Executive Summary
The corporate and investment banking (CIB) sector is poised for significant transformation due to five pivotal shifts:
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Macroeconomic Environment Shift: The economy is experiencing profound changes influenced by ongoing economic and geopolitical issues. CIBs must adapt to:
- Higher interest rates affecting lending dynamics, especially in legacy portfolios like commercial real estate.
- A resurgence in focus on commercial deposits and liability management.
- Disruption in deal-making, trading, and cross-border activities.
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Technology-Driven Innovation: New technologies enable CIBs to offer fully digitized services, leverage generative AI, and customize solutions to unique client and product franchises.
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Regulatory and Risk Management Update: Increased volatility and risk exposure necessitate robust risk management practices to ensure institutional resilience, competitive advantage, and regulatory compliance.
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Market Structure Evolution: The rise of direct lending and tokenized assets presents both opportunities and challenges, requiring CIBs to reconsider on-balance-sheet lending strategies and explore off-balance-sheet partnerships.
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Sustainability and Sectoral Growth: With significant investment required for green initiatives and other sectors, CIBs must focus on specific areas to build relevant product capabilities and provide end-to-end service.
Key Considerations
- Disaggregation of Business: Each CIB organization should analyze its businesses into granular client and product franchises to identify strengths and growth opportunities.
- New Playbooks Required: Tailored strategies are necessary for navigating the shifts, focusing on securing the near term, building foundational capabilities in the medium term, and making strategic bets for the long term.
Performance Overview
- Revenue and Return on Equity (ROE): In 2022, CIBs generated $2.9 trillion in revenue, achieving an average ROE of about 12% at a 54% cost-to-income ratio. This indicates the industry's recovery post-GFC and pandemic, covering costs of equity.
- Variation in Performance: There's a significant variation in performance across segments, with ROE spreads exceeding 700 basis points, highlighting the complexity and uniqueness of each organization's position.
Future Outlook
CIBs face a complex yet promising future, requiring dynamic adaptation to economic, technological, regulatory, and market shifts, while seizing opportunities for sustainable growth.
