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TOP 10 CHALLENGES FOR INVESTMENT BANKS 2017


PRUNING FOR GROWTH AND DISTINCTIVENESS

How banks could create greater value by identifying and strengthening their core businesses

These are tough times for banks. Investment banks need to identify and strengthen core businesses that could drive growth and increase competitiveness in a market featuring increased regulatory burdens and a shrinking revenue pool.

More than ever, banks need to decide “where to play” and radically simplify their operating model accordingly.

Excel at the core

Focus on sophisticated, highly customized solutions for large and professional investors, financial institutions and corporates

Focus on corporates

Fully-integrated, seamless service delivery to corporate clients across all products

Focus on investors

Leverage digital to service the broader investor universe beyond traditional buy-side clients

Platform player

Offer best-in-class products via peer platforms, connecting to the core

The struggle to restore profitability

Investment banks of all sizes have to take a systematic view of the new environment due to regulation, market structure changes and technological possibilities to try to restore their overall profitability. Revenues have fallen substantially from their short post-financial crisis rebound as both volume and margin have declined across most products. Concurrently, global structural regulatory change has driven compliance costs and capital requirements higher, offsetting the effects of headcount and other cost-reduction measures for many industry players.

The result: most of the “low-hanging fruit” seems to have been plucked on the cost side and hopes for a sustained near-term revenue rebound are fading, leading many industry players to conclude that these factors now structurally impact their business.

A step in the right direction

In response, a few players have begun making the tough choices to prune their product offerings and, subsequently, their franchise. However, these efforts were mostly designed to eliminate what was deemed unsustainable. Investment banks are still faced with daunting challenges of new regulatory mandates, as well as other constraining factors such as rising client expectations.

A dual focus on pruning and integration

Some leading players have taken a new track. They have not only pruned their investment banking core but also have begun to integrate it much more closely with other businesses to deliver a superior proposition to a broader set of clients. We believe this trend could gain further momentum in a digital world. To help secure and regain competitive advantage, banks need to think through a number of difficult questions.

Next steps

Which elements of our offering do clients truly value and pay for?

These answers might vary by product. Depending on their size, banks should come to different conclusions about what their franchises require and what they could deliver.

What does this mean for client focus and franchise?

Banks need to determine if they should broaden their footprint or if they could shift their focus on segments to unlock value.

How do we reconfigure the operating model and cooperate across the ecosystem?

While the bifurcation between more corporate investment banks- and investor-driven models will likely continue, banks could step beyond the traditional core.

Conclusion

As banks work to determine what their businesses look like and how they could generate value in the years ahead, they need to remember, the decision won’t be black and white.

A select few players might still conclude they can excel at the core; others might move closer to an investor-, corporate-, or platform-driven business model. Regardless of where they end up, banks could need to pair further pruning with a strategy that identifies a clear direction and additional pockets of value to restore profitability.

Challenge Highlights

By pruning their product offerings, investment banks could distinguish themselves from competitors and clear the path for future growth.

Get in touch

Markus Boehme
Singapore
Bob Gach
New York