Top Ten Challenges forInvestment Banks 2015Introduction

Introduction

Introduction

The seventh publication of Accenture’s Top 10 Challenges for Investment Banks comes at a moment of transition in the investment banking industry. We are nearing the end of a decade of change following the financial crisis and the industry has emerged transformed – with average return on equity having dropped from between 15 - 25% pre-2007 to less than 10% now, it is no longer the renowned profit generator it was.

In addition, the market has fundamentally shifted, exacerbating already reduced returns. The historically profitable market for fixed income products has been battered by regulatory action, more onerous capital requirements and diminishing demand from clients. Many investment banks have rightly sought to gain a foothold in this changing world and identify what critical strategic adaptation is required to overcome external and internal drivers of change.

The fall-out is that a lot of hard decisions have been taken resulting in a fundamental alteration in the strategic landscape of the industry. Some banks have withdrawn from

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10%With average return on equity having dropped from between 15 - 25% pre-2007 to less than

banks could pursue a strategy of being a full-service provider for all client segments and markets was over. Instead banks were advised to position their franchise according to clearly defined, mutually exclusive business models – identified in the study as the “flow monster”, “regional champion”, “product specialist”, “primary markets powerhouse” and “risk master”. This emphasis on focus prefigured the slew of strategic repositioning that has been announced in the past 18 months. Whilst the primary aim of the study was to examine business strategy questions, it also unpacked the set of capabilities required to underpin each one of the models and what excellence might look like in executing this strategic volte-face.

It is therefore no surprise that we see successful (or unsuccessful) execution as the defining challenge over the coming year and indeed the next decade. Identifying a need and making the decision to change is a relatively short-term process; the real challenge is in implementation, especially in large, geographically and culturally disparate

the majority of their investment banking business lines to focus on specialisms in other areas such as wealth management (e.g. Morgan Stanley and UBS), others have ramped up current operations as existing players exit (e.g. Deutsche Bank), whilst a much smaller group have felt able to leave their historic strategy unchanged and benefit from consistency of purpose (e.g. Goldman Sachs).

While progress towards decisive strategic change is therefore uneven across the industry, and institutions are at varying stages of their journey, it would be fair to

conclude that no organisation has yet applied those strategic choices through the entirety of their business. What is even clearer is that no investment bank has yet been able to fully execute on its strategic vision. This is particularly relevant given the continuing struggles many banks are having in achieving sustainable, lasting growth.

In January 2012 Accenture Capital Markets published a comprehensive study on high performance in the investment banking industry titled Focus for Success, The High Performing Investment Bank. This argued that the era in which the Tier 1 investment

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What is even clearer is that no investment bank has yet been able to fully execute on its strategic vision. This is particularly relevant given the continuing struggles many banks are having in achieving sustainable, lasting growth.

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We see successful execution as the defining challenge over the coming year and indeed the next decade.

firms. Banks will split into the proactive group who have successfully implemented change and reactive banks struggling to adapt. “Winners execute, while the rest risk being left behind” is a motto that should provide impetus for banks to implement change and realise the tangible benefit throughout their organisations.

Accenture can offer a more comprehensive perspective on this task than ever before. In 2013, we launched Accenture Post-Trade Processing (APTP) which is set up to mutualise activities and costs from multiple institutions and adopts an innovative, streamlined operating model, which will help drive efficiency and quality of service. Our dual roles as both consulting firm and industry utility give us unique insight into the importance of and challenges with executing sustainable change.

We followed up last year’s Top 10 Challenges collection with a paper that explored the key requirements for executing strategic change: Transforming the Capital Markets Firm: Proactive Steps to Profitable Growth. There is of course no “one size fits

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all” model but we identified three major elements that are present in all effective business transformations:

1. A simple, targeted and clear business model backed up by requisite amounts of capital;

2. An optimised operating model able to support change;

3. Streamlined technology to enhance development opportunities.

Banks must focus on definitively outlining the scope of any execution, ensuring that the requisite capabilities to deliver are present and evaluating the progress of execution towards the stated goals through robust monitoring.

We believe the following attributes will determine successful execution:

• Readily available talent;

• Fit-for-purpose technology platforms that complement and buttress the business model;

• Effective communication with both the market and clients;

• Receptiveness of all levels of the organisation to change.

The Top 10 Challenges for Investment Banks 2015 is a collection intended to be viewed through the lens of execution. It is structured in three sections: Regulation, Restructuring and Revolution. Our aim is first to draw out salient factors behind the

most pressing driver of change, putting our focus on execution in context. We then assess how the response is reshaping the business and operating models of investment banks. Finally, we investigate trends and opportunities that have the potential to revolutionise the operations of the industry. In short, this publication provides Accenture’s view of the key battlegrounds on which some banks will emerge as winners and some will lose ground in the coming year.

This publication provides Accenture’s view of the key battlegrounds on which some banks will emerge as winners and some will lose ground in the coming year.

About AccentureAccenture is a global management consulting, technology services and outsourcing company, with more than 305,000 people serving clients in more than 120 countries. Combining unparalleled experience, comprehensive capabilities across all industries and business functions, and extensive research on the world’s most successful companies, Accenture collaborates with clients to help them become high-performance businesses and governments. The company generated net revenues of US$30.0 billion for the fiscal year ended Aug. 31, 2014. Its home page is www.accenture.com.

Accenture ExpertsTo discuss any of the ideas presented in this paper please contact:

Bob Gach Managing Director, Accenture Strategyrobert.p.gach@accenture.com+1 917 452 5952

Owen JelfGlobal Managing Director, Capital Marketsowen.jelf@accenture.com+44 20 7844 2792

Christopher HookCapital Markets, Londonchristopher.j.hook@accenture.com+44 20 3335 1373

James HopkinsCapital Markets, Londonjames.c.hopkins@accenture.com+44 20 3335 0936

DisclaimerThis report has been prepared by and is distributed by Accenture. This document is for information purposes. No part of this document may be reproduced in any manner without the written permission of Accenture. While we take precautions to ensure that the source and the information we base our judgments on is reliable, we do not represent that this information is accurate or complete and it should not be relied upon as such. It is provided with the understanding that Accenture is not acting in a fiduciary capacity. Opinions expressed herein are subject to change without notice.

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