Adobe In Financial Services

Welcome to the inaugural edition of Adobe’s Financial Services Industry Blog! We have decided to launch this blog to share with our customers, partners and employees our observations on issues important to the FSI sector worldwide. One of the advantages a company like Adobe has is that we work with hundreds of financial services firms of all sizes and in all segments around the world many of these firms amongst the most influential, innovative and forward-thinking in the industry. We like to think that this provides us a broad perspective on the industry and happenings and trends and we hope these will be of interest and value to our readers and that our readers will actively participate in this blog.

Launching our blog at this point in time has certainly provided a wealth of potential material given the unprecedented activity in the financial services industries over the past several weeks. In situations such as this it is always tempting to try to look back at the circumstances and events that have led to the current crisis, apportion blame and pontificate on the best ways to resolve the current crisis. Instead I’d like to take a different tack and speculate about what the US financial system will look like a few years down the road as a result of today’s events.

First, the US Banking system will likely look a lot more like those of the UK, Canada or Australia and will be characterized by a very small number (3 to 5) very large institutions along with a few mid-tier institutions and somewhat larger number of community level and specialty banks. This model has proliferated in all of the Commonwealth countries and many other markets in Europe and Asia/Pacific based on the need to fund organic growth through core deposits and the vast leverage a large national presence provides. In this vein the current flurry of brokered mergers and acquisitions may be seen as just the first round in a new, longer term wave of consolidation.

Second, the remaining few “Mega-Banks” will operate much more closely aligned to the European Universal banking model with institutions competing in all of the banking, capital markets and insurance segments of the industry. We have already seen the all-but-demise of the investment banking segment in the US with both Goldman Sachs and Morgan Stanley converting to commercial bank charters and one can easily see some number of the large multi-line carriers in the US becoming attractive acquisition targets over the next several years.

This will have significant impact on the structure and function of the regulatory and government/quasi-government participants in the financial system.

First, one has to question the need for the complex web of agencies and organizations involved in the US residential mortgage market. Between Treasury, HUD, FHA, the Fed, the Mae’s and the FHLB’s it is no wonder that supervision and operation of this market has broken down. One could speculate that in 2010 a single executive agency could be in place to direct market strategy with full oversight exercised by the Fed and a single secondary market support system which could be a vastly more efficient structure.

Second, the fundamental nature of the regulatory infrastructure can be expected to change over the next few years. Fundamentally, the regulatory philosophy in the US has been protectionist in nature – protecting one segment of the industry from another, protecting consumers from predatory practices and protecting US firms from foreign competition. One can speculate that this focus created the complex web of, in some cases, contradictory regulations that, it can be argued, helped fuel the current crisis will be replaced with a regulatory infrastructure based on a philosophy of internal governance and operational prudence. In such a model regulation will be less about “Thou shall not” and more about the processes and procedures to mitigate operational, reputational, privacy, security and market risks. At the same time one can see that the potential exists for a standardization of regulation across national boundaries with key initiatives like Sarbanes Oxley, MIFID, and SEPA unifying the FSI sectors in different countries.

Whatever the outcome it is clear that we have reached a watershed in the evolution of the financial system in this country and, being a “glass half full” bunch we believe the current crisis represents a unique opportunity for the system to evolve to a much more efficient and more competitive form.

Cheers. And see you at the pub!