Shindigs like the recent summit in Davos, Switzerland always make great press, as the financial tycoons of the world meet, mingle, and impart pearls of wisdom to the press for dissemination to the rest of us. These meetings of the minds are useful in other ways, too, as they can give investors a glimpse into what the big bankers consider to be the issues of the day.
As it turns out, one their biggest concerns is the very future of banking -- at least, as these honchos have known it. Is this just showmanship, or should investors be worried, too?
Anxiety about passing the torch
An article in Reuters points up the fear that weighs on the broad shoulders of these bankers as they agonize over the so-called brain-drain that is currently gripping Wall Street. The cream of the crop is supposedly fleeing, not because of low pay, but because banking has become such a drag. What is causing this crushing boredom? Regulation, of course.
Are the likes of Bank of America (NYSE:BAC), JPMorgan Chase, Citigroup (NYSE:C), and Goldman Sachs (NYSE: GS) in danger of crumbling due to a lack of innovative applicants? Though some executives apparently think so, others note that too much creativity in banking is notionally the reason why the financial crash happened in the first place.
Then, of course, there's the fact that we've heard this lament before, although the actual "drain" part hasn't really been proved.
Pay cap most cited reason for exodus
A 2008 article in The Wall Street Journal noted that an untoward number of bright young things seem to gravitate to Wall Street straight out of college, possibly depleting other professions, such as medicine, of the brainpower necessary to fuel them. Then in 2009, talk began concerning those big pay packages that bailed-out firms were handing out to certain employees, and how regulators might rein in this activity a bit. That's when the real wailing and gnashing of teeth began. Financiers started predicting that, without giant compensation packages, big talent would pour out of Wall Street.
Did it happen? There doesn't seem to be any evidence of it, save for the layoffs and cuts that many of these institutions have imposed upon themselves over the past few years. As a matter of fact, articles in late 2011 were still rehashing the brain-drain issue, maintaining that financial firms were siphoning off all the gray matter coming out of America's best colleges, leaving all other occupations to be staffed by, it would seem, legions of dolts.
And, of course, the throttling of massive pay packages never happened, either. The media has recently outed the U.S. Treasury as being all talk and no action on that score, as it approved large raises at bailed-out firms like AIG (NYSE:AIG), Citi, and Bank of America during the years 2009 to 2011.
Boredom: The new threat?
With the issue of niggling pay rates out of the way, the new bugaboo facing prospective recruits is work-related tedium. It seems that lack of stimulating work and onerous restrictions on creativity is what now has the chiefs of the nation's biggest banks uneasy about who, if anyone, will be willing to fill their illustrious shoes when the time comes. Banking, it seems, has become too boring to contemplate as a vocation anymore.
Putting aside the question of why -- if the world of banking is truly such an underpaid snore -- these executives persist in staying put, let's pose another one: What is wrong with banks being boring?
At least one banker would like to see some dullness in the industry: Antonio Horta-Osorio, CEO of Lloyds Banking Group (NYSE:LYG). Late last summer, the newish bank chief spoke of how big banks have lost their way, treated the banking public poorly, and have become grossly inefficient. In fact, he stated that they should become "simple and boring ." He even went so far as to opine that banks are to blame for their troubles.
Well, sure, he was talking about big British banks, but his comments could just as easily be aimed at any other huge financial institution, including U.S. banks (well, OK, maybe not Canadian banks). Indeed, any movement toward boring banking should be met with praise, not disdain. After all, during times of tightly regulated, humdrum banking behavior, the economy prospered -- surely a goal for everyone, including bankers.
Boring is better
For investors, boring banks can be a sweet investment. Consider straitlaced Bank of Hawaii (NYSE: BOH), a bank so under the radar that I can't remember the last time it was mentioned in the financial news -- except when announcing earnings, which almost always beat estimates. Or how about big regional bank BB&T (NYSE:TFC), which just bumped up its dividend by 15%? Boring banks seem to have better yields as well. Bank of Hawaii currently boasts a yield of 3.77%, and BB&T sports a 3% yield, down a smidgen since its dividend payout. Compare these with B of A's 0.35%, and Citi's 0.95%.
At any rate, these bankers aren't all that certain about this issue, as it turns out. At the very same summit where these guys were bemoaning the stupefying effects of boring banking, a recruiter for the financial sector noted that his firm finds it difficult to get bankers to hire those that he categorizes as quirky or creative. Apparently, they just don't jibe with the staid image of the Wall Street banker.
In conclusion, I would opine that financial investors can sleep soundly at night. The banking system is not in any imminent danger of collapsing, the brain drain never really happened, and bankers don't seem capable of recognizing the very characteristics they say they crave when applicants come knocking on their doors. In other words, good night, and sleep tight.