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Firms operating across the capital markets, particularly investment banks, are facing an exceptionally challenging operating environment today. The COVID-19 pandemic, rising consumer expectations, and high inflation rates are all generational challenges that are now converging in 2023, and beyond, and are likely to shape the environment for some time.
Such volatility can also bring opportunities, as well as more ideas and dynamic transactions. It can also accelerate operational, cultural and technological transformation across sectors. So, how should investment banks be considering their approach towards sustained and successful transformation?
Key takeaways:
In this episode (Part 1 of 2), the discussion focuses on:
Customer centricity,
Employee experience,
And talent pathways.
For your convenience, full text transcript of this podcast is also available.
Andrew Gilder
Welcome to the EY NextWave Banking in Asia-Pacific Podcast. I’m Andrew Gilder, EY Asia-Pacific Banking & Capital Markets Sector Leader and your host for this series. Firms operating in capital markets, particularly investment banks, are facing exceptionally challenging operating environment today. The evolution of the COVID-19 pandemic, continuing geopolitical tensions, and high inflation rates are all challenges that are now converging in 2023, and are likely to shape the environment for some time. Such uncertainty brings volatility which can also provide opportunities as well as be a catalyst for innovative transactions. It can also accelerate operational, cultural, and technological transformation across sectors. So how should investment banks be considering their approach towards sustained and successful transformation in this environment? For today’s episode, I’m pleased to introduce Oluchi Ikechi-D’Amico, Strategy & Transactions Partner at EY-Parthenon. She will be leading today’s conversation with two special guests. Over to you, Oli.
Oluchi Ikechi-D’Amico
Good day to all our listeners – I’m Oluchi Ikechi-D’Amico, Strategy & Transactions Partner at EY Parthenon. Our special podcast guests today are here with me in Singapore. First Andrew Ng; Group Head of Treasury and Markets and a member of the Group Executive Committee at DBS and Sanjeev Chatrath, EY Financial Services Partner. In this episode which you can listen to in 2 parts, we uncover the key trends shaping the future of capital markets, in terms of digitalization and enabling sustainable finance; as well as how investment banks are continuing to evolve towards a more customer-centric and future-oriented and resilient operating model. I will actually leave them a little bit of room to introduce themselves in their roles and then we'll get into a bit of context on today's podcast. So, if I can hand over to you quickly, Andrew, just tell the audience and our listeners a little bit about you and what you do.
Andrew Ng
Well, I have been in this market since 1986 and I've been working in the same dealing room in the same floor, same type of business for last 36 years. And I must say that I have seen the evolution of the financial market in Asia, and the way how we conduct business, the way how we talk to clients, communicate to clients, and the way that we treat people. So, I must say these 36 years really gave me a lot of knowledge and also really give me experiences in how we should navigate the next couple of years or next 5 to 10 years. I think that really helped me a lot though. And by the way, I'm running a DBS market business.
Sanjeev Chatrath
Unlike Andrew, my career has been slightly anomalous in the sense that I've kind of ended up working across different industries from a traditional industry sense. I've worked for the last 28 years between financial services. I spent a big part of that working in banking and data businesses, and then most recently in technology. My role at EY is I'm a partner at the firm responsible for a portfolio of clients in financial services and helping to deliver for them across all of our service lines from strategy transactions, consulting, tax, and assurance businesses.
Ikechi-D’Amico
Well, I think between the two of you, we're going to get into some really interesting content today. Before we go into some of these trends, I really actually just want to take it back a little bit to context and just get some views from the two of you in terms of where you think the capital markets industry is at the moment, specifically in Asia. Clearly over the last decade plus financial markets have seen so much turmoil and turbulence, everything from the last recession to enforce regulations, globally have an impact and knock-on effects to legal entities across sister regions. And then obviously, much more recently, digitalization and also COVID, the pandemic, and the list is I guess, endless. I'll start with you Sanjeev. Where do you see the capital markets landscape being at the moment if you can just set a bit of context before we dive into some of these themes?
