Professional Documents
Culture Documents
investment
banks
Transforming investment banks
Contents
Executive summary 1
Pillars of change 3
Pillar 4: be technology-led 25
Contacts 32
Executive summary
Investment banking1 is an industry is intensifying as commoditization and We believe the industry should be able to
in turmoil: it faces an efficiency and technological advances open the market achieve sustainable returns on equity of
productivity crisis, with low ROEs, rising to new, more nimble institutions able 12% to 15%, but delivering this will require
costs and stagnant revenues. It faces a to deliver better service to clients that an unremitting focus on transforming
cultural crisis, with little evidence banks are now less loyal, more demanding and existing business and operating models,
have taken all the necessary steps to more sensitive to price. focusing on four pillars of change:
address controls issues and change
employee behaviors to prevent future By focusing on the four pillars of
1. Optimize — both assets
charges of misconduct. It faces a crisis change, the leading investment banks
and operations — by better
of trust, with claims that banks have put of tomorrow will be:
utilizing balance sheets and
their profits before the needs of
radically reducing costs
their customers. • Efficient — with industry-leading cost-
efficiency and productivity levels and 2. Transform culture — by providing
A raft of incremental change programs optimized use of capital, liquidity and incentives for the behaviors that
has done little to address these issues, leverage will deliver value for shareholders
and investment banks are a long way and clients while meeting
• In control — minimizing fines and
from solving the complex array of regulatory expectations
losses, with leading compliance and
challenges they face. To do so, they will
risk capabilities
have to be more strategic and sharply 3. Become client-centric — moving
focused on transforming their business. • Trusted — with a reputation for away from product-centric
exemplary conduct and putting approaches by putting the client
The boost to industry ROEs in the first clients first at the heart of business and
half of 2015 — a result of temporarily operating models
• Digital — with improved client
increased market volatility and
technology and more digitalized 4. Be technology-led — embracing
quantitative easing by the European
processes, enabling superior service innovation that will enable
Central Bank — may prove short-lived.
levels to win new clients, and the transformation of legacy
In fact, ROEs may fall further still, with
increasing the profitability of processes, re-architecting to
regulatory pressures driving up costs
existing clients support business model
and little prospect of sustained revenue
growth. At the same time, competition Only by adopting a more transformative change and enabling a central
approach will it be possible for the focus on clients
industry to thrive once again.
1 This report defines investment banks as bulge bracket investment banks, including the investment banking
(i.e., sales and trading, advisory and origination) arms of large universal banks.
Transforming investment banks | 2
Pillars of change
Pillar 1
Optimize
Pillar 4 Transformation
Transformation Pillar 2
benefits
benefits
Pillar 3
Efficient
Improved Lower
productivity costs
Be Digital In control
technology-
Improved Transform
led ROE culture
Increased client
revenues and Reduced
stickiness risk
Trusted
Become
client-
centric
• B
► usiness-line and entity • Identify drivers of behavior • Identify core clients • Deal with legacy IT
optimization • Reassess employee and needs
• Rebalance portfolios incentives • Undertake profitability • Optimize technology
• Exit non-core analysis investment
business lines • Establish best-practice • Qualify what the most • Reassign staff costs to
• Rationalize legal entities behavior profitable clients need technology spend
• Set tone from the top • Re-invest savings on
• Asset optimization • Establish clear • Deploy client-satisfaction legacy technology
accountability systems
• Further risk-weighted
asset optimization • Reward “good” behaviors • Invest in transformation of
• Review collateral systems • Enhance client experience business
and processes • Reform hiring practices • Create “single shop-front” • Collateral and capital
• Examine third-party • Enhance non-financial • Explore single portals management
collateral services employee proposition • New trading systems and
processes
• Cost optimization • Customer-centric
• Review and re-engineer solutions
key processes • Security and surveillance
• Improvements in data
• Sourcing optimization quality and analytics
• Review existing sourcing
• Determine role of utilities
• Undertake vendor
assessment and supply
chain review
The halcyon days of investment Profitability is being destroyed Regulatory and compliance
banking are over change has resulted in a
The commoditization and the move of
structurally higher cost base
The days of leverage-inflated, 20%-plus many products to exchange trading are
returns on equity are long gone [see squeezing margins, while complex, high- Aggregate costs for major investment
Figure 2]. The once-lofty ambitions margin products are falling out of favor banks were 25% higher in 2014 than
of management teams to deliver and proprietary trading has diminished. they were in 2005 [see Figure 3]. Much
ROEs in excess of 15% have been Although investment banking revenues of this additional cost has been driven
moderated considerably. In some have stabilized around pre-crisis levels, a by a tougher regulatory environment.
