Top 10 challenges for investment banks in 2017

Beat Monnerat and Owen Jelf

This vendor-written piece has been edited by Executive Networks Media to eliminate product promotion, but readers should note it will likely favour the submitter's approach.

In 2017, investment banks of all sizes, be they multinational or regional firms, must take a systematic view of how the market is evolving, where value is migrating, and how they can secure or regain a competitive advantage. That means investment banks might need to prune not only specific product offerings but also selected business lines. They will need to identify and strengthen core businesses that will drive growth and increase competitiveness in a market featuring still more regulatory burdens and a shrinking revenue pool. Their C-suite will need to work together to drive a sustainable strategy that leverages e.g. their existing IT platforms effectively. 

However, reigniting growth by identifying one's strengths, aligning the business to those strengths, and developing business and operating models that build on and advance those strengths sounds deceptively simple.

Most former differentiators that used to drive business value in the past (for instance, bespoke products) no longer create any valuable distinction. With regulation standardising processes and making niche, high-risk products unfavorable, most investment banks are left with just the basics-corporate access, distribution network, and market-leading support function capabilities (such as risk management)-to drive differentiation.

One option is to integrate the core business much more closely with other businesses, within the confines of regulatory restrictions. Some financial service companies have been strengthening the link between their wealth management and investment banking businesses for some time. This has enabled them to leverage and align their businesses with their broader franchise of high-net and ultra-high-net worth investors. Likewise, other companies have merged their historically separate investment banking, treasury and securities services and global corporate banking businesses into one corporate investment banking business in order to build an even stronger and more complete institutional client franchise.

We believe this trend of integration could gain further momentum in a digital world in 2017. To help secure a competitive advantage, banks need to think through a number of difficult questions, such as:

  • *Which elements of our offering do clients truly value and pay for?
  • *What does this mean for client focus and franchise?
  • *How do we reconfigure the operating model and cooperate across the ecosystem?

This last question is critical for CIOs. It may be possible to step beyond the traditional core-especially when it comes to smaller, regional players who might be leveraging fintech ideas and the power of the surrounding ecosystem without competing with them. But that requires the infrastructure to make it work. There are two avenues to that objective: one is to source such players with more advanced products and solutions (for example, effectively outsourcing foreign exchange and rates trading) that they can integrate with, and simplify their operating model. The more radical step is to become more of a platform player that offers a full chain of trade services on certain products as a service or utility, and allows other players to plug in their areas of value (such as counterparty risk and client service) without the complexity and cost.

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