Focus for Success | Full Report
The High Performing Investment Bank
Focus for Success The High Performing Investment Bank Full Report
Full Report Āontents Introduction 3 The Anatom of High Performance Ā The FutureĀ A Reforming Industr Ā An industr under pressure Ā Āharacteristics of the reforming industr Ā nderstanding HoĀ to Build High Performance ā¬ā¬ Business models to sta ahead in turāulent times ā¬ā¬ ā FloĀ āonster ā¬2 ā Regional Āhampion ā¬3 ā Product Specialist ā¬Ā ā Primar āarkets PoĀerhouse ā¬ā¦ ā Risk āaster ā¬ā Building a strateg ā¬Ā Āonclusion ā¬Ā 2
Full Report Introduction This is not an eas time to āe running an investment āankā” and the idea that an investment āank could āe high performing is seen ā man as a distant dreamĖ The industr Āas facing significant challenges āefore the 2āāā¢ financial crisis struck āut as the sovereign deāt crisis gathers paceā” the challenges and rate of change seem to āe acceleratingĖ This has resulted in a period of intense ā¹hile these findings provide some transformation for the industrā” in Āhich important lessonsā” it is clear that the Āorld the leading financial institutions are of investment āanking is fundamentall contending Āith a litan of pressures changingĖ Banks are facing a unprecedented as the āattle to serve their clients in a arra of pressuresā” Āhich result in a profitaāle and sustainaāle fashionĖ In light significant sÅueeŽe on profitaāilit and an of this challenging and volatile environmentā” increasingl compleā marketplaceā” all under Accenture has conducted a stud aimed heightened competitionĖ Ālearlā” reāāuilding at identifing the characteristics and a longāterm strateg during this time of attriāutes of high performance to help change and uncertaint is challengingĖ āanks understand Āhat the need to do To assist Āith this processā” this stud outlines to āe successful āoth through this time five āusiness models for the futureā” Āhich of change and in the futureĖ Āill help āanks firstl to frame a strategic As part of thisā” Āe have conducted detailed planning eāerciseā” and secondl to āetter financial analsis of recent performanceā” understand the choices the need to make assessed the reforms facing the industrā” and the conseÅuences of these choicesĖ and evaluated Āhat āanks Āill need to Furtherā” the models highlight the capaāilities do to āe successful in the futureĖ This reÅuired to āe successfulā” and hoĀ these performance analsis has identified tĀo var for different marketsĖ distinct categories of high performersā” āoĀ is the time for āanks to change their tĀo āscale Āinnersā and a smaller cluster approachĖ The must face up to a more of āfocused ĀinnersāĖ This shoĀs there have constrained environment andā” as a resultā” āeen multiple routes to high performance can no longer attempt to offer all things and that success is not necessaril to all peopleĖ Insteadā” the must take a dependent on scaleĖ The results have also more focused approach to āuilding an highlighted the importance of staāilitā” advantage in those markets in Āhich the āoth in terms of culture and strategic focusā” can feasiāl compete and Āhich remain in generating sustainaāle performanceĖ relevant to their clientsĖ 3
Full ReportFull Report The Anatom of High Performance Performance at the top of the investment āanking industr is inherentl volatile and has alĀas āeen soĖ Ėver the past decade eleven different āanks have recorded investment āanking revenues that placed them in the top five of the industrā” Āhich highlights the challenge of sustaining a leading positionĖ The rise and fall of āŗehman Brothersā” and further āackā” Åreāel Burnham āŗamāert and Salomon Brothersā” further demonstrates this pointā” and interim results for 2āā¬ā¬ again suggest this volatilit in evidenceĖ Accentureās High Performance Business These have āeen scored āased on relative Research programme defines high performance against the peer setā” and performance as sustained outperformance consolidated to give each āank an overall against peer set across a numāer of performance scoreĖ These overall scores are financial metricsĖ This programme has plotted against average annual revenues analsed more than ā ā”āāā companies over over the period to map the results and nine earsā” across all industriesā” to identif identif similar characteristics āetĀeen the differentiating factors that constitute the āanksĖ āsee figure 2ā high performanceĖ As Āell as reflecting on āroader historical Figure 1 trends in the industrā” Āe have tailored High Performance Metrics for Investment Banking this research for investment āanking to conduct detailed financial analsis of recent Profitability 1 year, 3 year Return on allocated Euity performanceĖ For thisā” Āe have assessed the 1 year, 3 year Return on Āssets ĀIB unitĀ ā¬ā¢ leading āanks āselected āased on siŽe 1 year, 3 year ĀostĀIncome Ratio and puālic availaāilit of dataā across siā Efficiency 1 year, 3 year Productivity Ratio ĀRevenueĀHeadcountĀ dimensionsĀ profitaāilitā” efficiencā” staāilitā” groĀthā” capital strength and riskĖ These 1 year, 3 year Āotal Return to hareholders dimensions provide a āalanced vieĀ of core tability ā¬ year Median āutĘerformance ĀProfitabilityĀ āusiness performanceā” assessing the āanks ā¬ year Median āutĘerformance ĀEfficiencyĀ ā¬ year Median āutĘerformance ĀRevenue āroā¦thĀ through the lens of their shareholdersĖ Ėur analsis covers the last three Revenue āroā¦th Ā1 year, ā year ĀĀāRĀ full financial earsā” revieĀing ā¢ust the āroā¦th Āonsensus Ānalyst āutlook Ā3 year averageĀ investment āanking unit in the case of ĀomĘetitive Market Ranking Ā1 yearĀ universal āanksĖ This period has āeen an Āore Āier 1 ĀaĘital Ratio Ā3 year averageĀ eātraordinar time for the industr ā from ĀaĘital trength ā”everage Ratio Ā3 year averageĀ crisis to recover to turāulence again ā āut ā”iuidity Ratio Ā3 year averageĀ the aāilit to deal Āith adversit provides telling performance lessonsĖ Å”ach dimension ĖaR Āannual average, 3 year ĘeriodĀ has āeen eÅuall Āeighted and has āeen Risk ĖaR Ėolatility Āannual, 3 year ĘeriodĀ assessed through a numāer of industr 1 year, 3 year Riskā°Å eighting specific financial metricsĖ āsee figure ā¬ā SourceĀ Accenture Research ĀĀ
Full Report High performance in Standard Āhartered and Roal Bank of difficult these plaers are having in investment āanking toda Āanadaā” that have emerged in our attempting to compete directl Āith assessmentĖ Their successā” most notaāl the largest āanksĖ ā¹ith revenues in Ėur results shoĀ there are multiple routes through high profitaāilitā” efficienc and some cases a half or a third of those at to successĖ Both large plaers āĀho have staāilitā” is āased on their strategic focus the largest āanksā” taking them on in the mastered a diversified offeringā and much on certain markets and capaāilitiesĖ scale āattle is clearl challengingĖ Rather smaller investment āanking units have The results also highlight a ver clustered than concentrating on heading along the generated high performanceĖ Success is middle groundĖ ā¹hile all metrics have āāaāisā” āanks should think strategicall not dependent on scale aloneā” as is āeen normalised for the effect of siŽeā” the aāout hoĀ to head up the āaāisā” as the demonstrated ā the strong results shoĀn strong correlation āetĀeen overall results shoĀ that there are alternative ā the cluster of āfocused Āinnersāā” such as performance and scale demonstrates the routes to successĖ Figure 2 Performance Ānalysis 3Ā Figure 1 ĀĀ Āocused inners Scale inners High Performance Metrics for Investment Banking RBC Santander Goldman Sachs or e ĀĀ Standard Chartered JP Morgan Sc ce HSBC an Barclaās Caāital r m BAML RBS Citi r ā¹ o Pe ĀĀ ā¬BS BĀP PariĘas SociĆ©tĆ© GĆ©nĆ©rale Deutsche Bank Credit Suisse Morgan Stanleā CrĆ©dit Agricole ĀĀ Āomura ĀĀ ÅĀ 3 ā Ā3 Āā Ā3 Āā 33 Aā¦erage Annual Reā¦enues ĀĀĀā ā ĀĀĀĀ Ėā°ĘnÅ SourcesĀ Āompan Reportsā” Bloomāergā” Åealogicā” Å”uromoneā” Accenture Research ā¦
Full Report Performance anatom āot uneāpectedl in these trouāled timesā” capital strength has also āeen a ke driver The āalance of scores across each of the of high performanceĖ The aāilit of āanks performance dimensions varies across the to effectivel distriāute capital to āanksĖ HoĀeverā” a numāer of notaāle profitaāle areasā” to aāsorā losses and to patterns have emergedĖ In particularā” the provide a strong āase for longātermā” results shoĀ that profitaāilitā” staāilitā” consistent performance is a clear capital strength and a mastering of risk competitive advantageĖ āeasuring capital differentiate the ĀinnersĖ Āounter to strength through the three pillars of analstsā perceptionsā” our analsis shoĀs capital adeÅuac ā core tier ā¬ capitalā” that groĀth does not constitute a critical leverage and liÅuidit ā the research element of performanceĖ Some of the āanks shoĀs that āanks that recapitalised or that scored highl on overall performance have a large retail depositor āase score Āere aāle to do so despite coming in the highlā” and that the āscale Āinnersā have āottom Åuartile for groĀthā” Āhile some of demonstrated good control over leverageĖ the leading performers for groĀth Āere not amongst our overall high performersĖ The results should provide grounds for Ālearlā” Āhilst groĀth numāers graā the optimismĖ High performance must āe āuilt headlines each Åuarterā” the are not from a sustainaāle āaseā” āoth in terms of necessaril the ke performance indicator capital and cultureā” āut Āhile scale can over the longer termĖ deliver high performanceā” it is onl one pathĖ Product and service differentiation Achieving staāilit has hoĀever āeen remain ke attriāutesā” and āanks must shoĀn to āe a ke marker of high appreciate their inherent strengths and performanceĖ Interestinglā” in a reflection relative positioning to use this to āreak out of the market conditionsā” onl three āanks of the middle groundĖ All this must āe done managed to generate positive total returns Āith a recognition of hoĀ the game is to shareholders āTRSā over the entiret of changing as the industr reformsā” to ensure the periodĖ Further analsis has shoĀn that that the choices āanks make appropriatel success of the top performers in this address the challenges the faceĖ categor highlights the necessit of āuilding a loal client āaseā” a dependaāle pool of talentā” and a consistent culture to help an organisation move toĀards high performanceĖ ā