instances, banks are now targeting a return to a more normal macroeconomic Banks must adapt to a new capital and
10% ROE — barely above their cost of environment may see a further drop liquidity regime, over-the-counter (OTC)
equity. In others, banks have moved to in revenues in business lines that have derivatives reform, structural change
a softer return on tangible common benefited from the extraordinary and transparency requirements, and to
equity (ROTCE) measure. monetary policies of major central banks. new investor protection provisions. The
Moreover, there is limited scope for implementation costs of the Volcker
growing new revenues to compensate for
2
Rule alone could be up to US$4.3b.
this. For example, new, non-modelable, Regulations are having functional impacts
products are virtually out of the question on legal entities, business conduct,
from a capital perspective. trade execution, reference data and
trade reporting, yet all too often these
new rules are not consistent across
national borders.
Figure 2: Low ROEs highlight the significant challenge IBs face In addition, banks have faced increased
costs due to fines and significant trading
19.5%
losses as a result of a historically weak
18.4% controls environment. Reducing costs by
17.0% 16.0%
one-third would be an immense task.
10.0%
8.8% 8.8% And major investment banks are
7.8%
threatened by new competition
4.3%
Institutions are now competing with
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
buy-side clients such as hedge funds
and private equity houses. They are also
competing with boutiques and global
-12.6% custodians, and with financial markets
infrastructure in the trading, clearing,
Source: Company accounts, EY analysis settlement and reporting spaces.
2 “Analysis of 12 CFR Part 44,” the Office of the Comptroller of the Currency,
http://www.occ.gov/topics/laws-regulations/legislation-of-interest/volcker-analysis.pdf, 2011.
Transforming investment banks | 6
Investment banks have entered Furthermore, most investment banks Investment banks must reassess
“protect and survive” mode are still delivering tactical solutions that their strategic objectives …
are often founded on broken models. A
Banks have responded tactically to model in which the front office pursues Investment banks must think about where
regulation by trying to optimize capital, revenues and profit in the hope that they can obtain a competitive advantage
liquidity and costs — but this can hardly strong oversight from powerful control in a world in which a full-service model is
be considered efficient. Maximizing functions will protect the organization is no longer a significant differentiator. In
flow efficiency and establishing controls no longer viable. essence, investment banks need to ask,
have emerged as priorities, with many “What do we want to be?” and they need
investment banks significantly reducing to answer in terms of the key principles
asset costs and lightening the balance Delivering double-digit ROE will by which they operate and the businesses
sheet. There has, however, been relatively not be possible without more they will serve.
little in the way of strategic response. radical reform
At a high level, institutions have Given the triple pressures of declining … and focus on the four pillars
redefined their priorities, with a broad profitability, structurally higher costs of change to transform
industry shift away from capital-intensive and greater competition, traditional their business
fixed income trading activities toward incumbents cannot hold back from more
fee-based M&A advisory and underwriting radical business reform. The next 24 Once investment banks have defined
business lines [see Figure 4]. Those months will be a critical time for strategy their strategy, they must optimize both
banks that were swift and bold in doing and change functions as they coordinate assets and operations to ensure they
this have started to see some benefits. planning across business and technology. are maximizing efficiency, productivity
For others, there is still more work to do. It is time to ask key questions about what and returns. They must transform the
However, whether retreating from non- institutions aspire to do and to be. culture of the organization to ensure
core areas and aligning priorities to core that employee behavior does not incur
capabilities can be considered a genuinely the risk of fines or major losses and that
strategic decision remains debatable. For staff are motivated by serving clients
the most part, business portfolios are rather than by high salaries. They must
very similar to those of 2007. become client-centric. Only by bringing
Unclassified revenue
88 Advisory and underwriting revenue
Equities trading revenue
US$b
FICC revenue
Total expenses
Net income
148 174 202 151 169 178 181 178 179 185
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
The investment banking This is because investment banks have 1. Business line and entity
industry is suffering a cost and traditionally preferred short-term optimization
approaches to cost reduction. But that is
productivity crisis
no longer enough [see Figure 6]. Faced
Business-wide simplification will
By optimizing business lines and legal with a structurally higher cost base, firms
entities, assets, costs and sourcing, must be more creative and radical in
help improve performance
leading investment banks will be able their attempts to enhance efficiency and Many institutions have taken initial steps
to significantly enhance efficiency productivity. to simplify their business, rebalancing
and productivity. their focus across portfolios and exiting
There are four areas of optimization that non-core or poorly performing business
Over the last three years, only one banks must focus on: lines (although the full runoff of legacy
investment bank has managed to achieve businesses may take time).
