Despite the big-bank bashing that’s gone on in the years since the financial crisis, a welcome development has emerged: the largest U.S. banks are now strikingly well-run, by very capable executives. I’m as surprised as you are. For years I made a literary career of sorts out of criticizing big banks—and never ran short of things to complain about. There were the endless, ruinous M&A deals, for instance, along with the lumbering bureaucracies, the awful service, and, more recently, the expansion programs that ended up with money-losing de novo branches stuck in the middle of nowhere. Genius! The list never ended. For years, it seemed, if there was a scheme that was sure to tick off customers and sock it to shareholders, banking executives never failed to dream it up and implement it.
The banking industry’s tradition of idiotic management practices began in the mid-1980s, recall, with the start of interstate banking consolidation. Back then, the long-term goal at too many banks suddenly switched from serving customers to acquiring smaller competitors fast enough in order to forestall being acquired by a larger one. As the M&A frenzy proceeded, a number of large-ish institutions emerged. They were run, almost to a man, by self-interested hacks. At institutions ranging from NCNB to First Union to Manufacturers Hanover, the business of running a bank no longer involved actually running a bank, but rather getting the next deal done ASAP. Customers were abused and shareholders were serially diluted, but no matter! The goal was to build an empire—not least because (and the data shows this) the bigger the bank, the bigger the CEO’s compensation.
The large-bank M&A parade ended more or less for good in the late 1990s after a string of large deals ended disastrously. (Only one from that era, Norwest’s acquisition of Wells Fargo, was a success.) The banking industry then turned its attention—more management brilliance!—to lending money to subprime mortgage borrowers. That ended well, too, remember?
Anyway, since the 2008 credit crunch and the bank regulatory changes that followed, the notion that large banks can get even bigger by doing deals is dead, at least at the four largest banks. Regulators won’t allow it, and prefer that banks simplify and downsize, instead. Most bank CEOs I know have no interest in doing big deals, either. Instead, and at long last, the business of running a bank really is running a bank: make prudent loans and smart investments, manage risks, control costs, and provide superior customer service.
And, as I say, the executives who run the country’s biggest banks are doing a great job at all those things. At JPMorgan Chase and Wells Fargo, for example, Jamie Dimon and Dick Kovacevich (and later John Stumpf) kept their banks from getting too involved in the subprime mess in the first place and were able to come through the credit crunch with hardly a scratch. (Ditto Richard Davis at U.S. Bancorp., by the way.) Bryan Moynihan was criticized early on after he took over Bank of America from Ken Lewis, the Last of the Hacks, but has proven to be just the right man to extricate BofA from the regulatory morass it was in after the subprime blowup, and has set the company on a solid growth path. Michael Corbat has downsized and rationalized Citigroup, and has gotten a handle on the one problem that no Citi CEO in recent memory has solved: controlling costs.
I could go on, but you get the idea. Large U.S. banks now are better-run, better-capitalized, and better-structured than they have been in many, many years, and one reason that’s happened is that they’re being run by people who know what they’re doing. And yet despite all this improvement, the relentless drumbeat of criticism of the industry doesn’t stop. It should. Yes, certain large banks were doing dumb things eight years ago. Those practices have stopped, and the CEOs who oversaw them are long gone. In their place are some of the most capable CEOs in any industry around. Bank critcs really ought to recognize that.
What do you think? Let me know!