Chatrath
As you rightly noted, after a period of some record activity and profits for the investment banks for a number of years, the recent times have been slightly challenging. The rates outlook has very rapidly shifted from lower for longer to higher for longer, higher inflation and interest rates, the macro slowdown, geopolitical uncertainty, and the varied base of exit from the pandemic are all factors that are impacting differentially across APAC. While the volatility, at times, can be very positive for certain asset classes, it also creates headwinds for prospective dealmaking, and underwriting kind of opportunities, and also stress capital and liquidity buffers. So, when I look at it from an investment banking and APAC point of view, in my mind, there are four developments that are perhaps the most important to note. Firstly, the operating model for the traditional investment banks needs to evolve, they need to take a hard look at the operating model to stay competitive and maintain their operational resilience.
Chatrath
And we are seeing, and I'm sure Andrew’s going to talk about it, that many of the more progressive investment banks are reassessing their business under a few dimensions of what geographies they focus on, which customer segments they serve, their product mix, and also the talent requirements, just to name a few. If I just expand these a little bit further, with regards to geographies as the supply chains are getting reformed, particularly markets like Indonesia, Vietnam, India, they're presenting new opportunities in this region. Under the customer segments, we are noticing the rise of the family offices and new economy industries (e.g., mobility, sustainable food, and new platform businesses). And many of these abound global day one and they present new opportunities for investment banks.
Chatrath
Similarly, the product shifts that are underway, Asia continues to see tremendous increase in wealth, connecting the full bank from private banking, wealth management to markets and then transaction banking businesses is becoming essential to help the clients to go from startup to scale in this region. These are also presenting in my mind new opportunities in terms of embedded finance and effects for many of those investment banks. The operating model shifts, also requires a little bit of refocused on workforce strategy, particularly with regards to what skills are required in the investment banks.
Chatrath
So, besides the operating model, the second major area of development for investment bank is around risk and compliance. There have been a number of global regulatory reforms that have been introduced, going back to whether it was [inaudible] MFI to FRTB, etc. But most recently, you're also seeing a lot of national regulatory reforms underway, which include impact to things like data, cyber operating resilience in investment banks. The third big development has been around technology, and the pace of technology adoption continues to be unprecedented in Asia. And I'm sure we will talk more about that as the discussion progresses.
Chatrath
And the last one is around sustainability. Asia today is witnessing a number of opportunities for leading the sustainability initiatives with strong public and private partnerships. So, I believe investment banks will do well to focus on their role as capital market intermediaries in the wake of this deglobalization, the rush towards a green economy and the rise of the private capital. I hope that's helpful.
Ikechi-D’Amico
Very. I'm not in a way profoundly for the listeners here. But really helpful to get that overview. And I guess the broader context, from your perspective, particularly working with a number of different players in this space. And if we move on to Andrew, who clearly looks after one of the biggest banks in the region, and one of the players that we're talking about, if you can give us a bit of an overview in terms of just what you're seeing in terms of the context of the capital markets, particularly from a DBS point of view and a DBS lens. And I'd be interested to hear a bit more about how you believe DBS has evolved and transformed over time. And if actually, any of those themes that Sanjeev has mentioned, resonate with you.
Ng
Sanjeev has described very nicely on the evolution, about the financial market, and also the kind of landscape that we are in, and then the things that really changed the operation model. People have to focus on data, focus on transformation, focus on technology. And at the same time, it's the change of the business model. I think it also evolves along the time for last 30 to 40 years. I mean, we have seen so many crises, and we have seen so much volatility, and this crisis, events, volatility will not go away. And then same as the bank. I'm sure banking has been in this history for such a long time. And I think we will continue to have banks, but the kind of roles the banks will play or the way that being an intermediary between customers and the capital, and help them the clients to soft solutions, and then to evolve into kind of the different asset classes will evolve, right?
