It has taken banks years to rein in their optimism and start setting targets they have some chance of meeting, finally chastened by conspicuous failure in meeting the unrealistic expectations they touted. After the collapse of investment bank Lehman Brothers in 2008, industry survivors reacted to the crisis of confidence in the sector by reassuring shaken investors with a raft of promises to show they were ahead of a perilous game.
But new research by Cambridge-based consultancy Tricumen shows the capital markets units of eight of the world's biggest investment banks have, so far at least, met less than a third of the close to 80 targets they have cited in investor presentations since late 2008.
In 2009/10, they promised revenue growth, job cuts, lower cost-income ratios and better profit margins. "I would characterise a lot of those targets as aspirational," said the CFO of one major bank of its 2009 aims.
A source at another said their financial targets were "swept away by the crisis", while a third said, "Of course we didn't make our pretax profit targets. Nobody did."
Banks met most of their 'firm' cost/headcount reductions and funding targets but "largely missed their revenue/profitability targets", Tricumen said.
The section on Deutsche Bank shows that in late 2009 Germany's biggest bank unveiled eye-catching 2011 earnings targets for its investment bank, including pretax income of 6.4 billion euros for its corporate banking and securities unit, when analysts had pencilled in 4.5 billion euros. Ultimately, it managed just 2.9 billion euros.
French bank Societe Generale (SocGen) wowed investors with medium-term targets' for return on equity (ROE) in May 2009, which Tricumen said it missed.
Deutsche Bank and SocGen declined to say why, but for most of the sector it's no mystery. "Growth recovered in 2009, and management teams were far too bullish - headcount increased in 2010 as investment banks targeted revenue growth, a clear mistake, with hindsight," said Deutsche Bank analyst Matt Spick, speaking about banks in general, not his own institution.