Massive Cuts Required to Restore Investment Bank Returns
Boston Consulting Group thinks profit margins of investment banks could plunge to 5% next year under a “deleveraged” scenario, down from 22% in 2006.
In a free white paper “The Next Generation Investment Bank,” BCG gives its view on what investment banks must do to restore profit margins over time in the post-credit-crisis financial landscape. A complete overhaul of the business model is required, according to BCG. One thing is clear from the report – investment banks still have a lot more cost-cutting to do:
Given the business-mix-driven reduction in ROA, BCG estimates that investment banks need to cut well over $100 billion in expenses for every $100 billion of assets.
Even then, BCG adds, their ROE would still fall far short of the 2006 level of 17%.
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