There’s no shortage of in-depth looks at how investment banking needs to change in order to survive. J.P. Morgan analysts have given their take, as have those at Morgan Stanley.
Now it’s time for PwC to weigh in on the debate. This is less about performance of particular business areas and more an over-arching insight into how banks need to change. Investment banks simply have to adapt and streamline in order to regain competitiveness and profitability, it says. This is what you need to know.
1. There will be four types of investment bank – choose yours carefully
Universal players will have the size and scope to compete across all asset classes within all geographies and, integral to this, is the ability to attract the right type of talent. Asset specialists will choose to develop expertise in “specific complex products” that can ensure high-margin returns, local players will be all about deep relationships in specific locations. ‘Barbell’ banks will be present in simple flow products and more complex structure products, but ignore everything in between.
2. These are the skills that will be needed in each
Only universal players will require all the skills currently required in banks. Quants and technologists will excel on the trading floors of asset specialists. Barbell players will strip out their back office employees – asset specialists will want operations professionals who understand complex products. Both Barbell and local players want people who can develop deep client relationships, but for different reasons.
3. The clients you serve will depend on your seniority
Investment banks are increasingly purging their client base to focus on a small group of big-spending customers who can ensure that their trading floors are profitable. Investment banks need to continue this trend, and the types of people they employ will depend on the level of service they provide.
These core clients only need a small team of senior sales and trading professionals. The specialist, but non-core will require a ‘medium’ team of mid-level professionals and a select band of juniors will tackle the masses. Note, that not a single client group requires a large team.
4. If you have a chief restructuring officer – worry
If investment banks sign up to PwC’s theory, they’ll need to act fast and make some very tough decisions. Banks need to hire a ‘chief restructuring officer’, they suggest, who can identify a core team with ‘deep business and front office’ knowledge to change the bank. Key to avoiding panic or a talent exodus is identifying ‘top talent’ and explaining to them how they’re fundamental to the business, even if as it restructures.
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