Finance Monthly October 2019 Edition

he banking world has undergone some significant shifts in the past decade, precipitated by the global financial crisis of 2008-09. The pre-crisis period was characterised by heavy trading by investment banks with a rich cash reserve, exotic financial instruments which were too complex for many to understand and hence magnified risks, and loose regulatory policies and authority. However, the collapse of the financial system forced many industry executives, and policymakers, to reign in the ‘profit-at-any-cost’ attitude of the big banks (often termed ‘too-big- to-fail’) and made them accountable for their actions. Banking is one of the world’s oldest professions and has constantly evolved itself, to not only survive but thrive, in any environment. Now the question is can the banking sector withstand the renewed pressure and obstacles to its growth it faces? Today, there are fundamental shifts which are disrupting the banking industry; the entry of technology in the traditional working of banks is arguably the biggest. FinTech companies are seen as a significant threat, and like incumbents in every other sector, banks who are accustomed to their old ways of business are in a position to lose a lot. Through mobile and digital payments, traditional sources of earnings are under threat from big technology companies, the likes of Alibaba, Amazon, Facebook, and Tencent. This would directly impact the return on equity generated by banks as retail and corporate customers adopt new technologies and switch their banking to digital businesses. Moreover, newer companies are focusing on specialised services, in contrast to a range of services offered by traditional investment banks. This helps new entrants, FinTech, to focus on efficiency and create a niche market for their products and services. Investors are also becoming increasingly wary of the cost and proportional benefits from investing in active funds and are, therefore, increasingly looking to park their money in passive funds which carry a lower return, mostly managed through software. Demand for products which involve automated trading has The global investment banking landscape is shifting, with institutions cutting jobs, banks diversifying and regulators introducing new requirements while redefining older ones. Hina Chowdhary, Head of Research at independent equities research firm Kalkine, considers investment banks’ options if they are to remain the all-powerful entities they once were. INVESTMENT BANKS MASTERS OF THE NEW UNIVERSE Hina Chowdhary, Head of Research at Kalkine www.kalkine.co.uk T 20 www.finance-monthly.com FINANCE & BUSINESS - INVESTM ENT BANKS