‘Rocket Scientists’
“Compensation must be structured to attract people who are suited to delivering the bank’s basic products -- fewer rocket scientists and more people who want to sell mortgages and current accounts in a fair and friendly manner,” McKinsey said in the report.
McKinsey alumni have gone on to senior banking jobs. They include Peter Wuffli, who was replaced as UBS AG’s chief executive officer in July 2007 as credit losses began eroding profit; Johnny Cameron, who ran Royal Bank of Scotland Plc’s investment bank until October 2008; Stephen Green, former CEO and chairman of HSBC Holdings Plc; Peter Sands, CEO of Standard Chartered Plc; and Morgan Stanley Chairman and CEO James Gorman.
The industry may also improve returns through takeovers and mergers, as many of the 190 banks that have an ROE below their cost of equity and are trading below book value may look to sell themselves, Nauck said. He cited the consolidation that occurred after the savings-and-loan crisis of the 1980s when the number of lenders fell by half over the next 20 years.
“I don’t think we need to get quite that number, but there will be a stronger industry for clients, customers, banks, regulators, for all constituents if the weaker banks can be absorbed and managed better by stronger banks,” he said.