Boston Consulting Group has released its authoritative state of the nation report on investment banks in 2016. It is not pretty: the banking industry is not in a good state. If you aspire to endure in financial services, you probably need to act on the information contained in the (BCG) charts below. And soon.
1. BCG says you’re lucky to have a banking job
Look how bad things are. And they could get worse.
2. BCG says your balance-sheet-heavy banking job is just as endangered as ever
So you thought banks had already cut their risk weighted assets (RWAs) sufficiently to achieve a sustainable return on equity? How wrong you were.
New regulations like the Fundamental Review of the Trading Book (FRTB) and the introduction of capital floors will force banks to revisit the way they calculate their existing RWAs and will almost certainly force banks to revise them upwards – by 28% according to BCG.
This will then necessitate further cuts to RWAs – and to jobs which necessitate heavy use of the balance sheet – in future.
3. BCG says your job is still under threat – especially if you happen to be a very expensive individual in the front office
Banks are cutting costs to stay still. Front office costs have fallen 5% since 2013, but back and middle office costs have risen 4% so the benefits of front office cost cutting have been mostly cancelled out.
4. Your fixed income job should command a far smaller pay packet than in the past
Historically, fixed income traders in investment banks were paid the most. This needs to change. The chart below suggests DCM bankers should really be the best paid in future.
6. BCG is saying you may want to get out of a bank and into a ‘high frequency hedge fund’, an ‘execution venue,’ a big data and software analytics company, or a fixed income ETF
7. BCG is saying that if you insist upon moving into Fintech, make it data and analytics. Forget about Blockchain for the moment
Data and analytics are where all the money is. Or at least, they’re where the money was in 2015.
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