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Deutsche Bank is just the tip of the iceberg. The testosterone-fuelled trading floor could soon be a thing of the past 

Deutsche Bank this week announced it was withdrawing from global investment banking, with the loss of 18,000 jobs
Deutsche Bank this week announced it was withdrawing from global investment banking, with the loss of 18,000 jobs

Traditional forms of banking are seeing their profits eroded by technology

In the movie Margin Call, a thriller about a Wall Street investment bank teetering on the brink of collapse, there is a scene that brilliantly evokes the often callous cynicism of high finance.

The head of the trading desk, played by Kevin Spacey, is seen weeping in his office after carrying out one of those periodic culls that banks impose on their staff when conditions get tough.  “You poor thing”, says his assistant sympathetically; “Having to let all those people go must be very upsetting”. Spacey looks up in apparent surprise. “Oh it’s not that”, he says. “It’s my f...ing dog. She’s got cancer”.

In another scene, a summarily fired executive finds his mobile phone disconnected before he’s even left the building. Margin Call is fiction, but the world it conjures up is not a million miles from the truth.

Back in the 1980s, traders famously used to get fired via the public address system before then being frogmarched to the door by security clutching their personal possessions in black bin liners. By comparison, the handling of this week’s announcement by Deutsche Bank of an 18,000 worldwide headcount cull seemed almost sensitive; affected City staff were given the luxury of a full three hours to clear their desks.

Many of these people will not be the greed-driven, testosterone-fueled traders of caricature, but relatively lowly-paid support staff. For the high rollers, however, you don’t need to feel much sympathy. Few do these jobs out of any sense of vocation; they are in it solely for the money, and most of them have little loyalty to the organisations they work for.

Lack of loyalty works both ways. The quid pro quo for eye-wateringly large bonuses is little if any job security.  This is what Deutsche Bank’s new chief executive, Christian Sewing, was getting at when he alluded to the culture of individual ambition in Deutsche’s investment banking arm having triumphed over wider strategic interests. People were in it only to enrich themselves; it was time to exit the casino and get back to the plain vanilla banking purpose of serving clients and the wider economy.

Kevin Spacey in Margin Call: more upset that his dog was dying than being forced to fire much of his trading desk

Many will cheer this change in approach, which given that the financial crisis was more than 10 years ago now, has been a long time coming. Others, notably the partially nationalised Royal Bank of Scotland, are much further advanced in returning to basics. At one stage, RBS was the biggest bank in the world by balance sheet size, with extensive proprietary trading operations around the globe. Today it has shrunk back to its core domestic banking function.

But there are also much bigger forces at play here. Banking was one of those businesses that used to be thought relatively immune to the technological disruption going on in other sectors. There was one overriding reason for this, illustrated by an encounter I had years ago with one of Google’s founding whizkids, Sergey Brin. Finance desperately needed disruptive new entrants, I suggested. Why weren’t the likes of Google and Facebook providing the solutions? His answer was brief; too much reputational risk, too much oversight and too much regulation. It wasn’t worth the candle. There were easier opportunities to pluck.

Things have moved on rapidly since then, and despite still formidable regulatory barriers to entry, finance is today being subjected to the same transformational technological revolution as virtually every other form of commerce.

Facebook’s recent announcement of plans for a payments system based on a new crypto-currency, Libra, is just the high profile face of a much wider shift to digitally enabled services and firms. The incumbent, universal banking models of old are struggling to keep up. Once lucrative forms of business, from securities trading to foreign exchange, are being chased hard by newcomers.

Facebook's Zuckerberg has announced plans for a new crypto-currency called Libra

The scale of the change is neatly illustrated by a few facts from the Bank of England’s recent “Future of Finance” report. In the US, 38 per cent of unsecured personal lending last year was issued by new fintechs, up from 5 per cent in 2013 and nothing a decade ago. Again, a decade ago, the largest financial services firm in the world was Citigroup, with 200 million customers. Today it is China’s Ant Financial with over 1 billion customers and not a single branch.  Half of all financial intermediation globally now happens outside the banking system, while the assets of non-bank financial institutions have grown by over 50 per cent since 2008.

With these changes have come dramatic falls in the costs of finance. Investing in the stock market costs less than half what it did a decade ago.

All these developments are taking great chunks of revenue and profit away from the one-time dominant banking players. The good news is that London’s fintech hub is very much a world leader in these new forms of digital finance, attracting talent and ideas from all over Europe, and is well placed to profit from the shift. Unfortunately, that’s no consolation for Deutsche’s hapless City workers. Their once lucrative trade may soon be as redundant as the horse and cart.