London and Strasbourg: Exactly four years since the collapse of investment bank Lehman Brothers, Europe's financial services consultants are still grappling with its fall-out.
- Financial crisis has "changed everything" says PwC
- Banking sector still far from regaining trust
- Cautious welcome for EU banking union proposals
Tomorrow, Saturday 15th September, marks four years since the collapse of Lehman Brothers — the event that proved a tipping point for the global economic downturn and the trigger for wide-scale change in the financial services sector.
Yesterdy, PwC's Tony Lomas, the lead administrator of Lehman Brothers International Europe (LBIE) and Kevin Burrowes, PwC's head of Financial Services reflected on the momentous task of winding the bank down, and on how things have changed since that day in 2008.
Lomas commented, "The administration of LBIE has been the biggest and most complex administration I've ever worked on. Four years into the challenge, I am very proud of the progress we have made. We have already returned £14bn to clients and we are on the verge of a very significant milestone as we prepare to pay our first dividend to unsecured creditors later this year.
"However, there remains more than $9bn of securities and cash trapped with LBIE affiliates around the world, that we are working to recover, the majority of this being the property of LBIE's clients. We are also continuing our efforts to recover funds for the Client Money pool, and to agree client claims against that pool, following the Supreme Court outcome that we received earlier this year.
"Try as we might, using all the tools at our disposal and finding innovative solutions to the problems that we constantly confront, the extremely complex, legal and operational structure of the investment banks and their products, has made the task of winding down LBIE particularly challenging.
"Now that the dust has settled around the Lehman collapse, the focus of markets and regulators has shifted. Globally systemically important financial institutions are now required to produce and maintain Recovery and Resolution plans, although progress to date is varied and in many respects these plans only scratch the surface of the problems that would arise if another Lehman-style event were ever to unfold."
A long way to go
Kevin Burrowes, PwC's UK financial services leader, added, "Four years on from Lehman Brothers, the banking sector still has a long way to go to re-build trust. There needs to be a concerted response to the general crisis of confidence in banks as lack of trust is the true barrier to equity flow and funding.
"Despite the remaining economic challenges and lack of trust in the industry, the world needs a stable and vibrant banking sector. Banks have a major role to play in tackling some of the world's toughest economic challenges. Beyond the crisis, there will be opportunities in new economies, markets, demographics and technologies.
"The financial crisis has changed everything. Policy makers and regulators are leading the reform and forcing the pace, but they are only the catalysts. The real drivers — the expectations of a wider set of stakeholders, and the realities of a new economic and commercial landscape — will fundamentally and permanently reshape the banking industry.
"A 'new normal' will emerge in terms of performance benchmarks, industry structures, business models, financial structures, taxation, products, pricing conduct and remuneration."
Banking union in Europe?
One direct consequence of the Lehman crash has been the destabilising of Europe's banks, its banking system, and ultimately the Euro.
Last Wednesday European Commission president José Manuel Barroso proposed sweeping new powers for the European Central Bank in a new attempt to solve the European debt crisis.
These would include the authority to shut down eurozone banks by withdrawing their banking licence.
The proposals give the ECB authority to oversee some 6,000 banks across Europe.
The commission is hopes to have legislation in place by January.
David Strachan, co-head of the Deloitte Centre for Regulatory Strategy, said, "The Commission's proposals are a major stride towards full banking union. They involve a wholesale transfer of responsibilities for banking supervision in the Euro area to the European Central Bank (ECB). National banking supervisors will continue to play a significant role, albeit under the direction of the ECB. Achieving a common supervisory approach and culture across the banking union will be key.
"The proposals set out a high-level blueprint for how supervision will be carried out, but some important details and elements are missing. These include how the ECB will carry out supervision in practice and how crisis management will really work. Progress here is essential."