Lazard’s Gary Parr Sees ‘Darwinian’ Pressure on Banks to Shrink

Banks will be forced to cut back the number of businesses in which they operate in the next three years as new regulations make the universal model untenable, according to Gary Parr, vice chairman of Lazard Ltd.

“In 18 to 36 months, there will be a much more intense pressure on some number of banks to break up,” Parr said in an interview with Tom Keene on Bloomberg TV at the World Economic Forum in Davos, Switzerland on Thursday. “It’s a Darwinian exercise, and what’s fascinating to me is how slowly it’s going. It seems obvious with regulators increasing the capital requirements, with the burden of regulation, with the charges particularly for systemically important institutions.”

Regulators have targeted the banks most likely to pose a threat to the financial system if they fail, forcing them to bolster capital buffers. While that’s made part of the business, such as fixed income, less profitable, few have closed whole parts of their securities businesses and have relied on cutting jobs and costs to revive profitability.

“A lot of these banks ought to cut back lines of business,” Parr said, without identifying any firms by name.

While 83 percent of respondents in the quarterly Bloomberg Global Poll published Thursday said the banking industry will continue to eliminate jobs this year, only 13 percent expected at least one big firm to break up this year.

Jobs Cut

Barclays Plc is eliminating 7,000 jobs at its investment bank this year and Standard Chartered Plc said reducing equities trading and 4,000 consumer-bank jobs will help it save $400 million of costs. Banks have cut about 152,000 jobs globally in the past year, according to data compiled by Bloomberg.

Parr, 57, was made vice chairman of the Hamilton, Bermuda-based Lazard, the world’s largest independent merger adviser, in 2010 after joining the firm in 2003. He focuses on advising financial firms, and worked on the sale of Lehman Brothers Holdings Inc.’s North American investment-banking business to Barclays and Bear Stearns Cos.’s sale to JPMorgan Chase & Co.

Although Europe is in much better shape than three years ago, it is still highly fragmented and this leaves the region’s banks vulnerable, Parr said.

“Just in the last two months, the Swiss franc move, and six months earlier Russian ruble deterioration, has caused all sorts of damage in a number of banks,” Parr says. “We are looking at banks that are still recovering from their recession, their economy is weak, and then these currency movements create these issues that U.S. banks don’t face.”

Before it's here, it's on the Bloomberg Terminal.
LEARN MORE