Banking Outlook 2017 - Trading and M&A
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Trading and M&A is still grappling with long-term sustainability. How will major developments shape the Trading and M&A industry next year, and how can firms respond to these trends? Download the Banking Outlook 2017.
The capital markets revenue pool has been under persistent pressure, spurring banks and broker dealers to eliminate trading desks, cut back-office staff, and ration capital. Regardless, many capital markets operating structures remain intrinsically weak. Their failure to generate returns that exceed the cost of capital naturally raises questions over sustainability.
The business of US investment banks is likely to weather market volatility favorably. US investment banks should continue to outperform their European counterparts, and banks with strong trading franchises that have “stayed the course” could capitalize on a favorable environment. While potential market volatility from events (such as emerging clarity on the new administration’s policies and the Brexit transition) will likely induce client hedging activity, the M&A market could stabilize after three years of intense activity.
New economic architecture should be a theme for operational transformation. Investment banks have scaled down front-office compensation, but post-front-office costs continue to constrain profitability as traditional cost management is yielding little ground. 2017 will be a year of reexamining enterprise-level economic architecture to get to true costs and returns, demanding significant investment in analytics and data management.
Firms will continue paying close attention to capital and liquidity regulations. Managing capital intensity across businesses will likely persist as banks’ top priority, particularly with the inclusion of capital buffers for globally systemically important banks (G-SIBs) in the Federal Reserve's Comprehensive Capital Analysis and Review (CCAR) process. The good news is that the industry is getting better at taking new regulations in stride, developing an agility that will bear fruit going forward.
Automation will likely be the technology most utilized in the near term. Automation is expected to drive capital markets efficiency through robotics applications that span across securities operations, including client screening and background checks, automated trade capture, transaction monitoring and reconciliation, client service reports, and payables and receivables.