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Value-based cost reduction: Finding the optimal strategy for revenue growth

By taking a holistic view of business line costs, banks can re-evaluate optimization.


Optimizing cost reduction

Despite transformation efforts over the past eight years, investment banks have realized modest improvements in their cost-income ratios. Accenture research reveals the largest investment banks collectively may need to further reduce costs by up to US$20 billion to improve the average return on equity. We found:

  • All firms have increased their compliance activities.

  • Cost reduction has taken place largely within the four walls of banks.

  • Improved virtualization and cheaper computing power help to reduce IT costs.

  • Firms have focused on reducing “unit costs.” Once identified, cost-savings should be converted to long-term investments in new products, services and financial technology initiatives.

Key Findings

Seeking sustainable cost structures

Five “hot topics” in cost reduction:

  • Broker use is increasing as a result of remediated broker policy and controls, and a shift in the role of inter-dealer brokers in the over-the-counter (OTC) market.

  • Market data use is increasingly driven by proactive enforcement of usage agreements by data vendors.

  • Sales and trading workforces are being resized to accommodate ongoing electronification across asset classes and changing market conditions.

  • Control workforces, particularly compliance and risk departments, are growing as a result of new rules regarding conduct and supervision.

  • Technology is being simplified, driven by increased consumption of change, IT infrastructure and third-party application services.

In addition, zero-based budgeting and spending has the potential to play a pivotal role in helping banks make effective, value-adding investments to continually refuel for growth.

“We have squeezed this lemon dry. There is no way to continue with historical cost-reduction activities and expect more savings or any sustainable cost advantage. We need to solve this differently—with industry-wide cooperation and with different techniques within our institutions.”



Three steps to profitability

Banks can optimize return on investment by:

  • Taking an outside-in view to create cost visibility and insight: Compare how much it would cost to house a specific function outside the bank with how much it costs to maintain it internally.

  • Building an end-to-end governance model that drives accountability to the rightful owners: A governance model, along with related financial controls and performance incentives, plays a key role in ultimately shifting mind-sets to enable long-term change for the bank.

  • Using cost savings to fuel growth: Banks must design transformation programs based on sustainable operating models that promote efficiency and cost savings.


Bob Gach

Bob Gach

Managing Director – Accenture Strategy,

Capital Markets

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