More banks will abandon efforts to be all things to all people in favour of greater specialisation as universal banks have proved less profitable than their more focused peers, a study showed.
A survey by technology company IBM released on April 27 showed 89 percent of financial professionals expect their industry to fragment, with many saying wealth management and investment banking will be decoupled within the next 10 years.
That could lead to a break-up of universal banks, such as Citigroup, and wealth managers with investment banking arms, such as UBS. "Tomorrow's winners are most likely to be those firms that specialise, not those that try to do everything," the researchers said. The research found that over the past 40 years, specialist financial firms, such as broker-dealers and boutique investment banks, have on average produced operating margins of 25 percent, compared with the 16 percent universal banks manage, and have also outperformed in return on equity and revenue growth.
Financial services providers will unbundle but at the same time consolidate across specific business lines, creating big specialised firms, Suzanne Duncan, one of the study's authors, said in an interview. Eighty percent of respondents, which included financial executives, investors and government officials, singled out uncertainty about business models as their biggest worry, after the global crisis toppled many of the industry's stars.
The IBM researchers forecast that most firms will only provide the infrastructure for capital allocation, a smaller number will focus on advisory services, and a handful, typically private equity houses, hedge funds and boutique investment firms, will concentrate on generating high returns from high-risk investments.
The IBM Institute for Business Value polled 2,754 industry participants, including board members, regulators and academics, between September and April 1.