McKinsey & Co. December 18, 2023
Overview: This report discusses the challenges and opportunities for corporate and investment banks (CIBs) in a changing world. It covers the current state of the CIB sector, the five major shifts that are transforming the operating environment and the implications for CIB strategy and value creation.
- CIB today: CIBs have achieved consistent and resilient revenue growth over time, but with wide variations in profitability across segments and firms. Highlighted is the threat from non-banks in areas such as direct lending, market making, and payments. It is suggested that CIBs need to take a granular approach to identify their pockets of excellence and build on them.
- Five big shifts: The report identifies five major shifts that are reshaping the CIB landscape. It discusses the implications of each shift for CIBs and how they can be navigated effectively:
- a radically different macroeconomic environment
- new technology-led ‘art of the possible’
- a changing regulatory and risk environment
- new market structures
- long-term trends in certain sectors and products.
Also discussed is the varied profitability of CIB organizations across different segments and products.
Here are the key points:
- Average ROE of 11.9 percent: this figure masks wide variations in performance, with a spread of 700 basis points or more in ROE between the top and bottom performers in any given segment
- Strategy and value creation challenge: CIB organizations face hard questions from stakeholders, especially those that are barely covering or unable to cover their cost of equity. They also need to address concerns about volatility, low returns, funding, sector exposure and contagion risk.
- Value shifting to nonbanks: non-banks have scaled their value propositions to target some of the same client segments as CIBs, creating substantial shareholder value and disrupting areas such as market making, payments and lending
The way forward: The report concludes that CIBs will need to develop new playbooks to adapt to the new era, outlining the actions they need to take to secure the near term, build foundational capabilities in the medium term, and make selective, decisive bets for the longer term.
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