Full Report The FutureĀ A Reforming Industr An industr under pressure If high Ęerformance has historically been Figure 3 achieved through multiĘle routes, ā¦hich Pressures āacing Āhe Investment Banking Industry of these remain viable as the industry reformsā¹ Many banks are struggling to ensure they can tackle the immediate Increasing Expectations tā¦in concerns of regulatory comĘliance and cost cuttingÅ Hoā¦ever, as they seek egulatorĀ Ālient Shareholder to achieve high Ęerformance, banks need to move beyond this minimum and + address all of the ĘressuresÅ Āhe challenge Unprecedented Market Pressures is a significant one, but it is not insurmountable, and to the right ā¦e set Economic Political Āechnological out a frameā¦ork that alloā¦s eŽecutives to consider the full array of Ęressures + they are facing and understand the key Long-term Global Shifts characteristics that ā¦ill shaĘe the industry as it reformsÅ āsee figure 3ā Āonsumer Āorporate Geo-Political SourceĀ Accenture Research ā This is certainl the most comprehensive reform since the ā¬Ā3āsĖā āBen Bernanke on financial regulationā” Āhairman of the Federal Reserveā” Ā¢une 2āā¬ā¬ā Ā
Full Report Å”āpectations āarket pressures āŗongāterm gloāal are increasing are unprecedented shifts prove impossiāle The first thing to recognise is that the in their severit to ignore eāpectations placed on investment āanks The macro factors that have a particularl An attempt to think aāout hoĀ to are increasing in āoth their numāer and intense effect on the investment āanking strategicall respond to future developments their stringencĀ industr are also strainedĀ needs to account for the longāterm gloāal Regulators are demanding the sĀiftl Economic conditions are fraught Āith trendsĖ These can āe categorised as shifts compl Āith strict neĀ capital and liÅuidit uncertaint Āith a sovereign deāt crisis in consumer āehaviourā” largel propagated regimesā” interpret the minutiae of in Āestern economiesā” disparit in groĀth ā suāstantial demographic shiftsā” derivatives reform on āoth sides of the rates āetĀeen different regionsā” and volatilit a recaliāration of the corporate landscapeā” Atlanticā” and produce an arra of data in Āorld commodities marketsĖ These are notaāl through the rise of the emerging reports to prove their financial healthĖ comāining to hamper trading revenues markets corporation as a gloāal plaerā” andā” Shareholders are reÅuiring āanks to and dampen appetites in primar marketsĖ āroader stillā” geo-political trends that Āill reduce cost āasesā” increase transparenc The political climate is testingā” Āith recast the international climate in Āhich and improve the integrit of their antiāāanking sentiment evident in a āusiness is conductedĖ corporate governanceĖ HoĀeverā” the also numāer of influential financial centresĖ continue to eāpect to achieve the kind of A range of potential taāes and levies on supernormal returns that are reÅuired of financial activities are āeing considered an industr Āith such inherent volatilitĖ and the unpredictaāle decision making Clients Āant their āank to āe a processā” periodicall hiā¢acked for electoral source of simpleā” unāiased adviceā” point scoringā” undermines an certaint Āhilst providing a trul relevantā” aāout future developmentsĖ highāvalue serviceĖ Technological change necessitates attentionā” as āanks face up to an increasingl monopolistic infrastructure environmentā” Āhile attempting to keep pace Āith an accelerating rate of innovation and the conseÅuent skills shortages in ke areas such as latenc developmentĖ ā If Ā£investment āanksĀ¤ Āant to do proprietar tradingā” then the shouldnāt āe āanksĖā Paul Ėolcker, ĀIntervieā¦ ā¦ith Å ā, May ā , āā11Ā ā¢
Full Report Āharacteristics of the reforming industr ā¹hen considered in total it is clear seven distinct āut interĀoven that these pressures are intenseĖ From characteristics emergeā” all of Āhich āanks a considered appreciation of the cumulative Āill need to respond to as the āuildā” and impact of the pressures outlined āeloĀā” honeā” their future strategĖ āsee figure Āā Figure 4 Āharacteristics of a Reforming Industry Increased ĀaĘital Āonstraints Intense Regulatory āversight Āccelerated Product Āommoditisation ignificant Regulatory Ārbitrage Reduced ProĘrietary Risk Āaking Integrated ālobal MarketĘlace Heightened ĀomĘetition SourceĀ Accenture Research A Āidespread sÅueeŽe efficient in their capital allocationĖ Secondlā” and the emergence of significant market on traditional sources certain asset classes and products tpes Āill infrastructure opportunitiesĖ struggle to generate returns that eāceed āŗeading investment āanks Āill also have of profitaāilit their cost of capitalĖ nder these changesā” to contend Āith reduced proprietary ris āan sources of the spectacular profits āanks should use return on riskāĀeighted taingÅ Reliance on principal activities that āanks enā¢oed up to 2āāĀ have assets as the central measure of a āusiness as a source of revenues differs āetĀeen āeen the direct target of national and lineās performanceĖ institutionsā” and remains someĀhat international regulatorsā” sÅueeŽing Accelerated product commoditisation opaÅueā” āut Āhatever final form the āanks alread suffering from continued is also transforming large parts of the āĀ¦olcker ruleā takes it Āill significantl economic malaiseĀ investment āanking āusinessĖ ā¹hilst curtail profitaāilitĖ The stipulations are Increased capital constraints that āanks products and processes have alĀas likel to āe intricate and compleāā” āut face Āill radicall alter the strategic decision commoditisedā” technolog developments man āanks have reacted ā simpl making processĖ The Basel III accord are significantl accelerating the pace divesting funds and dismantling once underpins this neĀ focus on capital āut the of commoditisationĖ This Āill āe further priŽed proprietar trading positionsĖ headline percentages mask the scale of the accelerated in the immediate future for As risk taking shifts to the āuāsideā” changeĖ As Āell as raising the reÅuired ratioā” certain derivatives products folloĀing a investment āanks are likel to focus this agreement recaliārates the calculationsā” numāer of regulator mandatesā” Āhich efforts to take on risk through providing meaningā” in dollar termsā” the capital held on Āill result in previousl attractive margins risk management solutions to clients āalance sheets Āill increase sharplĖ This is in the most liÅuid derivatives āeĖgĖ Interest or managing their oĀn eāposure on āefore accounting for various national Rate SĀapsā collapsing at precisel the same a sophisticatedā” intraāda āasisĖ addāonsā” additional reÅuirements for Ā„āSIFIs time that huge investment is reÅuired in āĀ„loāal Sstemicall Important Financial the technolog reÅuired to trade themĖ Institutionsāā” or the impact of sovereign deāt This is likel to lead to āoth a standardisation Ārite doĀnsĖ This Āill have tĀo important of āuāside reÅuirementsā” as clients are effectsĖ Firstlā” āanks Āill need to āe more unĀilling to pa the price of specialisationā” Ā
Full Report The marketplace in Figure Ā Āhich investment āanks Industry Ėalue Āhain operate is āecoming increasingl compleā Buy-Side Participants Investment āanking is complicatedā” Risk taking is shifting to buy-side encompassing a range of complimentar institutions, accelerated by a series of high-profile spin-outs and divestments āut fundamentall different activities designed to serve a āroad arra of clients Specialist and across the ĀorldĖ HoĀever recent BoutiĀue Ędvisory Āirms nvestment Banks developmentsā” coupled Āith longāterm Ędvisory firms are trendsā” are rapidl increasing this compleāitĖ increasing in prevalence Primary Secondary due to shifts in senior Āarkets Āarkets Broking Āirms and The intense regulatory oĀersight in talent and an ability ĀiĀuidity Providers the Āorldās most important financial to take long-term ĀāĘ ā¢urisdictions is increasing the cost of strategic bets Āuities Smaller specialist brokers are winning complianceā” āoth in terms of financial Ędvisory business due to levies and the commitment of specialist specialist provision, personnelĖ Ā„iven the mandate regulators āĀ a need for diversified sources of liĀuidity noĀ possessā” leading āanks need to activel Āarket Ātilities Ā āā and a relative lack of manage these relationships and heighten ā¦āĀ regulatory scrutiny cross functional coāordinationĖ This should xpertise in clearing, alloĀ them to reduce timeāconsumingā” settlement and collateral management Āperations and ā¬ Āunctions arduous and potentiall eāpensive periods is moving to specialist of censureĖ It Āill āe costl and culturall providers difficultā” āut this transformation should āe Āarket nfrastructure prioritisedā” especiall given the increasing trend of posting regulator staff inside Vertical integration is allowing exchanges the Āorldās largest financial institutions and clearing houses to use economies of scale and regulatory change to challenge on a semiāpermanent āasisĖ the traditional brokerage model SourceĀ Accenture Research ā¹hilst regulator oversight is universall intensifingā” there isā” and Āill continue to āeā” signiĀicant regulatory arĀitrageÅ localitĖ This means a proliferation of centres such as BraŽilā” into gloāal plaersā” ā¹hile the eāpectation is that gloāal 2Āāhour trading capaāilities and the and the fundamental challenge presented regulation on financial markets Āill alignā” geographic dispersal of senior leadership ā rapidl institutionalising āuāside over the neāt three to five ears a numāer teamsĖ ā¹hether assisting eāisting clients operations and increasingl consolidated of transformative regulator agenda Āill āe to enter neĀ marketsā” or acÅuiring neĀ infrastructure plaersĖ These āneĀā still in trainā” creatingā” at least in the short clientsā” āanks should position themselves entrants threaten to undermine the termā” an imāalanced competitive gloāal to āenefit from this gloāal integrationĖ primac of the investment āank ā marketplaceĖ Such imāalance can āe caused recaliārating the industr value chainĖ ā the slightest difference in technicalitiesĖ Heightened competition In a Āorst case scenarioā” such a move In order to grasp these geographicall could lead to a fragmentation of the specific opportunities āanks Āill need to from āoth traditional and industr as the traditional investment āe aĀare of regional developments and nonātraditional sources āanks are disintermediatedĖ āsee figure ā¦ā organisationall fleāiāle enough to respondĖ This could lead to an increasing prevalence This gloāalised market