The global banking industry shows many signs of renewed health. The recovery from the financial crisis is complete, capital stocks have been replenished, and banks have taken an axe to costs. Yet profits remain elusive. For the seventh consecutive year, the industry’s return on equity (ROE) is stuck in a narrowly defined range, between 8 percent and the 10 percent figure that most consider the industry’s cost of equity. At 8.6 percent for 2016, ROE was down a full percentage point from 2015. Further, banks’ shares are trading at low multiples, suggesting that investors have concerns about future profitability. Several regions and business lines have done better, and some institutions are outperforming due to strategic clarity and relentless execution on both their core businesses and their efforts to improve.
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During the Great Recession, friends of mine in the financial industry told me: “We didn’t realise the whole system was rotten, we were slap bang in the middle of it, so how could we?” And now I wonder, could the same be true for the training industry?
Asset management businesses may be sailing on a rising tide of wealth, but this ship could easily wreck on reefs hidden just below the surface.
Blockchain has introduced a new world of value exchange that’s already affecting the shape of banks and the way they do business. Marcus Treacher has deep experience of the world of global banking, payments and clearing, and shares his thoughts with Odgers Berndtson’s Ed Glass, Principal in the Technology Practice, and Nick Miller, Partner in the Financial Services Practice.
Simon Constable is a former TV anchor for The Wall Street Journal and a fellow at the Johns Hopskins Institute for Applied Economics, Global Health and the Study of Business.
The rise of digital technology has dramatically altered the landscape in the financial-services sector. Banks offer financial planning and trading applications through smartphones and social media; cloud technologies are widely accepted, and in many cases robotics are already reducing cost and increasing quality. Since 2011, the number of startups in fintech (technology-based companies that often compete against traditional financial-services, or FS, firms) has risen more than 50 percent.
Encroachment from technology giants such as Google, Microsoft and Facebook poses a growing risk to the traditional banking model. Yet instead of seeing the presence of these hyperscales as a threat, an increasing number of financial institutions are embracing partnership and collaboration as the way forward. According to a KPMG report, (PDF 1.87 MB) 26% of financial institutions are already partnering with one or more technology giants, and an additional 27% report planning to forge such partnerships within the next twelve months. This represents a significant shift for the industry.
The last default cycle happened nearly a decade ago, and restructuring professionals are eagerly awaiting the next one. As a decade between default cycles is a significant amount of time, chatter that “we are due” is increasing. However, default cycles do not spontaneously occur and the ground conditions that preceded prior ones are not yet in place. Distressed debt levels are low and leveraged credit markets remain supportive of high risk borrowers.
What should the high-performance investment bank of the future look like? That may sound like an unusual question given the current challenges faced by the sector, but it is one that needs to be answered for one simple reason – investment banking must innovate now so it can seize the opportunity and play a full role serving the real economy over the coming years.
How do financial services firms measure success with cybersecurity? A Deloitte survey examined how firms developed and deployed best practices. While many approaches are unique to individual firms, institutions are best to scrutinize and learn from their peers’ experiences.