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The next twelve months will be a turbulent time for investment banks. In order to compete they need to redouble efforts in responding to the regulatory challenge, begin to restructure large sections of their business and, in many cases, reinvent their client proposition.
For the fifth year in a row, Accenture has identified the top 10 challenges facing investment banks by surveying capital markets professionals from around the world.
Responding to regulation: to anticipate and intelligently respond to evolving regulatory demands. Challenge 1: Responding to regulation in 2013 and beyondChallenge 2: Staying ahead in derivativesChallenge 3: Serving many masters
Restructuring business models: to structurally reduce costs and transform operations.Challenge 4: New operating modelsChallenge 5: Realizing a responsible cultureChallenge 6: Cleaning up dataChallenge 7: Delivering sustained change
Reinventing for growth: to develop new, relevant client propositions and identify opportunities for growth.Challenge 8: The power of the feeChallenge 9: Tapping into growth within the groupChallenge 10: Growth in emerging markets
Drawing on our industry experience and research-based insights, we discuss each challenge and outline proven strategies for a smart response.
2012 was a turbulent year and 2013 looks set to continue in a similar vein. Investment banks are trying desperately to re-build reputations and balance sheets dented by the financial crisis and continue to be pilloried in the press following a series of high profile scandals.
Banks are understandably prioritizing activities around responding to regulatory changes and restructuring to face a new economic reality. However, there is a simultaneous need for banks to reinvent their propositions. Fundamental to this is to put the client at the center of all business activities, requiring unified internal functions to deliver consistent levels of client-centric service across the bank or Group.
Similarly there has been a paradigm shift towards capital being the most important, and scarcest, commodity. Building strong data and reporting capabilities, to enable banks to distribute capital intelligently and efficiently, on a client, product and geographical basis is essential; without these capabilities they will incur unsustainably high costs and struggle in the battle for the clients. Those institutions that successfully remodel themselves will have the flexibility to rapidly respond to different market conditions, the intelligence to allocate capital efficiently, and the necessary transparency to support these activities.
There is no shortcut in responding to the ever-increasing wave of new regulation; this game is set to run and run. 2013 will see some rules come into force, such as CRD IV and SEFs, others increase in complexity and the implementation of a significant tranche pushed out. Banks will have to priorities their activities, take a holistic, bank-wide view of their responses, relentlessly focus on optimizing capital and liquidity, and re-structure their business models to factor in the regulatory realities.
Investment banks have announced major restructuring programs looking to take out 20-30 per cent cost, but delivering and truly transforming the organization is not easy. Banks need to fundamentally remodel themselves and become lean, agile, joined-up and capital-conscious. Cost is only one element of this restructuring, developing a culture of responsibility and becoming data-savvy will be crucial, and the ability to deliver the unprecedented volume of change will also be a competitive differentiator.
Complying with regulation and restructuring are merely attempts to stay afloat. To truly adapt requires a more fundamental rethink of how an investment bank should come to market. Winners in the new world of investment banking are already starting to plan how they can reinvent their proposition and get ahead. New fee structures, leveraging income opportunities within the group and seizing opportunities for international expansion will be key themes in the coming twelve months.
February 20, 2013
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