Ng
For DBS, I think we are a truly Asian-focused bank. And for last 10 to 15 years, I must say DBS has been in so-called right position because we have seen the rise of Asia and then the other Asian countries, like China, Singapore, ASEAN, Korea. Those countries' economy has grown dramatically. And somehow, I think in my days, people always want to work in a foreign bank. But somehow when you look at the foreign bank, the kind of revenue they make in Asia, in those days, are relatively small. But nowadays, if you look at the current revenues, the foreign banks that are in Asia, actually has increased quite dramatically. But for us, because we are Asian banks — so in the old days, we never really looked at the US market or European market, we only focused in Asia. But somehow, because of the rise of Asia, they communized. Then you look at our revenue, our footprint, and then the kind of customers that we have has dramatically changed and expanded.
Ng
So, for us, it's more of how to cope with the jump off the customer base in Asia and how to connect all these Asian customers to all the countries that they have business with, so we're playing this part of Asian connection. And when we play this Asian connection, then what kind of products we can offer? At the same time, as you said, the technology, innovation, all these things are coming in. So, for DBS, I think you've probably read in quite a number of articles, right? We've always been named the best digital bank, most innovative banks in Asia or in the world. We kind of think that this is a trend. You really have to do a digital transformation on your bank. And then to look at the customer journey, make sure your customers are happy with how they deal with you. And then the way that you can help them to navigate this process to make their journey much happier, and at the same time, to satisfy their needs. Right? This is what DBS has been doing in the last 5 to 10 years. I think that somehow really helped to position ourselves in Asia.
Ikechi-D’Amico
Fantastic. And you touched upon the word customer a lot in that intro. And also, I guess the sense of the dramatic change, the dramatic increase in revenues, but also in how you're serving your customers. I'd be really interested to hear a little bit more around the specific how's — how are you at DBS making sure that you are in tune with what your customers and your clients are looking for not just today but over the next year or the next six months or the next two years? How do you stay on top when you're already at the top? How do you guys hold yourselves to account to make sure that you continue to serve your customers and continue to satisfy them clearly as you are one of the world's best banks?
Ng
Maybe I'll just tell a little bit from my business, which is the market business. In the old days, when I came into DBS in 2000 in the market business, we are very focused much on proprietary trading. And at that time, we don't really focus so much on the customer side and the customer part of the revenue and how to connect the market business with the banks, the commercial business, or the consumer bank business. I mean, in those days, we don't even talk about private banking. We don't really have so much private banking business in those days. But I think in the last 20 years, we knew that actually to rely on pure proprietary trading doesn't really help on your share price. The analysts won't really appreciate your so-called volatile revenue on trading. Somehow then you can make the franchise revenue and do more cross-sell with your commercial bank customers.
Ng
And then with the rise of other private bank family offers AUM, all these Asian wealth management, how to serve them in a better way? So, these are the things that we've been focusing in the last 10 to 15 years. Of course, one way is trying to set up platforms, so that they can deal with you much more easily. And then you feed them information. I mean, in the old days, you always feed all this research and whatever through emails. Now it's through the platforms, it's through your dealing portal, and then you can feed them with information instantly. Then at the same time, it's how to sharpen your pricing engine, because we spent quite a number of money and resources on our pricing engine platform. In the old days, people will call you on phone. After that, people call you on dealing platform. But now people will send you all the RFQs. In the old days, you might need 10 to 15 minutes to price the deal. But right now, because of the technology, you can make your pricing engine much faster. So, we can price a deal in one to two minutes.
Ng
And somehow, we also focus a lot on how to distribute my product to my internal customer and external customer? My internal customer means my consumer bank, my private bank customers, my corporate customers. And how can I feed my pricing to them on a much faster and digital platform? External customers, they can use what our own proprietary system given to them, or they can go to platforms. But then I have to make sure my pricing can have the API to plug into the external platforms, so I can feed them the pricing. So, the way to kind of think how to connect these people is very much different in the old days. So, with that kind of focus, you can see that actually our FX volume has grown dramatically 5x to 10 times. Our RFQs on equity linked product pricing also has gone up dramatically. RFQs on our bond pricing asking from clients also has gone dramatically.
Ng
So, I think all these actually help. And then if you look at our headcount, when I came in DBS, we have 80 people, and then we expand it to something like 500-600 people. But until now, this 2022, our headcount is talking about still below 700. But the kind of volume and revenue actually has increased dramatically. So, it's really how you play to the strengths of innovating yourself, how to do your distribution digitally, and how you connect yourself to them.
