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14 December 2015Brad Bailey
I read a study by Broadridge and Institutional Investor this weekend that contemplates the future of capital markets. The two firms worked together to create a fascinating piece entitled Restructuring for Profitability. The study collected data from 150 equity analysts on their thoughts/opinions/predictions about investment banks. I also attended a panel sponsored by Broadridge that discussed the report’s findings with senior capital market professionals. The piece offers a very interesting perspective, through the lens of the views of an aggregated group of buyside and sellside equity analysts who spend their days assessing capital market firms. What I found especially interesting from the study was that none of the large banks globally will have RoE’s above their cost of equity capital in 2020:
- The US was nearly there with a gap of 0.09%
- Europe has an expected gap of 1.31%
- Asia has an expected gap of 2.77%
- 61% of the analysts expect regulatory pressures on global securities firm to intensify between now and 2020. The breakdown on a regional level is even more telling with 75% believing regulation will increase in Asia, 67% expecting Europe regulation to increase and 39% expecting the US to increase. Perhaps getting Dodd-Frank and Volcker out of the way early will pay off!
- The analysts are largely optimistic about growth rates with a uniformity of view that growth will be better to 2020 vs the 2010-2014 periods. The analysts are most optimistic about M&A/advisory services (growing at a 4.86% CAGR) and least optimistic about FICC trading growing at 0.20% CAGR.