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In a hard hitting report, McKinsey’s latest delve into the state of investment banking throws up some worrying statistics. Key among these is the fact that the top thirteen investment banks which are responsible for a combined 54% share of the market are returning just 8% on equity. Unless drastic action is taken McKinsey suggests that even this rate of return could halve by 2019, well below the 12% currently being demanded by regulators.
Whilst headline actions suggested by McKinsey to remedy the situation include the usual cost cutting measures, the eight areas identified for action include adopting a disciplined client approach, embedding product lifecycle management and transforming culture.
Alongside the publication of this report, Kevin Buehler, McKinsey’s co-leader of global risk practice highlighted this need for culture change. Comparing banks to a ’cottage industry’ which is focused on serving everyone equally Mr Buehler said that “Banks need to decide where they’re advantaged to compete, and focus on the right products, the right geographies, the right clients that they’re best positioned to serve.”
The report also criticised the banks for being slow to simplify complex product ranges, something which will sit well with the FCA who have been campaigning on this very subject recently.