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SYMBOLIC SCULPTURE: In this 2004 file photo, a man walks past the charging bull statue near the New York Stock Exchange in New York. Created by Arturo Di Modica, it weighs 3.2 tonnes
On a balmy spring morning last week, I was admiring the bronze bull in the Bowling Green Park, which is located in the financial district of Manhattan in New York. The bronze sculpture is also fondly called the Charging Bull of Wall Street. Created by Arturo Di Modica, it weighs 3.2 tonnes. Measuring 11 feet tall and 16 feet long, the bull is larger than life. It is a proud symbol of the US’s financial resilience, audacity and aggressive optimism. It achieved overnight stardom after the ‘guerilla artist’ Arturo dropped it off in December 1989 in front of the New York Stock Exchange (NYSE) in violation of city permits!
We walked past the bull and took a right turn. This was a narrow lane. But its name is Wall Street. To some, it conjures the power of capitalism and the magic of free enterprise. To others, it represents the evil empire and the divide with ‘main street’. The Occupy Wall Street movement, which began in the fall of 2011 symbolised the protest of the common man against economic inequality. Standing in front of the imposing doors of NYSE, my mind went back to the frightening summer of 2008. After the collapse of Lehman Brothers, a number of iconic financial institutions in the US were devastated. Merrill Lynch was taken over and rescued by Bank of America. Insurance giant AIG was in serious trouble. The bank that never sleeps entered a phase of prolonged insomnia, keeping the regulators awake as well.
Eventually, both AIG and Citi had to be administered the TARP steroid. Readers will remember that the Troubled Asset Relief Programme (TARP) was a programme of the US government to purchase assets and equity from financial institutions to strengthen its financial sector in October 2008. Five years later — in 2013, things have changed. Or have they?
Taking advantage of the burning platform, US financial institutions took swift action. They not only gulped the bitter medicine, they continued to listen to the doctors. Citi alone wrote off $143 million as loan losses and choreographed a remarkable turnaround. Today, just three American financial institutions: Citigroup, JP Morgan Chase and Goldman Sachs account for a third of the financial industry’s global revenues.
The Dodd-Frank Act (also known as The Dodd–Frank Wall Street Reform and Consumer Protection Act), was signed by president Obama as a federal law in July 2010. This act was named after the senate banking committee chairman Chris Dodd and Barney Frank, financial services committee chairman of the House of Representatives. It is the most sweeping overhaul of the financial regulatory framework of the US since the regulatory reform after the Great Depression. Dodd-Frank’s thicket of rules impact all federal financial regulatory agencies and almost every part of the financial services industry of the US.
The jury is still out on whether the new framework of levees, dykes and floodgates will prevent another financial Katrina or Sandy. Unless it is stress-tested, the critics on both sides will continue to argue till the cow comes home. Robert Samuelson, a noted columnist of the Washington Post, believes that the medicine may be worse than the ailment. Here is what he argues, “Dodd-Frank may have gone overboard. To be sure, banks’ stupid loans and risky investments nearly caused the entire financial system to crash. But the resulting financial crisis and Great Recession had already caused banks to tighten lending standards. Dodd-Frank’s outpouring of rules and restrictions — coupled with regulators’ more stringent attitudes — may compound caution. Stodgy banks would then impede a more dynamic economy, faster growth and lower unemployment.” Although the regulatory environment has changed, tectonic shifts continue to take place in the industry. Three clear trends are visible.
First, the strong national champions of the US (such as Citi and JP Morgan Chase) and Europe (the likes of HSBC and Deutsche Bank) will foray deeper and wider into emerging markets like China, India, Brazil and, yes, West Asia and Africa. The earlier ‘paratrooper’ models of dropping into emerging markets from regional hubs like Hong Kong and Singapore will not work anymore. Increasingly, the large global players will expand their local networks as capital flows become a two-way street.
Secondly, we are entering an era of consolidation. Even as the big boys eye emerging markets, the battle at home will become more intense. It will lead to the demise of some players, as we know them today. Most industry watchers predict consolidation. Kian Abouhossein, the London-based analyst at JP Morgan Chase predicts that just six investment banks, that is, Goldman Sachs, Citi, Barclays, Morgan Stanley, Deutsche Bank — not to forget his employer JP Morgan Chase, will represent nearly half the industry’s revenues in a couple of years. Thirdly, many of these players will continue to reduce transaction costs by offshoring their operations to countries like India and Phillippines. India already supplies over 3,00,000 people to captive offshore centres of these financial institutions. Several of these enterprises employ more than 30,000 people each in offshore captive centres. These captive centres will now be joined at the hips with the mainstream operations. They will increasingly become an instrument of competitive advantage — not just a cost arbitrage play.
The Wall Street bull is becoming global. In 2010, a similar sculpture (called the Bund Financial Bull) has been created by Di Modica and is displayed in front of the Shanghai Stock Exchange. It is ‘lighter’ and looks ‘younger’ and ‘stronger’. One wonders whether the Sicilian maestro, Arturo Di Modica wanted to convey some message to the world through the Shanghai bull.
(The writer is managing director of Deloitte Consulting, India. These are his personal views)