Āill āe intensel In shortā” there is a lot for āanks to face up of ā¢urisdictionall segregated āusinessesĖ competitiveā” even more so than in the pastĖ toĖ The industr is reformingā” and despite The reason Āh gloāal competitive For one thingā” investment āanksā increased āeing overloaded Āith the immediateā” imāalances are so important is that āanks reliance on their client āase to generate and not insignificantā” distractions of cost are operating in a more integrated gloĀal revenues means competition Āill āe cutting and regulator complianceā” āanks maretplaceĀ It no longer suffices to run fiercest in those āusiness linesā” such as must understand all of these changes as a series of discrete operations from various prime servicesā” Āhere a relationship is the look to reāestaālish their market localities and claim a gloāal footprintĖ clearl definedĖ Another ke feature is the presence and competitive positionĖ Rather āanks must operate a unifiedā” emergence of a neĀ tpe of competitionĖ sophisticated āusiness that grants clients This comes in the form of āoth the access to opportunities regardless of evolution of regional āanksā” in āurgeoning ā¬ā
Full ReportFull Report Figure Ā nderstanding HoĀ to Build Industry Ėalue ĀhainHigh Performance Business models to sta ahead in turāulent times As āanks face up to this uncertain This Āill necessitate a change in mindset can support a āank on its Āa to high environmentā” developing an effective for āanks historicall used to plaing in all performanceā” each representing a different strateg is challengingĖ HoĀeverā” market marketsā” to taking risksā” enamoured ā discipline of investment āankingĖ These dislocation Āill āring opportunities for novelā” compleā products andā” at times models detail the management choices that those aāle to look āeond the shortā putting the interests of the client secondĖ āanks need to make and the conseÅuences term concernsĖ The first step in this The āstrategic tourismā that man Āere of these decisionsā” Āhichā” Āhen effectivel ā¢ourne is a detailed evaluation of the guilt of is no longer sustainaāleĖ coāordinatedā” generate positive feedāack ā¬ portfolio of āusiness lines in Āhich the Importantlā” āanks must put their clientsā loopsĖ An understanding of these features āank operatesĖ As outlined aāoveā” agenda at the centre of this eāerciseā” to and hoĀ the interact is crucial to sluggish groĀthā” reduced profitaāilit ensure relevance in an intensel competitive developing a competitive advantageĖ and increasing constraints on capital marketĖ The must then diligentl focus on Additionallā” Accentureās in depth āScales mean that man āusiness lines Āill sustaining a competitive advantage in their of āasterā outline the āasicā” competitive struggle to generate returns greater chosen markets and patientl develop the and market leading characteristics of each than their cost of capitalĖ This calls for supporting capaāilities reÅuired to ĀinĖ of the features of the models across all āanks to ā¢ustif the areas in Āhich the Based on our research and our eāperience functions of an investment āankā” Āhich operate and concentrate on those in Āith leading investment āanksā” Āe have helps to āuild a detailed understanding Āhich the can feasiāl competeĖ identified five distinct āusiness models that of hoĀ to develop Āinning propositionĖ ā¬ This frameĀork is adapted from āFrom Strateg to Business āodels and to Tacticsāā” Āasadesusāāasanell and Ricartā” puāĖ IÅ”SÅ” Business School ā¹orking Paperā” āovĖ 2āāĀ ā¬ā¬
Full Report FloĀ āonster Based around a highl commoditised increasing the pace of commoditisationā” annual investment costs under a latenc product setā” āeĖgĖ cash eÅuitiesā” FĀ§āā” pushing more products toĀards the floĀ drivenā” technolog āarms raceāā” and to the FloĀ āonster model relies on modelā” at a faster rateĖ In particularā” this provide the directional information that processing huge trade volumes at is a process that is likel to āe accelerated traders so desireā” Āhichā” amongst other eātremel tight spreadsĖ The model for certain ĖTĀ derivativesā” as the āenefitsā” enaāles accurate pricingĖ is focused on serving sophisticated standardise folloĀing reform to āecome This need for critical mass hoĀeverā” institutional clientsā” operating in highl centrall cleared and eāchangeātradedĖ alongside rising capital constraints developed capital marketsā” and is premised This provides opportunities for FloĀ challenging returns on eÅuitā” means on three elementsĀ efficient technolog āonsters to āroaden the product setĖ that Āe see onl three to five plaers āeing to reliaāl and rapidl process millions ā¹hile the model appears simple in terms aāle to survive in each floĀ marketĖ This of trades per secondā” highl competitive of the small numāer of choicesā” long termā” consolidation Āill pla into the hands of pricingā” and strong sales relationships patient investment is necessar to āuild market leaders āut Āill force those outside to attract client āusinessĖ the marketāleading capaāilities reÅuiredĖ this āracket to make strategic call as to Technolog developments and a range A critical mass of volume is crucial to make Āhether the Āill āe aāle to surviveĖ of regulator proposals are rapidl the model Āorkā” āoth to support the high Figure āloā¦ Monster Model Key Āhoice Āore Āusiness Ęlow Āonseāuence Performance Outcome Differentiator Preā¬reāuisite to operate in the marĀet SourceĀ Accenture Research Sales Team Strong Ālient Āeputation Āelationships Talent Development Tight High Spreads Etensive ĀarĀet Volume Ārossing Āonnectivity of Orders Āeduced Headcount Āosts Proven Ā ility Āeputation as Āetention to Eecute with Āccurate ĀarĀet ĀaĀer of Spreads Low Latency Āesearch Āontent Āutomated Processes Āccurate Directional Information Pricing High Profits Industrialised Operations Effective Position Position Āanagement Āule Āased Āanagement Āapa ility Eecution Powerful and Efficient Infrastructure Investment in Latency Developers High and Effective Technology Investment ā¬2
