One hangover from the global financial crisis is that decreasing revenues in investment banking divisions, coupled with increasing capital requirements, are creating a disproportionate drag on many banks group's performances. This shines a spotlight on the investment bank's return on capital and ultimately means no investment banking division can operate as a siloed entity.
The challenge here is twofold: executing restructuring effectively; and maintaining profitability during redefinition. The CIO plays a crucial role in the latter.
Put simply, on a standalone basis, investment banking activities need to meet their cost of capital and generate sufficient return on equity to return shareholder value proportionate to their position within the group.
Some banks are doing this by repurposing. Consider how UBS aligned its investment bank to provide market access for its core wealth management client base. It achieved significant growth in new investment by defining a "full-service offering" around this core, increasing its net money flow to wealth management by CHF7bn in Q4 FY13 and shaping its market-accessing products to support this growth.
The CIO can help ensure that during any such redesign, maintaining profitability remains firmly within focus. After all, repurposing is not without challenges. Detaching legacy technology and operations from the core offering can, due to entrenched complexity, hinder realignment.
That the required transformation programmes must justify themselves by becoming self-funding within a year is a further challenge. Yet the standardisation of products, as supervision gathers pace, has combined with a growth in demand to create a significant outsourcing market capable of winding down or managing in a cost-efficient manner. CIOs need to be able to advise when to outsource and when to keep operations in-house.
With a lack of clarity surrounding regulated leverage ratios, the question of profitability remains, and the effective use of capital will continue to be a focus. What will differentiate leaders in 2015 will be how banks execute their big-picture plans. The CIO must have a seat at that table.
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