How can investment banks revive profitable and sustainable growth?

Global banks have faced a series of challenges over the last several years. In particular, the operating environment for the investment banking industry has changed fundamentally and substantially impacted its long-term profitability. The new environment requires a transformative response in repositioning investment banking businesses on a path of profitable and sustainable growth.

 

State of the industry

The new regulations that followed the financial crisis have changed the industry in a number of ways. They’ve made it difficult to profit from many traditional lines of business by creating onerous capital, funding and liquidity requirements; and increased costs and operational complexity. Although investor confidence and deal flow have recovered somewhat, the trading environment for previously very profitable business lines in fixed income, currencies and commodities has remained challenging.

At the same time, advances in technology have upended client interaction models, execution platforms and operational processes. Competitors and new entrants have seized ground across the banking industry’s value chain. Innovative technology applications have reduced the barriers to entry for challengers, resulting in a real competitive threat. Although, in principle, established banks can retaliate, their existing technology platforms, outdated and inflexible as they are, can hamper the timely incorporation of new technologies.

 

Large-scale transformation

These external forces notwithstanding, we believe that investment banks can regain profitability and competitiveness. But to get there they need to transform their business and operational strategies from within. Though nearly all investment banks have taken steps to revamp their business portfolios, build on their core strengths and streamline operations, many of these efforts have been incremental.

Few banks have undertaken genuinely transformational changes in the most important areas. We have identified five specific fronts that we believe will be the source of a winning strategy for most investment banks in the years ahead:

  • Building strategic coherence
  • Progressing from technical to strategic optimization
  • Rethinking client profitability
  • Accelerating operational efficiency and organisational change
  • Focusing on change execution

Failure to enact an internal transformation, on the other hand, will lead to unsustainable, unprofitable business models and balance sheets.

 

Download our full “Turning around investment banking: An agenda for reviving profitable and sustainable growth” report here.

 

Keep an eye out over the next year as we’ll be following up with a series of more in-depth studies on the different constituent issues, challenges and potential solutions.

New regulations; advances in technology; competitors and new entrants seizing ground across the value chain; or innovative technology reducing barriers to entry? Which do you think has had the biggest impact on investment banking? Share your thoughts below or schedule a meeting to discuss your situation in confidence.

Joerg Ruetschi | Strategy&
Profile | Email | +44 (0)20 7393 3597

 

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