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Strategic Priorities For Investment Banks in 2015

A blog on the top strategic priorities of investment banks and an evaluation of where we stand towards mid-2015 with respect to those goals.

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40 views2 pages

Strategic Priorities For Investment Banks in 2015

A blog on the top strategic priorities of investment banks and an evaluation of where we stand towards mid-2015 with respect to those goals.

Uploaded by

Kbenny
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Strategic priorities for Investment Banks 2015 | Sriram Kannan

We may (or may not have) begun the year of the goat with a bang. That depends on which side
of the globe you are. Having said that, most of the big U.S. investment banks have reported their
Q4 results and its now time to focus and re-think hard on some of the strategic priorities for
2015. On researching, I found the following resounding themes (in no particular order though) to
be dominant and prevailing
Business simplification: Primarily, this means hiving off unwanted lines of businesses that
dont add enough value to both the top-line and bottom-line and to further add insult to injury,
they may even contribute negatively to growth and revenues. In 2014, at JPMC it was the
physical commodities group and the global special opportunities group (a P/E group that
invested quite heavily in distressed debt) that didnt do quite well. In Citi, we could expect
continued cuts in prime-broking as the bank gracefully exits hedge fund services. In a nutshell, if
something doesnt add value get rid of it.
Efficiency focused: This is definitely not something new and unheard of but, in rough times this
message is beamed and broadcasted time and again over all possible (and available!)
channels. GS CFO Harvey Schwart was quoted mentioning Although Goldman has replaced
$2bn of lost revenues; it would be great to have another, couple of billion dollars in revenues.
which, can come about by relentlessly focusing on efficiencies in operations.
Rationalizing costs: Most of us feel this is no rocket science. I agree. But, could get daunting
and unpleasant especially, when you have to go about firing truck-loads of people who once
had made the dough for you. Cutting costs are an inevitable (and in most cases, preferred)
outcome of carrying out a business simplification and efficiency improvement exercise. All in
the name of reporting earnings consistency and strengthening the balance sheet.
An eye on Risks: Another way to put it is guarding reputation. The last thing that global
investment banks want is to be associated with another LIBOR scandal,London whale or Socit
Gnrale type fraud. As a consequence, I hope to be seeing significant spending (not just as a
precautionary measure, but proactively) on risk information technologies across the board
covering front, middle and back-office applications. IDC estimates, the spending could touch
approx. $80 bn in 2015 (or approx. 17% of overall IT spending) and even reach $97 bn by 2018.
Regulatory compliance: Extending the aforementioned point a bit further, we just heard
what Jamie Dimon (CEO, JPMC) had to clamorously say very recently onregulators

Strategic priorities for Investment Banks 2015 | Sriram Kannan


assaulting the big banks. Earlier, it used to be one or two regulators looking for a potential prey,
but today its five or six, making it increasingly difficult for investment banks to comply with
and do business globally. Further, this has also resulted in lengthy litigations, billions and
billions of dollars of penalties and fines where, eventually attorneys make the cut and regulators
call the shots.
Investing in Sales and Products: This is by far the best thing investment banks could do (or
continue to do) in the years 2015 and beyond. Having a healthy deal-pipeline is sacrosanct
across geographies, asset-classes and product portfolios. I hope to see extensive innovation
happening in this space in which technology will play a pivotal role (read: algorithmic trading) in
making this happen. Product control functions will assume importance and banks would want to
certainly live up to the adage sales is vanity, profit is sanity, cash is reality hopefully, in
both letter and spirit.
Technology scale: Today, in banking nothing noteworthy happens without harnessing the power
of technology. IT modernization is a big agenda in the investment banking arena where, a lot of
legacy (and proprietary) applications are still in active use. As a result, investment banks are
looking to scale these technologies organization-wide and not confine it to a region, product or
asset-class. This means, big bucks in store for large global IT vendors in the quarters to come.
In the backdrop of these strategic priorities, its pertinent for investment banks to consistently
deliver on the following mandate

Improve and expand margins through cost discipline and revenue growth.

Improve ROE and expense ratios.

Increase returns that meet (or even exceed) the current cost of capital.

Increase capital return to shareholders.

References: efinancialcareers, Morgan Stanley's strategic update dt. 20th Jan, 2015 and Information Week's
Banking Technology

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