US banking giant to cut consultancy spend by £750 million

Source: Consultancy 2020-08-10

The UK’s consulting market could be about to feel the economic impact of the Covid-19 outbreak in the financial services sector, with banks plotting to stabilise their bottom-lines considering a cull of their external advisors. With similar action having already been taken in the world’s largest financial consulting market of the US, UK firms will be nervously eyeing their most lucrative service line in the coming months.

According to data from the Management Consultancies Association, the financial services sector is still the leading buyers of consulting services in the UK market – making up nearly one-third of all revenues. With that in mind, if the current Covid-19 and its resultant recession were to ravage the financial sector, it could have dire consequences for many firms in Britain’s £11 billion advisory industry.

So far, despite the global recession Covid-19 has finally shunted international markets into, this has not come to bare. While UK consultancies have so far managed to avoid losing huge swathes of work in the country’s financial sector – thanks largely to London’s status as one of the world’s leading economic hubs, as well as the fact Government job retention schemes have ploughed large amounts of figures into top institutions – dark clouds now seem to be gathering on the horizon.

On the other side of the Atlantic, news has broken that the US’s third largest bank is set to slash its external consulting spend, amid the financial strains placed on it in 2020. Over the last year alone, Wells Fargo spent around $3 billion on external consultants and contractors. However, the company’s new strategy recently unveiled by Chief Executive Charlie Scharf will see the financial services giant drastically reduce its “over-reliance” on external consultants.

According to sources close to the matter, Scharf plans to cut as much as $10 billion from Wells Fargo’s annual cost base, including some $1 billion (£764 million) from its total advisory bill. Most of the bank’s consulting spending currently goes to projects in the regulatory domain, as the bank has operated under a string of “consent orders” from US regulators since 2018. Consultants have subsequently been deployed to help Wells Fargo with fixing its risk management and compliance governance and processes.

Firms that have worked in the area include McKinsey & Company, PwC and Oliver Wyman, as well as several law firms. In the risk side of the business, Wells Fargo works with Oliver Wyman, which is running an operational excellence program on behalf of the chief risk office, and Promontory Financial Group, which is supporting the improvement of several risk management processes. The banking giant also works with Accenture on several projects, mainly around digital transformation and business process engineering, and Deloitte and EY.

The move – which echoes similar cuts programmes which swept the aviation sector earlier in the year – comes at a worrying time for the financial services industry, with the coronavirus pandemic, low margins and expensive regulatory and operational problems all playing a role in its steep decline. In its latest quarter, these issues led Wells Fargo to report a net loss for the first time since the global financial crisis – a loss of $2.4 billion, compared to a profit of $6.2 billion in the same period of 2019.

While getting rid of consultants is a relatively easy way to slash costs, however, people familiar to the matter said that executives have been warned that over-cutting could jeopardise the bank’s top priority of improving compliance. At the same time, the loss of expertise from consultants who regularly update their knowledge of top trends and best practices in the financial sector could risk failing to remain competitive in the long run, amid a rapidly changing banking environment.

Regulation

Compliance

finance industry

Deloitte

US banking giant to cut consultancy spend by £750 million

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