Full Report Regional Āhampion As āanks look to concentrate on serving a clientā” āanks must emplo intelligent model should focus on deepening loal client āaseā” the Regional Āhampion segmentation to ensure an appropriate penetration Āithin their eāisting client model is gaining increasing attentionĖ The level of serviceĖ As corporates tend to āase andā” Āhere appropriateā” reinvesting model is āased on effectivel crossāselling have loĀer price sensitivit and a loĀer profits in providing āalance sheet for risk management and financing solutions freÅuenc of tradingā” āanks are aāle lendingā” a service corporate clients to eāisting corporate clientsā” Āhich given to charge Āideā” profitaāle spreadsā” āut value highlĖ the nature of stick longāterm relationships segmentation is again important here and loĀ price sensitivitiesā” creates a to ensure appropriate pricingā” especiall sustainaāle and profitaāle franchiseĖ given rising transparencĖ ā¹hilst a simple model to eāecuteā” a Banks Āill need to assist clients Āith strong foundation of eāisting corporate neĀ derivative trading reÅuirements āeĖgĖ relationshipsā” āased around a core āanking posting collateral and margin callsā and proposition or primar markets advisorā” is pricing ma also need to take into account a preāreÅuisiteĖ Ālients value service Åualit the increasing cost to serve as regulator āut as the volumes var from client to and compliance costs riseĖ Adopters of the Figure Ā Regional ĀhamĘion Model Key Choice Pre-reāuisite to enaĘle cross-sell Conseāuence Primary Markets ā utcome Relationship EĀisting Long ermĀ Core Banking (e.g. NMĀDĀ SticĀy elationships Proposition Core āusiness ā¬low Performance ā¦ifferentiator Effective Cross-Sell LenĀing SourceĀ Accenture Research isĀ Management ā¬inancing ĀSeconĀary MarĀetsĀ High Service Quality Balance Sheet Low Price Commitment Sensitivity Targeted Service Effective Delivery Information Management Wide Systems Spreads Appropriate Cost Targeted to Serve Technology Ānvestment Āigh Āigh proĀits ProĀits ā¬3
Full Report Product Specialist ā¹ith the consolidation in the FloĀ environment of intense regulation and in an environment Āhere intellectual āonster model restricting its viaāilit to a rising gloāalisationĖ Furthermoreā” gloāal propert cannot āe patentedā” the aāilit feĀ large plaersā” more āanks Āill need to regulator discrepancies have and Āill to continuall innovateā” to redefine client focus on developing product specialisms to continue to create opportunities for needs and sustain differentiationā” is crucial differentiate themselves and estaālish a geographic niche plasĖ to successĖ Banks must also face up to clear market identitĖ Successful adoption of the model reÅuires the challenge of the increasing pace of Product specialisms can var from investment in specialist capaāilitiesā” commoditisationā” Āhich Āill mean that as cornering a particular tpe of deāt including Åuantitative developers and the products that underpin their specialism instrument or regional interest rate āespoke technolog to develop mature and āecome floĀāāasedā” a clear solutionā” to āeing knoĀn for an aāilit to differentiated productsĖ ā¹ith loĀ āarriers strategic choiceā” as to Āhether the can structure highl eāotic trades or eāecute to entrā” the model is arguaāl the easiest continue supporting the productā” is reÅuiredĖ āespoke currenc pairsĖ Traditionall served to enterā” freÅuentl leading to a large in a single ā¢urisdictionā” the model is numāer of market participants and rapidl comparaāl simple in a compleā eroding competitive advantageĖ Similarlā” Figure ā¬ Product Ęecialist Model Key Choice Core Business ĘloĀ Conseāuence Performance Outcome Differentiator SourceĀ Accenture Research Deep Āarket ĀnoĀledge Āigh Āarket Share Talent Development Detailed Insightful Āesearch nalytics Content Competitive Specialist Strong Āeputation Pricing Technology Development Innovative Proven bility Product to ā¬āecute Investment in Development High Product Specific Āigh uality Profits Capabilities Specialist Bespoke or Niche Āarket Provision Infrastructure Offering CostĀā¬fficient Āarket Provision ā¬Ā
