Last checked at 
By Laura Noonan
LONDON, May 5 (Reuters) - It has taken banks years to reinin their optimism and start setting targets they have somechance of meeting, finally chastened by conspicuous failure inmeeting the unrealistic expectations they touted.
After the collapse of investment bank Lehman Brothers in2008, industry survivors reacted to the crisis of confidence inthe sector by reassuring shaken investors with a raft ofpromises to show they were ahead of a perilous game.
But new research by Cambridge-based consultancy Tricumenshows the capital markets units of eight of the world's biggestinvestment banks have, so far at least, met less than a third ofthe close to 80 targets they have cited in investorpresentations since late 2008.
In 2009/10, they promised revenue growth, job cuts, lowercost-income ratios and better profit margins.
"I would characterise a lot of those targets asaspirational," said the CFO of one major bank of its 2009 aims.
A source at another said their financial targets were "sweptaway by the crisis", while a third said, "Of course we didn'tmake our pretax profit targets. Nobody did."
Banks met most of their 'firm' cost/headcount reductions andfunding targets but "largely missed their revenue/profitabilitytargets", Tricumen said.
The section on Deutsche Bank shows that in late2009 Germany's biggest bank unveiled eye-catching 2011 earningstargets for its investment bank, including pretax income of 6.4billion 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) wowedinvestors 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 mostof the sector it's no mystery.
"Growth recovered in 2009, and management teams were far toobullish - headcount increased in 2010 as investment bankstargeted revenue growth, a clear mistake, with hindsight," saidDeutsche Bank analyst Matt Spick, speaking about banks ingeneral, not his own institution.
COST OF REGULATION
The quickening pace of regulation also played a part.
Though new Basel III rules on capital requirements don'tfully come into play until 2019, many banks are already beingmeasured against them and so have modified their businesses.
"There was a sense of denial about the impact of Basel IIIand how quickly it would come," the CFO said.
Beyond the unpredictable revenue line, which many bankersprivately admit they were foolish to target so publicly,progress on absolute costs has also been slow.
Tricumen doesn't include much detail on banks that missedcost-cutting targets, but equally finds few that clearly metthem. This is partly because absolute cost targets were embracedby banks relatively recently, so many stretch beyond 2013.
In the broader universe of European banks, the 39 thatDeutsche covers are expected to have 292 billion euros ofoperating costs this year, almost identical to 2010.
Spick said banks faced a major costs challenge as theymigrate from traditional to electronic trading.
"Going electronic sounds more headcount efficient, but banksinitially have to run dual systems," he said.
"Take cash equities; the majority by volume is electronicexecution, yet as an industry we still have 70 percent of theworkforce from the old 'high touch' business, which has meantthat net headcount reductions in cash equities have been far toosmall to maintain profits."
"Despite running very fast, banks are standing still," saidMatthieu Lemerle, a London-based partner at McKinsey, whichadvises banks on cost cutting.
Ajay Rawal, a managing director with Alvarez & Marsal'sfinancial industry practice, said IT savings often took longerthan expected, while staff cuts were "a bit more predictable".
In a March 2009 presentation Credit Suisse promised it wouldcut investment banking headcount from 21,300 at end-September2008 to 17,500 by the end of 2009, which Tricumen says it missedbased on detail in Credit Suisse's 2009 accounts.
Credit Suisse says some targets Tricumen shows asmissed were achieved but offset by new hires as it invested inIT infrastructure, grew its fixed income sales force and uppednumbers in prime services and cash equities. Cost cuts were alsoobscured by investment, Credit Suisse added.
RISK OFF
More recent industry targets are noticeably different.
Several banks, including Switzerland's UBS, havemoved the message away from revenue and net income towardsabsolute cost reduction, which are more within banks' controlbut could take years to show as redundancy and other one-offcosts bite. New costs such as regulation and litigation havealso blunted the net effect of even successful cuts programmes.
Another favourite goal is cutting risk-weighted assets(RWAs), against which a bank's capital adequacy is measured, byselling assets or changing the business model.
"Banks can decide how much asset risk they want to take intothe balance sheet quite easily. It's hard to control how muchrevenue they make," said Spick.
In Barclays February 2013 strategic reviewmanagement targeted "single digit growth" for its investmentbank from 2012 to 2015, said RWA would fall between 27 and 47billion pounds and the ratio of compensation to income woulddrop from 39 percent to the "mid 30s". The 2015 ROE target is 14to 15 percent, against 13.7 percent in 2012.
Others, like SocGen, are moving from hard figures to moregeneral aims. Its latest presentations on corporate andinvestment banking goals "targeted strategic development" whereit will "selectively expand to better serve our clients" andinvest "to increase profitability and capture market share".
"We will communicate on financial targets once we have thedefinitive rules of the game. I think it is premature today,"SocGen CEO Frederic Oudea said in February.
Part of the reason the targeting is getting better is thatbanks are now five years into the cost-cut cycle, and thelow-hanging fruit has long been plucked, peeled and swallowed.The changes banks are contemplating now are far morefundamental, as revenue settles at a 'new normal', well belowpre-crisis levels.
"It's not about removing flowers in the lobby or restrictingaccess to certain classes of travel," said McKinsey's Lemerle.
"(For some) the underlying complexity of the platform is toohigh for the new revenue-generating capability of the platform."
Some are introducing solutions like LEAN manufacturingtechniques to the trading floor so traders work across a widerrange of assets and have less slow time in a day.
"The widget I'm selling is a derivative trade. I have toapply industrial discipline to that product," said Lemerle.
Selling widgets might be lightyears from the self-image ofinvestment banking's erstwhile 'Masters of the Universe', butafter too many broken promises, the pressure is on to deliver.
"We just want to be known as the management team that doeswhat we've said we'll do," said the CFO.
