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(Click DAVOS for more on the World Economic Forum.)
(Bloomberg) -- Financiers have gone from masters of the universe to pariahs to punching bags at the World Economic Forum over the past decade. This year they’re a sideshow as policy makers dominate the debate.
While the global banking industry is still grappling with the consequences of the financial crisis and atoning for past misconduct, its travails are overshadowed at this year’s conclave in the Swiss Alps by oil, new terror threats and the European Central Bank’s plan to start buying government bonds to revive inflation.
“Events have moved on,” said Philip Keevil, a partner at advisory firm Compass Partners in New York. “The delegates won’t be as focused on reining in the banks, as the changes are already in progress. The collapse in the price of oil, possible deflation and global terror will be much more current and on people’s minds. Geopolitical risks are high.”
The world changed since executives, politicians and investors gathered in the ski town of Davos last year. The U.S. and European Union slapped sanctions on Russia over the Ukraine conflict, the Islamic State overran swaths of Syria and Iraq and crude oil prices sank to the lowest level in five years. Since 2015 began, Islamist terrorists murdered 17 people in Paris, heightening security concerns across Europe, while Greek elections this weekend risk reigniting the euro crisis.
Bankers at Davos said they were there to figure out what to look out for next. “Macro risk is clearly a much bigger factor now and as a result there will be pockets of volatility,” said Christian Meissner, head of global corporate and investment banking at Bank of America Corp.
At a banking session on Wednesday, panelists including Deutsche Bank AG Co-Chief Executive Officer Anshu Jain discussed how the industry has adapted to tougher rules and the prospect of future crises.
“What worries me in Europe certainly is political risk,” said Jain, 52. “We’ve got Greek elections on Sunday, we’ve got Spanish elections coming up, dare I say we’ve got U.K. elections coming up, with some fairly uncertain outcomes and consequences. To me, really, the nexus between political outcomes, regulation and finance are very, very tight.”
Actions by the world’s most powerful central banks were also causing anxiety among finance executives. Banks, brokers and hedge funds are still counting their losses after the Swiss National Bank shook markets last week by abandoning its cap on the franc against the euro. The ECB is about to embark on sovereign-debt purchases, while the U.S. Federal Reserve may increase interest rates this year.
“The last several years have taught us all to expect the unexpected and prepare for the worst and hope that it’s better than that,” HSBC Holdings Plc Chairman Douglas Flint, 59, said during the panel discussion.
Pressure is mounting on the industry from regulation, shadow-banking competitors and “uncertainty brought by the magmatic forces of a new geopolitical order that is quite impossible to predict,” said Claudio Scardovi, managing director at advisory firm Alix Partners in Milan and a member of the forum’s banking council. Above all, bankers are trying to understand “how to make a living,” he said.
Davos kicked off just after some of the largest U.S. banks posted disappointing results. JPMorgan Chase & Co. and Citigroup Inc. missed analysts’ estimates for fourth-quarter profit on bigger-than-expected drops in debt-trading revenue.
Morgan Stanley, owner of the world’s largest brokerage, fell short of estimates as revenue from fixed-income trading slid to the lowest level since the financial crisis, while Goldman Sachs Group Inc. had its worst full-year trading revenue since 2005.
JPMorgan CEO Jamie Dimon, Morgan Stanley CEO James Gorman and Goldman Sachs CEO Lloyd Blankfein will be attending Davos, though they aren’t scheduled to appear on any panels.
The biggest banks have coughed up tens of billions of dollars in fines and penalties for regulatory and legal settlements in recent years, including at least $10 billion for rigging interest-rate and currency benchmarks. France’s BNP Paribas SA, which paid a record $8.97 billion last year for breaching U.S. sanctions on countries including Iran and Sudan, isn’t sending anyone to Davos this year.
Dimon defended the industry last week, saying that overlapping efforts by U.S. regulators were placing banks “under assault.”
“We have five or six regulators or people coming after us on every different issue,” Dimon, 58, said on a call with reporters after New York-based JPMorgan reported fourth-quarter results. “It’s a hard thing to deal with.”
Two years ago at Davos, Dimon defended banks from blame for the financial crisis, and argued regulators were “trying to do too much, too fast.”
International conflicts are at the top of concerns among attendees this year, just ahead of extreme weather events such as flooding and storms, according to an annual survey of 900 members of the organization.
Forty-seven percent of those surveyed identified such conflicts -- including cyber-attacks and traditional warfare -- as the biggest risk to the world in the next 18 months, the organization said in its annual Global Risks report, published this month. Also among the top five concerns is “state collapse,” the report said.
That the stability of the financial system isn’t on the list suggests tougher rules have created a perception the industry is on the mend. Last year at Davos, bankers were still struggling to convince the world’s business elite that the financial system was safer.
“Banks not being the hotspot in the world is probably good news,” said Andre Esteves, 46, the CEO of Brazilian investment bank Grupo BTG Pactual, who is in Davos. “Banks are the agents in a normal economy. They should not be the most important actors, so I do see that as back to normalization.”
--With assistance from Matthew Campbell in London.
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