The European Banks analysts at French broker Societe Generale have come up with a wizard wheeze in their latest sector report of postulating what they would do if they were ‘CEO for the day’ at all the lenders they cover.
In the note to clients they set themselves to investigate: “What strategic actions would we take at the helm of the biggest banks under our coverage?”
The analysts added: “We are happy to call the shots from the safety of our desks, and outline the decisions that we think could be taken to maximise shareholder value. We challenge ourselves to find a way for these banks to boost returns and build shareholder value, whatever it takes.”
Distribute and dominate …
For the UK banks, their conclusions were that Barclays PLC (LON:BARC) should cut branches and grow their US credit cards business; HSBC Holdings PLC (LON:HSBA) should focus on transaction banking, specifically blockchain technology; and Lloyds Banking Group PLC (LON:LLOY) should “distribute and dominate”.
What they mean is that Lloyds should keep their current post-rehabilitation strategy in place of generating capital and returning it to shareholders.
The analysts said: “Lloyds has paid a special dividend for two years and we expect this to continue, and to be a larger size. We expect a dividend yield of 8% for each of the next three years.“
Credit cards and branches ….
For Barclays, they think the bank has “a large opportunity for long-term secular growth in credit cards.”
The analysts added: “Although its US book is now larger than the UK book, Barclays still only has 2% market share in the US.”
They also think that “Barclays has a clear opportunity to improve returns in UK retail” by shrinking its branch network.
The analysts added: “Barclays has shown clear shrinkage, but remains the largest single brand. With this in mind, we think that Barclays needs to accelerate its branch closure programme. The potential target, we think, remains a network of around 700.”
Blockchain focus …
Meanwhile for HSBC, which has already been through two major strategic reviews over the past six years, the analysts think it needs to invest in blockchain, the technology which underpins digital currency Bitcoin.
“Of course, all banks need to focus on harnessing new technology, but we think that HSBC is the perfect candidate to take the lead.”