in history, were not enough to overcome the decay infused across their individual operations.

Those “financial emperors” or leaders who continue to insist that their golden era approach is the answer will spend all their capital and goodwill destroying what they value the most. Much of that in the end will be attributed to a failure to understand that their model of banking has passed.

As published by Securities Information and Financial Markets Association, financial services composition of U.S. export contribution peaked in 2006 at more than 14 percent and holding at more than 13 percent today. For total GDP contribution, finance, insurance, real estate, rental and leasing continues to marginally grow and per the Bureau of Economic Analysis still contributes more than $3 trillion annually. The role of financial services is critically important for domestic workforces and economies. 

However, as the industry is remade, the battles and vision of those advocating change must be questioned, not blindly followed. This allegiance challenge encompasses vendors, outsourcers, software providers, strategists, management consultants, media personnel, industry associations and even the regulators with their interconnected government bureaus.

We cannot let history repeat itself or risk falling further behind these new global leaders and institutions residing in London, Singapore, Frankfurt, Hong Kong and Beijing. The U.S. is finally waking up to a reality that they are no longer an island within financial services industry. Ultimately, domestic leaders must demonstrate not just comprehension of the challenges, but action, towards a roadmap for success are the ones most of us will follow into battle. We must clearly put forth what we are now fighting for or the efforts will be in vain. 

In case you were wondering about the Latin phrase in the title, “Ave Imperator, morituri te salutant” translates into, “Hail, Emperor, those who are about to die salute you." I don’t know about you, but I’m not really eager to repeat these last four years with different names and a new wrapper.

(The views expressed in this article do not necessarily reflect the views or policies of the Mortgage Bankers Association. MBA NewsLink welcomes your contributions; articles or inquiries should be submitted to Mike Sorohan, editor, at