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Across the financial services sector, many chief financial officers (CFOs) have reluctantly put their growth plans on the back burner in order to focus on two new imperatives. First, to cut costs to the bare minimum; and second, to transform the business in a way that can meet the rapidly evolving demands from regulators—especially in areas such as data reporting, scenario planning and liquidity/capital reserves. The question now is whether the effort that they have put into these initiatives will help to drive growth, now that the economic climate is starting to pick up.

Mark Rennison, CFO at Nationwide Building Society, says that the economic crisis and downturn did not force the mutual lender to alter its customer-centric business strategy, but that the aftermath has sometimes held back its efforts to turn that strategy into action.

“We’ve had to deal with legacy issues, and worry about investments that the regulators want us to make in order to help the financial stability of the wider system,” says Mr Rennison. “Maybe it’s no coincidence, but as we are emerging into a more favourable economic outlook, we are also nearing the end of the worst situation in terms of capital pressure on the UK financial services industry as a whole, and in particular the uncertainty that has characterised that.”

Meeting a new set of regulatory expectations would always have been difficult, but the challenge has been exacerbated by the fact that those expectations have continued to change, he says. “To an extent, we’ve been trying to hit a moving target for a considerable amount of time and that kind of uncertainty is always unhelpful.”

The industry is not out of the woods yet. Mr Rennison expects the debate to continue for another 12-18 months. “But we are getting the opportunity to take some braver and bolder decisions about how to use our capital—particularly with regard to where we can invest.” For example, he is keen to move forward investment in technologies that can improve customer relationships and enable customers to switch between their preferred communication channels.

As this new, post-crisis landscape starts to solidify, financial firms will have to reflect on the space they plan to occupy. A Swedish bank, Svenska Handelsbanken, for example, has been following the same strategy—conservative, “boring”, relationship banking—for decades, claims the bank's CFO, Ulf Reise. Despite the crisis, it has achieved its core strategic aim in every one of the last 42 years—to deliver a higher return on equity than its peers. “But since 2008 the whole notion that you could build a bank just on deposits is no longer true,” he says.

“New technology, especially mobile technology, means that if you have a reputation problem, money can leave your bank very quickly. If you are lending to people for five years and are funded with deposits, you can be in trouble fast,” says Mr Reise. “That means for us, and banks like us, bond funding will be increasingly important.”

Compliance: the new competitive advantage?

Mr Reise believes the adoption of a planned European “bail-in” regime would also be significant. The idea is that troubled banks in the EU should have to ask their bondholders, shareholders and important customers for help before they look for central bank support.  

“Under bail-in, companies would have to do a form of credit assessment on their bank,” says Mr Reise. “When I became CFO in 2007, nearly every bank in Europe had the same funding cost, regardless of risk. The crisis led to wide differentiation between banks—some could not even fund themselves. Bail-in will increase the differentiation between a very good and not so good bank in terms of funding costs, especially when central banks start to withdraw liquidity. For me, that makes my role as CFO—meeting investors to explain the bank and how we think—even more important.”

The work that Handelsbanken has done to comply with new regulation could be helpful here, Mr Reise believes. “The amount of information we have to gather nowadays is immense. From a practical point of view it just tells us what we already knew, but one way in which it is beneficial is that we now have so much statistical data that we can give the market about our capital position. That means we can be benchmarked against our peers in a much more granular way than had previously been the case, and that is positive for us.”

When he is talking to investors and analysts, the clarity and consistency of Handelsbanken’s strategy pays dividends, says Mr Reise. “I find that we are the only ones in our industry who have not changed; our business model is simple relationship banking. Other firms have shifted their strategies so much over time that it’s not necessarily easy to understand all the information they are producing.”

Indeed, at one point in 2008 Handelsbanken had a worse credit rating than Kaupthing Bank, the Icelandic bank forced into government receivership in late 2008. “Since then the market has become much more sophisticated,” notes Mr Reise with approval.

Avoiding the complacency trap

Asset manager Schroders is another financial firm that has performed well throughout the downturn. But it has still had to jump through the regulator’s hoops, despite its large—£700m and growing—investment capital surplus and £262.9bn under management.

The CFO of Schroders, Richard Keers, who joined the firm in May 2013, says that Schroders has built better operational risk models and stress-tested them to meet regulatory requirements. “One thing you can’t do is say to regulators, ‘we’ve got a lot of capital so we don’t need to worry’”, he says. “We need to demonstrate that we have a thorough process that underpins all our capital modelling requirements. If we were lazy and didn’t do it properly because we have a big surplus, we would get censored quite strongly.”

Mr Keers says that Schroders has been investing throughout the crisis, keeping costs under control—rather than trying to cut heavily—and focusing on organic growth. Its £424m acquisition of Cazenove Capital in 2013 was very much the exception rather than the rule.

The fact that the Schroders family still owns 46% of the business helps the board to take a longer-term view, he adds. Its presence in Asia—which is generating over half its net new investment business—is one of the “jewels in our crown” and there are plans to double the size of its managed funds in the US over the next five years, says Mr Keers.

Still, the business will come under revenue-margin pressure, he says, as the firms that distribute Schroders’s products are gradually making fewer funds available to their clients. “Revenue margins are decreasing, but the risks we have to take are not. So we need to be more efficient and have more robust processes,” claims Mr Keers. “We also need to make sure we still have a cost base that gives us a very viable business model.”

Hence one of Mr Keers's early priorities when joining Schroders was to revisit its management accounting systems. “I want to ensure we have much greater transparency about where we are incurring costs and where we are generating revenue—by product and by geography,” he explains. “It’s been a very substantial project.”

Providing a higher degree of transparency around the performance of the business is a theme that Mr Rennison highlights, too. “As the leader of the finance community in a large organisation, I have to ensure we challenge the way we allocate investment and deploy our capital,” he says. “Are we using the right assessment criteria and making an appropriate return?”

This requires a careful balancing act. “Finance must absolutely participate in that debate and challenge what people are doing, but we must not dominate the debate,” says Mr Rennison. “Customer service is our differentiator, and our regulators expect us to deliver ‘good outcomes’ for our customers anyway. So while we want to drive financial discipline, we need to have an integrated approach to strategy.”

The need to balance different priorities—of which finance is only one—is a cultural attitude that Mr Rennison tries to instil in his team. It is also one that he takes to the boardroom. “The integrated approach to strategy planning is really important,” he says. “I am the CFO, but I am not the sole owner of this and nor should I be.”

The financial companies mentioned in this article all had a relatively “good crisis”. If the regulatory reforms introduced since 2008 have encouraged their rivals to take a more rigorous, data-driven approach to strategy, investment and capital allocation, then this can only be a good thing. This approach should help them to grow and prosper, now that the economy is improving.