Full Report Primar āarkets PoĀerhouse The Primar āarkets PoĀerhouse model Ā„iven the eātremel high cost of failure for housesā” given the premium placed on is āuilt around the competence to advise issuances and dealsā” clients tend to lack specialist advice and strong relationshipsĖ or structure profitaāle āut infreÅuent price sensitivitā” alloĀing āanks to charge Banks looking to differentiate are investing issuances or dealsĖ The model relies on high feesĖ The aāilit to eāecute or in effective information management specialist talentā” Āith deep sectorāspecific effectivel distriāute an issuance is rightl sstems to create deep client insights eāpertise and strong relationshipsā” and seen as criticalā” āut a safetāfirst approach and offer targeted service deliverĖ a strong ārandĖ This centralit of ārand Āorks to the advantage of incumāentā” The fact that this is a non capitalāintensive acts as a consideraāle āarrier to entrā” estaālished plaersā” reinforcing the need and a loĀ priceāsensitive market means given the significant time it takes to for a strong ārandĖ that the model Āill continue to attract developĖ The model is made attractive āŗarge plaers can differentiate through competitionā” āut onl āanks that takeā” ā its loĀ capital intensit andā” in an the aāilit to provide financing alongside or have takenā” the time to develop strong increasingl integrated gloāal marketplaceā” āĀØA transactionsā” Āhich can āe an ārands Āill āe aāle to ĀinĖ Āill provide opportunities for āanks to efficient allocation of capital due to the transfer capaāilities to neĀ geographies profitaāilit of the modelĖ HoĀeverā” there and neĀ clientsĖ remains plent of room for āoutiÅue Figure ā Primary Markets Poā¦erhouse Model Key Choice Core BĀsiness Flow Conseā°Āence Performance āĀtcome Differentiator SourceĀ Accenture Research Targeted Āffective Information Deep Client Insight Technology anagement Systems Investment Āow Technology Targeted Aligned āā¦ectives Costs Service Delivery High Fees Āow Price Sensitivity Strong Brand Āongā Termā¬ Sticā”y High Relationships Profits Proven Aility to ĀĀecĀte Competitive advantage Deep Sectorā Specific for larger players Ėnowledge High Āevels of TrĀst Balance Financing Booā”ā BĀilding DistriĀting Pricing at a Senior Āevel Sheet Provision Specialist Capailities Ā ĀAā¬ ĀC ā¬ DC ā¬ āeographicĘ Renowned Talent ā¬ā¦
Full Report Risk āaster Taking on and managing risk has alĀas confidenceā” Āhich must come from This reÅuires investment in poĀerful āeenā” and Āill remainā” core to investment leadershipā” and clear communication of technolog to process compleā eāposure āankingĖ HoĀeverā” the aāilit for āanks to the risk strategies and appetite of the calculations at high speedsā” and to make do so is clearl challenged ā regulationĖ āankĖ Additionallā” the aāilit to commit availaāle the right information at the right Reforms designed to restrict proprietar is dependent on organisational fleāiāilitā” timeĖ āost of allā” a culture of effective risk trading āeĖgĖ the āĀ¦olcker ruleāā are likel to āack eāecutivesā decisions Āith control must āe spread throughout the to curā a āankās aāilit to take on risk to a sufficient speed to marketā” a challenge for organisationā” to ensure continual discrete set of more limited formsā” notaāl puālicallālisted āanks Āhen competing aĀareness and management of risks takenĖ hedging and marketāmakingĖ Increasing Āith more nimāle private firmsĖ The model is the most compleāā” and regulator oversight Āill also force āanks Risk āasters must also understand hoĀ takes the most time to adopt of the five to demonstrate more effective risk controlā” to maāimise their risk mitigation strategies Āe have outlined āut risk master has causing compliance costs to riseĖ and control unĀanted riskĖ The model calls āeen shoĀnā” and is likel to remainā” Successfull taking on risk reÅuires for informed supervisor committees that a ke performance differentiatorĖ effective controlā” management and have the poĀer to āoth control and Åuickl commitmentĖ But commitment reÅuires pursue risks āased on reliaāle informationĖ Figure 1Ę Risk Master Model Key hoice ore āusiness Ālow onseĘuence ĀerĀormance utcome DiĀĀerentiator SourceĀ Accenture Research Sustainable Revenues Hig Profits Dependant Algorithmic lient Ālow EĀĀective Āosition on regulatory Hedging Execution Market-Making Āacilitation Management allowances Ability to Maximised Risk Enter Markets Mitigation Strategies Sufficient Commitment Effective Confidence to Control Take on Risk Market onditions Ability to React Clear and Efficient Āuickly Readily Available Process and Shareholder Management ĀnĀormation Structures Appetite Ānderstanding rganisational Influential and Accurate and Rapid oĀ Risk Ālexibility Informed ā¬aluations Supervisory Committees Effective Powerful and Management Efficient Systems Investment in Risk Management Capabilities ā¬ā