Ikechi-D’Amico
Amazing. Two things that you mentioned that I just love to pick up on — one is platforms, and as a DBS customer, we didn't arrange this, but as a DBS customer, I, as a consumer banking customer, I can go onto my app and clearly see so many different intricate insights or bits of information that I can click a button and it takes me to maybe two other different pages that just give me continuous insight. So, I appreciate that platform and that app as a consumer. I guess, also, you talked about employees, and I just want to delve a little bit more there. Because I guess with the aspect of your kind of customer focus, you obviously need people to make all of that happen. And I'm just interested to understand what you have done around that employee transition. You've talked about the number of employees that you've had since you joined and where you guys are now, but what are you doing specifically at DBS to attract and retain the right talent to ensure that you are continuously learning, continuously innovating, and really making sure that you have a continuous pulse on what it is your clients want? Because I guess I see it as a secular process.
Ng
Yeah, so I guess there are two parts, right? One part is how to retain talent. But at the same time, is we're not increasing headcount dramatically. At the same time that means, people will have more workload in that sense. So, how to help my guys with more increasing workflows without staying at the office to 10:00 p.m., 11:00 p.m., or even 12:00 to 2:00 a.m., as which is very common in the old days for back-office people to stay so late. So, I guess the technology part and then to build your infrastructure, and to make it more efficient, these are the things that can really solve the pain points of your employees. So, I think that really helped on that part.
Ng
But again on retaining talent, this is always a challenging thing, because on one hand, you want to keep people to continue to work for you. But at the same time, you have young people coming in. So, you want to give them more better career, more job scope, and they must have the sense of they can advance in their career. And somehow, you have to make sure you have the internal mobility, at least you have to make sure you give them all the learning opportunities, provide them with all the latest knowledge in the market. So, we focus a lot on the training side, we focus a lot on internal mobility. At the same time, we also have to strike a balance on some of the ventilation of the department. DBS is not a hire-and-fire shop compared to other foreign banks. I hate to point that out, but you do see some banks, you can see that they spend don't know how much money to hire a team of people in, but then two years later, because it's not making money, then the whole department is gone. So, we are not that kind of bank, and we don't have that culture.
Ng
So, on the one hand, we want to groom the talent. But on the other hand, we also want to give opportunities to some of the people that have been with us for some time, and then they have contributed to us. So, maybe you can give them a kind of training to reskill them. So, these are one part that we’re trying to help some of these people. And at the same time, yes, you do have to have some ventilation. So, that's probably the pain part of it. But as a bank, you also have to look at that. So, if the re-skilling part is not coming in, and then of course, then you have to adjust to that. So, I think that's the way you conduct business.
Ng
And at the same time, if you look at our promotion rate on young talent, actually is quite talent, because you can see that I don't really have very high turnover rate in my department compared to the market. I think we're always at the low, 11% or 12% of turnover. Compared to the FICC business or the investment banking business in other banks, they are talking about 20% to 30% or even higher 30% turnover. But if you look at the average age of my EDs and my MDs, actually it's not that bad in that sense. We have a lot of early 40s MDs, we have a lot of like mid 30s EDs, or early 30s EDs. So, we think that we need to groom this kind of people. If you're bright, let them to be able to promote. I think that's the kind of thinking that we have in my place.
Ikechi-D’Amico
Fantastic. And when I hear you talk about that, from an employee perspective, I think about the term next generation leadership, which is one of my favorite things at the moment, because it's in recognition that the world has definitely evolved — the business world has evolved and continuing to ensure that you see your employees as part of your key assets. And ultimately, you're thinking about, okay, what is the value proposition that I'm offering to my employees is something that is going to continue to keep you at the top. So, I really love the fact that you're doing all the things that you've just mentioned, that we've seen as well in the news and I would just commend you for that, I must say. I just want to also move over to Sanjeev and just really get your perspective coming in from maybe across the market with your background before EY, and now, obviously, at EY looking at maybe some other different firms, and just give your perspective on that employee angle, it's absolutely crucial to what we're discussing today.
