Published: March 26, 2012
Morgan Stanley and Oliver Wyman claim markets have underestimated scale of change in investment banking.
A new report claims that markets have underestimated the changes that will take place in investment banks’ portfolios and market shares during the next two years.
In “Wholesale & Investment Banking Outlook: Decision Time for Wholesale Banks”, authors from Morgan Stanley and management consultancy Oliver Wyman write:
“Economic and regulatory uncertainty and ‘hoping for the best’ has meant players have kept many options open. But higher capital and funding costs, a raft of new regulations becoming clearer and nearer, and higher fixed costs with softer revenues will force much more change.”
The authors estimate that 15-20% of market share could subsequently change hands during an “industry reshuffle”.
“As wholesale banks reshape their portfolios around three or four winning business models, the race will intensify to be one of those that gets adequate scale and focus to deliver good returns,” the authors write. “The banks that push to remain in the smaller subset of super globals have a tough challenge, as they will have to be outstanding in other capabilities as well to deliver strong returns through the cycle; the costs of failure for this group could be high.”
Once their portfolios are rationalised, the paper adds, leading banks could return to 12-14% ROE in the next two years.