Full ReportFull Report Building a strateg High performance in the neĀ era Āill portfolio to fit to the modelāsā in Āhich it effort are appropriatel targetedĖ Thenā” reÅuire a disciplined approachĖ The can feasiāl āe successfulĖ An understanding the āank must assess it competence āusiness models outlined in this paper are of the relevance to its clients must āe against each of the features of the model not prescriptiveā” rather an articulation of central to this eāerciseĖ Āapital consumption and diligentl focus on āuilding the market Āhat constitutes high performance in Āill also āe a critical input and as such leading capaāilities reÅuired to develop different disciplines of investment āankingĖ the āank must assess capital consumptionā” a Āinning propositionĖ The are designed to help a āank to frame alongside achievaāle profitaāilit measured The models should not āe considered its strategic planning as it looks to respond ā return on riskāĀeighted assetsā” ā mutuall eāclusiveā” or incompatiāleā” āut to the industr changesĖ This necessitates āusiness lineĖ The challenge of this task the address fundamentall different a series of decisive stepsā” for a āank to should not āe underestimatedĖ Scaling marketsĖ It is possiāle for a āank to āe understand its clients and proposition āack fromā” or eāitingā” current āusiness successful in oneā” or a comāinationā” of to the Āider marketplaceā” to select the lines is likel to āe necessarā” āut āold models āut the interpla āetĀeen each appropriate modelāsā to fit thisā” and to and decisive action is called for Āith Āill āe different for each institutionā” and adeÅuatel focus on the chosen modelāsā such limited resourcesā” āacked up ā a āank must understand hoĀ its strengths so that the can āuild the supporting disciplined focus on chosen strategiesĖ can provide links to other models if it is capaāilities reÅuired to develop a Secondā” it must focus on āuilding a to pursue more than oneĖ ā¹hat is clear Āinning competitive advantageĖ competitive advantage in its chosen is that the must address each model Firstā” the āank must select the appropriate modelāsāĖ nderstanding current independentlā” understanding the varing āusiness modelāsāĖ To do thisā” it must capaāilities against those descriāed in capaāilitiesā” and investment reÅuirements recognise hoĀ current āusiness lines appl the models Āill help to āalance investment for eachĖ to the models and then rationalise its decisionsā” and to ensure that spend and Figure 11 āey ĀaĘabilities MatriŽ āloā¦ Monster Regional ĀhamĘion Product Ęecialist Primary Markets Risk Master Poā¦erhouse Āalent Sales teams and latenc Sectorāspecific ĀŖuantitative developers Industr eāperts Āompleā risk analsts developers relationship managers Āechnology Å”fficientā” scalaāle and āI sstems Tailored infrastructure Industrialisation of Risk management roāust trade processing process sstems Pricing Tight spreads Appropriateā” Āide Āompetitive pricing High fees Accurate valuation spreads EŽecution āŗoĀ latenc provision Aāilit to eāecute in Innovative development Priceā” āookāāuildā” Āommitment and and efficient straightā multiple markets to of āespoke products distriāute and provide understanding of risk through processing serve client needs specialist advice Ālient ervice Highl efficient and High Åualit āut Innovation and access High Åualitā” Aāilit to take on reliaāle eāecution appropriate level of to niche markets trust āased risk to facilitate clientsā service needs Ālient Sales team led Based on a core āanking Productāled model āŗongāterm relationships āĀ«A RelationshiĘs propositionā” lending or āuilt on trust advisor SourceĀ Accenture Research ā¬Ā
Full Report Although man of these capaāilities of choicesā” reflecting the management are uāiÅuitous across the modelsā” the coāordination and organisation alignment focus of investment variesā” meaning reÅuiredāā” time to adopt āthe numāer of that capaāilities are rarel transferaāleĖ conseÅuencesā” reflecting the time taken For instanceā” FloĀ āonsters and Product for the effects of the choices to resonate Specialists āoth call for investment in through the modelāā” and monetar talentā” āut Āhilst the former relies on investmentĖ āsee figure ā¬2ā latenc developers and sales teamsā” the Ā„iven the constraints āanks faceā” onl latter depends on Åuantitative analsts careful selection and adeÅuate focus and industr research eāpertsĖ āsee figure ā¬ā¬ā on the modelāsā appropriate to them The varing investment reÅuirements Āill ensure the are not caught in the must also āe taken into accountĖ Å”ach clustered midāmarketĖ model varies in compleāit āthe numāer Figure 12 Investment Āonsiderations RisĀ Āaster Reional Champion Ārimary ĀarĀets ĀoĀerhouse Complexity (# of choices) Āroduct Specialist ĀloĀ Āonster Time to adopt (# of consequences) Size of bubble = relative investment required SourceĀ Accenture Research ā Å”āiting and doĀnsiŽing āusinesses Āhich are not value added to our client franchiseĖĖĖ this strateg plas to our strengths and is focused firml on the needs of our clientsĖā āSergio Å”rmottiā” BS Ā„roup ĀÅ”Ėā” Investor Presentationā” āovemāer 2āā¬ā¬ā ā¬ā¢
Full ReportFull Report Āonclusion A volatileā” shifting Āorld of regulator and economic pressures is driving drastic changes in the investment āanking industrĖ Banks need to aāandon the mindset of plaing in all markets that characterised strategies prior to the 2āāā¢ financial crisis and realise that the reforming industrā” despite its tighter marginsā” capital constraints and regulator oversightā” can provide opportunities amidst the dislocationĖ Āritical to maāimising the availaāle opportunities hoĀeverā” is a more focused and disciplined approach to identifing the markets in Āhich to operateā” ensuring a deeper alignment Āith client needsā” and continuall āuilding and reāāuilding on eāisting strengthsĖ ā¬Ā
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