Chatrath
Sure. Andrew made some great points. And a good place to start perhaps would be to be doing a bit of a contrast to what I reflect when I started my career. And when I started working the conventional IB career path was one way. You'll join us early career and you'll start as an associate, and typically you will move up the organization hierarchy while working maybe 100 plus hours a week on presentations and spreadsheets. It was almost perceived to be like a rite of passage, before you could get on to more senior kind of roles. Clearly, and this pandemic has accelerated it, this has changed with time, with the traditional career line, not being as popular anymore. The long hours, the tight deadlines and also the mundane nature of a lot of those traditional work, I think are no longer being favored, particularly with the new joiners nowadays.
Chatrath
And today, building on the point that Andrew made, the employee experience means everything in IB's ability to attract, retain and develop the talent. And he's called out already some great examples of some of the good practices that DBS has already instituted. In my mind, investment banks need to be agile and decisive in responding to these new talent dynamics, and also the rising cost pressures that they face. Now with regards to attracting talent, there are visible changes that need to be made on the culture on the investment banks and be it on the trading floors or be just the work-life balance. And many large investment banks this particular year have now very visibly instituted new policies to be able to compete, particularly with the buy side firms were many of them are competing for talent. The retention of talent is a great point, because in the wake of the great attrition, a few themes have really come up very, very strongly in my engagements with clients.
Chatrath
One is around the fact that hybrid work has become more popular. Now given the nature of investment banking, there are constraints in terms of what work can be done remotely. But today, you've got tools available that can enable a lot of that flexibility that perhaps some other traditional investment bankers may see. There are compliance requirements when people are working remote. But there are tools available nowadays to help them become more efficient, whether it's speech-to-text capabilities, whether it's voice logs. So, you don't have to be logging stuff, and you can retrieve it digitally as you want. I believe investment banks also need to take a very hard look at the nature of the work itself because it's no longer just about doing the research and presentations. They can today leverage a lot of tools that can help them with the research, as well as the trading activities.
Chatrath
The third piece with regards to talent that is very important to call out is the fact that now, there are non-traditional sources of talent pools that are increasingly gaining more and more popularity. And big part of that is because the nature of investment banks itself is morphing. Data science, engineering, quant, these skills are becoming really popular, and they are very much in demand. The fact that today, you've got more trading that's been done by machines rather than by human beings, is a great example of why you've got to be able to attract and retain new skills within those investment banks to stay competitive. Increasingly, what we also see is more and more of those traditional processes can be automated and has a lot of the skills gap and the investment banks is around technological and soft skills with the current talent pool that they have. And many of the more progressive investment banks are focusing on how you rescale their experienced people, because they've got domain knowledge and expertise around traditional investment banking, and they can easily help to evolve the future of those banks.
Chatrath
The last point I'd make for the guards to the employee experience is that the purpose of the firm, I believe, is very, very important to enhance that employee experience because employees today want to see beyond just the tagline. I mean, they want to see the purpose being really put to practice. And any investment bank that wants to be at the cutting edge, they have to make very visible real steps towards bringing that purpose to life.
Ikechi-D’Amico
Fantastic. I mean, we just uncovered quite selfishly a lot of important topics for me anyway, or interesting topics to me — people, the operating models, sustainability, purpose, impact, next generation leadership. I told you this was going to be exciting. I love that the segment we just had on people and the kind of purposefulness of everything that we're discussing in regard to the capital markets.
Ikechi-D’Amico
Thank you for listening to Part 1 of this conversation – do watched out and listen to Part 2 also.
Gilder
You've listened to the EY Next Wave Bank in Asia-Pacific Podcast. To learn more about EY, our people, and our latest thinking, visit us at ey.com/banking. If you would like to have a further conversation on what you've just heard, or learn more about joining our team at EY, please contact us via the details found in the description. If you liked this episode, please leave a review to help us bring you more insightful and relevant content. And finally, don't forget to subscribe to our podcast on Apple Podcast, Spotify, or wherever you listen.
