Banks paint wider targets after early misses

Sun May 5, 2013 9:41am EDT
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By Laura Noonan

LONDON (Reuters) - It has taken banks years to rein in their optimism and start setting targets they have some chance of meeting, finally chastened by conspicuous failure in meeting the unrealistic expectations they touted.

After the collapse of investment bank Lehman Brothers in 2008, industry survivors reacted to the crisis of confidence in the sector by reassuring shaken investors with a raft of promises to show they were ahead of a perilous game.

But new research by Cambridge-based consultancy Tricumen shows the capital markets units of eight of the world's biggest investment banks have, so far at least, met less than a third of the close to 80 targets they have cited in investor presentations since late 2008.

In 2009/10, they promised revenue growth, job cuts, lower cost-income ratios and better profit margins.

"I would characterize a lot of those targets as aspirational," said the CFO of one major bank of its 2009 aims.

A source at another said their financial targets were "swept away by the crisis", while a third said, "Of course we didn't make our pretax profit targets. Nobody did."

Banks met most of their ‘firm' cost/headcount reductions and funding targets but "largely missed their revenue/profitability targets", Tricumen said.

The section on Deutsche Bank shows that in late 2009 Germany's biggest bank unveiled eye-catching 2011 earnings targets for its investment bank, including pretax income of 6.4 billion euros for its corporate banking and securities unit, when analysts had penciled in 4.5 billion euros.   Continued...

The headquarters of Germany's largest business bank, Deutsche Bank are seen behind a red traffic light in Frankfurt January 30, 2013. REUTERS/Kai Pfaffenbach