The Future of Corporate Banking After COVID-19

The coronavirus pandemic of 2020 was something that no one in the corporate banking industry could have seen coming. First quarter reports from global banking giants were disappointing, but they could have been worse than what some analysts were expecting. When the World Health Organization declared that the COVID-19 outbreak in China had become a pandemic, Wall Street suffered a meltdown that prompted bank CEOs to switch into high gear as they braced for difficult days ahead.

Even though the global economy came to a standstill because of isolation and social distancing measures, financial markets around the world continued to operate, and this allowed trading divisions of major banks to offset some of the losses they nevertheless posted during the first quarter. Some of the year-over-year drops were spectacularly disheartening; we are talking about Bank of America losing 45% and Citigroup losing 46%. As of mid-April, investors were expecting the worst to be reported by Goldman Sachs and Wells Fargo.

When we say things could have been worse, we are not underestimating the gravity of the situation. Major banks were able to withstand the one-two punches of Brexit and the global trade war started by United States President Donald Trump a couple of years ago, but nothing could have prepared them for COVID-19. Michael Corbat, CEO of Citigroup, described the pandemic not as a financial crisis but as a public health emergency with devastating economic effects. This emergency prompted the bank to load up on reserves to the tune of $21 billion; in doing so, however, profits from trading activities were deeply cut.

For the time being, Citigroup has been getting ready for major losses in its lending operations in the near future; that is why reserves have been boosted. Corporate cafeterias are being turned into food banks. It may appear as if the bank is focusing more on helping retail clients than shareholders at this time, but investors are watching closely. Corporate governance and community outreach are more important than ever, and other operations such as corporate banking services will have to wait. As this article about Citigroup explains, the bank was well-positioned to improve business lines such as debt origination and financial advisory in early 2020, but those plans are being moved to the back burner.

Cross-border corporate lending will have to resume at some point in 2020; this will largely depend on the ability of companies to regain their footing and start operating once again. Lending losses will be inevitable, but there will also be new opportunities to make significant deals and provide financing to business entities that can recover quickly. Corporate banking services are bound to become very competitive; however, the potential degree of success will hinge upon account executives scouting the right deals. High risks will be unavoidable; this is when underwriters and credit managers must work closely to figure out what makes sense.

There is no question that global optimism will boost economic spirits, but corporate banking specialists will be forced to evaluate deals with a very critical point of view. Capturing market share will not be so difficult, but landing the right deals will become more challenging because of greater uncertainty.

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