Banks Grapple With Business Models as They Seek to Restore Stability, Growth: KPMG Report

NEW YORK, Oct. 5 /PRNewswire/ -- Many banks around the world, especially in the United States and Europe, are struggling to develop business models that can restore a measure of stability and growth to their various operations in the aftermath of the financial crisis, according to a new report from KPMG International.

KPMG's new report, Creating a New Mold for Banking, reveals that banks in developed countries, such as the United States, have been the hardest hit by the crisis and are fundamentally reconsidering their business models, while banks in Latin America, Africa and Asia have been less affected and are refining existing strategies rather than re-writing them.

"Compliance with various regulatory requirements has many financial institutions re-examining and refining their business models," said Tony Anzevino, partner-in-charge of KPMG LLP's (U.S.) Banking and Finance practice.  "New regulations such as the Dodd-Frank Wall Street Reform and Consumer Protection Act and Basel III will require banks to hold additional capital, impose additional costs and may reduce returns."

Carl Carande, national account leader of KPMG LLP's Banking and Finance practice, added: "Post-crisis, the need to focus on revenue replacement also will serve as a catalyst for U.S. banks to re-examine their business models, as some formerly lucrative revenue-generating areas such as the securitization market clearly are not what they used to be.  Profitability, or returning to it, is a key objective for U.S. banks and new or refined business models will need to take into account prudent lending and underwriting standards, regardless of what the product is -- card, consumer, commercial -- ensuring that banks are growing within the acceptable parameters they set themselves."

Regulation, Profitability and Capital

According to the KPMG report, the rising pressure of new regulation is a concern for all banks along with a continuing shortage of capital and liquidity.  This is resulting in a shifting of focus from growth and revenue to prudent balance sheet management.  Banks are streamlining operating models and infrastructure to squeeze out greater efficiencies as the outlook for profitability remains uncertain.

"The current dynamic business environment has caused significant shifts in priorities and business models for banks and requires that they adjust to and actively manage the changes impacting their performance," said Mitch Siegel, a principal in KPMG LLP's Banking and Finance Advisory practice.  "As new business and operating models are considered, strategic assessments should be conducted with a focus on creating the implementation roadmap necessary to help move a bank to its desired target environment quickly and efficiently."

Deleveraging

KPMG's report also found that many banks are continuing to deleverage at a historically unprecedented rate.  The report underscores that despite government incentives and exhortations this process may continue to drain credit from the global economy and act as a brake on growth, and finding the right balance is critical.

Consolidation and New Entrants

A continuing wave of industry consolidation via divestments and acquisitions is likely, particularly among smaller institutions and especially in the United States, with better customer service as a differentiator, according to the KPMG report.  Mergers already completed in Europe and the United States are indicative of this trend toward consolidation.

The banking executives interviewed for this report had varying opinions on whether banks from major developing countries such as China or Brazil would enter European or North American markets.  Some believed that circumstances are favorable – others believed that such moves would represent a distraction from the significant opportunities in their large domestic markets.

KPMG's new report, Creating a New Mold for Banking, is the result of in-depth interviews with senior executives from 25 major banks and financial institutions worldwide.  A copy of the survey is available here.

About KPMG International

KPMG is a global network of professional firms providing Audit, Tax and Advisory services.  We operate in 146 countries and have 140,000 people working in member firms around the world.  The independent member firms of the KPMG network are affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. Each KPMG firm is a legally distinct and separate entity and describes itself as such.

About KPMG LLP

KPMG LLP, the audit, tax and advisory firm (www.us.kpmg.com), is the U.S. member firm of KPMG International Cooperative ("KPMG International").  KPMG International's member firms have 140,000 professionals, including more than 7,900 partners, in 146 countries.

SOURCE KPMG LLP