Frost & Sullivan: New Strategies and Operating Models Crucial to Sustain Global Investment Banking Industry Conservative risk management and lower returns likely the new norm in this space
MOUNTAIN VIEW, Calif., Jan. 21, 2014 /PRNewswire/ -- The global investment banking domain changed significantly since the financial slowdown; the industry that experienced high growth half a decade ago is now stagnant. Investment banks that were considered too big to fail are facing litigation issues that translate into huge costs, affecting profitability. Most investment banks either already announced or are scheduled to announce new strategies and operating models to make the organization leaner, more productive and profitable.
New analysis from Frost & Sullivan, Financial Assessment of the Global Investment Banking Industry, reveals the global investment banking industry is expected to reach a total market size of $2.117 trillion in 2014 at a year-on-year growth of 2.3 percent. The research analyzes companies in the investment banking sector based on key financial metrics and ratios.
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"The global investment banking space is likely to witness several M&As and spin off transactions in the next three years as a result of investment banks' strategic initiatives to discard non-core businesses and focus on their core strengths," said Frost & Sullivan Business and Financial Services Senior Analyst Sheetal Kothari. "To save on costs, the investment banking industry is also employing conservative risk management practices, adopting efficient technology to reduce turnaround times, placing a cap on salaries, and downsizing human resources."
Deteriorating performance despite these huge cost-cutting measures is making the industry less profitable and more risky. In addition, investor confidence and the brand image of investment banks are at an all-time low, quelling expectations of a quick recovery.
The need to comply with regulations from multiple authorities adds to the cost burden, reducing profitability and increasing the complexity of the entire system. This greatly affects small investment banks unable to afford the upgrades or new technologies required for compliance with regulations such as Basel III and the Dodd-Frank Act.
Investment banks must develop strategies, including adapting to new technology, penetrating emerging markets, growing inorganically, revamping pricing mechanisms as well as integrating business units, to maintain performance levels, reduce costs, boost profits, and capture greater market share in this flat line growth industry.
"Investment banks should increase operating efficiency and improve productivity as well as restructure and de-risk their business models to address changing customer needs, tackle technology advancements, and rebuild their brand image," concluded Kothari. "By doing this, they will emerge successfully from the current slowdown."
Financial Assessment of the Global Investment Banking Industry is part of the Business and Financial Services (http://www.financialservices.frost.com) subscription. Frost & Sullivan's related research services include: Analysis of the Socially Responsible Investing Funds Market, Financial Analysis and Market Sizing of the Event Management Software Market, Mergers and Acquisitions in the Internet Software and Services Industry, and Financial Assessment of Global Residential REIT Industry. All research services included in subscriptions provide detailed market opportunities and industry trends evaluated following extensive interviews with market participants.
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Financial Assessment of the Global Investment Banking Industry
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