Fernando Rodríguez | “All the risk committees of every company list them exhaustively in their reports, and nobody had foreseen the risk of the pandemic. Everything was done by looking at the past. Of course the concept of risk has changed,” explains William Connelly, Chairman of the Supervisory Board of AEGON, Vice Chairman of Amadeus, Director of Société Générale and Singular Bank. “How do you manage that? There are two parts. One is immediate risk. Then the strategic risk”, he adds.
Q: With the uncertainty generated by Covid 19, do Management Committees ask the Board of Directors for more help?
A: The simple answer is yes, with many nuances. Although there are some who have a lot of experience of crises and it is more about exchanging ideas. But in other cases it is the first time they have encountered a crisis and are wondering how to fire people, something they have never done in their lives. It’s not anymore about everything going well and now everyone has a problem: how do you finance yourself, what relationships do you have with your banks? When things are going well, it’s lighter: “profits have grown 10 percent; ah, maybe they could have grown 12 percent. With Covid19, the debates have more content for the directors, if you want to put it that way.
Q: You are an independent director in companies in sectors in full transformation, such as insurance, banking and air transport. These have also been damaged in one way or another by the Covid 19 pandemic. How are these two factors affecting the Boards you belong to in terms of the concept of risk and its management, as well as medium- and long-term strategic planning?
A: In financial services, we all have the same problem of old structures. At the same time, the client wants more digitalisation, a process which has to support that old structure. Then there are the discussions about the role of the branch, the intermediary… What Covid 19 is doing is accelerating computer and electronic transformation. In the case of Amadeus it is different, because it is a digital and technological company. Here the debate is how the consumer’s journey will change. The more technological transformation you do, the more your operational risk increases. And at the same time, in banking and insurance, you are under the magnifying glass of the regulator, with negative rates, in a cycle of risk.
Q: Has the concept of risk changed for companies?
A: All the risk committees of every company list them exhaustively in their reports, and nobody had foreseen the risk of the pandemic. Everything was done by looking at the past. Of course the concept of risk has changed.
Q: You’re a risk committee chairman. How do you manage that?
A: There are two parts. One is immediate risk. That is, if there is liquidity, we have sufficient capital and financing if this is extended, from now to 18 months. And then there is also the strategic risk. I don’t deny that we are more focused on the first one. These are very different debates.
Q: How has strategic planning changed in companies?
A: Now it’s shorter term.
Q. Let’s continue with banking. What do you think of the merger between Caixabank and Bankia? The most orthodox interpretations say the idea is good, above all, because of the generation of synergies and cost savings. But other independent opinions say it is an operation which will only lead to an overlap in the profitability and efficiency problems the two banks already had.
A: There are elements of both. There is the offensive aspect, that of being the first bank in Spain, and so on. Then there is another, which is the context of low rates, low margins and increasingly higher regulatory costs. So, in other words, the defensive aspect. That’s why the ECB is advocating larger banks which can absorb this expense.
Q: Is it the regulatory cost that is now driving the banking movements?
A: It plays a very important part.
Q: I read you have said that “new clients need new banks, because traditional ones are dedicated to solving the problems of banking in Spain: excess staff, excess offices and doubtful assets on the balance sheet.” What should these new banks be like?
A: Ten years ago there were the new digital banks. It is very difficult. You have to segregate between financial institutions with new technology that are regulated and those that are not. If you take a deposit, you are regulated. If you’re a financial institution that issues bonds to finance itself, that’s different. Managing a bank is very difficult. Raising money is easy. The problem is how to invest the asset profitably. Banks have to adapt to omnicanality. People are going to branches less and less to stand in lines and sign papers. In the Netherlands, they only want to go into the branch twice: once is when they sign their first mortgage and the second is when they make a pension plan. We have to change the role of the branch office and think of it as a counselling centre. We have to put everyone in the digital world and your structure can support it. The new banks are continuing to be the big ones, taking the best ideas from the purely digital banks and transforming themselves. But it’s very difficult for purely commercial and digital banks to grab a significant market share. There will be more mergers between the big banks, and in 20 years’ time the way they work will be radically different.