Average Doesn't Win

Three of the most passionate thinkers in the business mix it up over what it will take to succeed in financial services Stop here if you're looking for a prediction of, say, how many people will be doing their banking on cell phones in ten years. That's guesswork. Even five years is speculation. The real future of banking is an extension of the present, and, in fact, of the past. To address the future in realistic terms, therefore, you need to understand what in the present is changing or needs to be changed. From that foundation you can then make plans for one, two, maybe three years out. There are dozens people who would qualify to build that foundation. But we can't think of any three better than Tom Brown, Dick Kovacevich, and Jim McCormick. We were able to get them together in person in June to probe the present and future of financial services. The result of that spirited dialog, presented here condensed and edited for print, offers a combination of wry observations, thoughtful comments, and contending views. The latter was particularly evident in regard to the relative importance of market segmentation versus front-line execution. Thomas K. Brown is CEO of Second Curve Capital, a New York City-based financial services hedge fund he created last January. Most bankers will remember him as the candid and outspoken regional bank stock analyst at Donaldson Lufkin and Jenrette. After leaving DLJ, he spent about 18 months with Julian Robertson's Tiger Management hedge fund before starting his own. Richard Kovacevich, chairman and CEO, of Wells Fargo Corp., San Francisco, is arguably the most outspoken CEO of a top-ten bank. He is also among the most respected for what he did at the old Norwest and what he is now doing at the Wells, which Norwest acquired in 1998. James McCormick is president of First Manhattan Consulting Group, New York City, which he helped found in 1980. FMCG, and McCormick himself, have long been known for keen analytical insights into the financial services business. Not a shy one in the bunch, as the following text amply demonstrates. NEW LAW, NEW ERA? Q. How big a factor will the new financial modernization legislation be to the future of banking? Kovacevich: The law was a defining moment that allows us all to truly understand that our past models are not where the future is and that we should abandon those things and think about financial services as the business we're in. The old segmentations are dead. We aren't pursuing our business based upon charter type, or who our regulator is, or what our product line is. We are differentiating our business by our unique relationship with the customer influenced by technology. That will turn into a [mix] of products and services that are not easily compartmentalized. McCormick: Financial modernization opens up opportunities for those who really excel at understanding customers and cross-selling to do even more than would otherwise be the case. That will be a challenge of major proportions. Brown: The Gramm-Leach-Bliley Act in and of itself is not that important to the future of any financial services company. The ability to offer many products is not a positive. Banks already offer too many products. The majority of winners will increase their focus on products and on customers. Success will be about recognizing the need to change and the superior execution of whatever strategy a company chooses. Kovacevich: I'll make a projection. There are now only a handful of financial services companies that sell at or around the S&P 500. Five years from now it will be ten times that. Because people will start evaluating companies on the basis of financial services, which is a $2.1 trillion industry and growing very rapidly, as opposed to just the banking segment. That will cause p/e ratios for those companies that may have been broader than banking before, but were still defined by their old history and old charter to get close to the S&P 500. …