Right now I'd be hard pressed to say anything good about the four largest banks in the U.S., as far as their expertise in banking is concerned. But when it comes to technology, up until now at least, their CIOs had aced the challenge. However, going forward, in my opinion, the giants are going to stall again because funding to feed new IT investments has already dried up. Following is some background material that supports my current position.1. First, every one of the four banks has had the highest rated CIOs that money can buy. Recent CIOs haven't lasted long, but that has more to do with the weaknesses brought about by the CEOs (Mr. Dimon excluded) as opposed to any deficiencies in the CIOs. The four top CIOs today have less than a year in their respective hot seats, and they'll be plagued by matters far beyond their doing. My prediction is they'll be gone before the traditional three-year tour of duty is up, because they won't have the funding to invest in "bigger than big."
2. Up until three years ago, one trillion dollars in assets was considered the largest of U.S. banks. Today, the top 3 are each at two trillion. It's not the doubling that scares me; it's the diversification that will cause a whole series of new problems. For example, how would you like the job of integrating the country's largest retail bank with the countr''s largest brokerage firm? And at a time when the bank is borrowing money like crazy just to stay alive. While Congress is tracking TARP money to make sure it goes towards lending, do you think they'll be overjoyed to discover new earmarks for IT investments?
3. A few years ago Citigroup acquired Travelers Insurance supposedly to gain supremacy in financial services. After all, isn't insurance a financial service? In attempting to integrate banking and insurance, Citigroup discovered the details of the integration produced more problems than the benefits expected. Is anyone up for merging American Airlines and Amtrak to build a more-than-giant leader in transportation?
4. Three years ago, the large banks were winning awards for their IT investments, and for good reason. IT is the lifeblood of any bank, and when the bank is huge, 20 percent of non-interest expense was proof that the bank knew what it was doing. Cut that investment in half to what mid-tier banks are spending and it will look like Kyle Busch racing a Prius.
5. Back in the 1960s, First National City Bank (now Citi) built whatever it needed and didn't wait for vendors. For example, while BankAmericard (VISA) and MasterCharge (MasterCard) were scrambling to offer a universal bank credit card, FNCB created its own proprietary card called, the "Anything Card." If FNCB needed a technology it would go to its own bank-owned vendor(s) to get it. It even spawned them in Silicon Valley and Bangalore to make the world see the wisdom of their ways.
6. I doubt if there'll be much heralded news these days about Countrywide's technology. This was one of the main reasons that BofA used to justify the acquisition. Will that technology get a chance to flex its muscles now in an industry that doesn't make mortgages anymore?
I haven't turned on the news in the past couple of hours, so right now, I know there are 126 large banks (over $8 billion in assets) in the U.S. I hope that number won't shrink. Instead, it should rise as the mid-tier banks (660 of them) use their management skills to do the merger thing with smarts rather than for egos.
If the giant bank merger activity were to happen all over again, I wonder if during the due diligence phase, any of my admired CIOs would have objected with this remark-Too Big To Handle.