1. Business line and entity optimization
an average cost-to-income below 60% and
annual profit per employee in excess of 2. Asset optimization The clearest example is banks’ refocusing
US$300,000 [see Figure 5]. 3. Cost optimization on the less capital-intensive primary
4. Sourcing and shoring optimization markets (advisory and underwriting).
However, as competition intensifies
in this space, banks must do more to
demonstrate their particular expertise in
advising and underwriting. Not only must
they show evidence of sector-specific
expertise across various geographies
Figure 5: Investment banking productivity and efficiency, as measured by average
and segments, but also their capabilities
profit per employee and cost-to-income FY12–14 (illustrative)
in capital allocation, syndication and
distribution, and book-building. To
Productive and circumvent balance-sheet constraints,
Productive but inefficient underwriters must form alliances with
efficient
more “sources of funding,” including
private equity houses, sovereign wealth
funds, boutiques and insurers. Limiting
More productive
60% CI ratio
More efficient
Long-term options
Lean and continuous improvement Operating model change
(18 to 36 months)
Source: EY analysis
Legal entity rationalization can the reduction of risk and complexity. variants of similar products, whose cost
significantly reduce costs and risk It enables improved governance by is too high and revenue too low, to
enhancing transparency and developing a justify them.
Further legal entity rationalization — of safer internal control framework, while a
both special purpose vehicles (SPVs) simpler entity structure is likely to better While we expect these initiatives to
and booking entities — can save banks satisfy regulators that senior executives gather pace, we believe that banks need
millions each year. With investment banks have a firm grasp of the overall business. to go further to differentially improve
operating tens of thousands of legal their financial performance in an era
entities (including SPVs), at a “carrying of new capital constraints. Investment
cost” of up to US$600,000 per entity 2. Asset optimization banking models must refocus existing
per year, rationalization can yield huge finance functions to better manage
savings, including audit and filing costs, Existing asset optimization capital and collateral requirements.
as well as governance, administration initiatives will gather pace but
and operating costs. It can also reduce are insufficient to improve
the cost of quality by reducing IT performance differentially Banks must push the optimization
architecture costs and helping firms avoid of RWA further …
unnecessarily rolling out new systems Most investment banks have initiated
and performance improvement agendas portfolio optimization programs and the In our experience, even when institutions
across entities. Rationalization can also unwinding or restructuring of certain have already delivered risk-weighted
drive operational synergies through positions, or the sale of specific non-core, asset (RWA) optimization programs,
thoughtful placement of an institution’s capital-intensive assets. In addition, banks we have found that further savings of
human capital, assets and operations. are making efforts to rationalize product 15%–20% of RWAs can still be made.
However, perhaps the most important sets — although our experience suggests To date, we have seen organizations
driver for legal entity rationalization is that many institutions still have too many adjust their business models by resizing
3 Office of Debt Management 2Q13 Report, United States Dept. of the Treasury, http://1.usa.gov/1ISVvhn.
4 Asset encumbrance, financial reform and the demand for collateral assets, Bank for International Settlements, http://bit.ly/1ISVM3Q, 2013.
Transforming investment banks | 12
infrastructure for collateral, with significant market share. Now is the or underqualified, to maximize
monitoring of intra-day collateral use time for investment banks to decide productivity and efficiency. On the
and maximum outflows. whether they wish to be such a basis of that analysis, they should
service provider. consider training or redeploying
In our view, the drive to optimize certain staff or hiring new personnel
collateral inefficiencies will require if necessary.
significant investment from investment 3. Cost optimization
banks over the next 36 months as 4. Sourcing and shoring
they overhaul existing technology Banks can release savings by optimization
and processes. reviewing and re-engineering key
processes across the enterprise Revisiting existing sourcing
… and examine third-party options can help investment banks
We believe there are four key levers that
collateral services banks should focus on to drive down
transform performance
“run-costs” across their organizations. Firms should consider whether certain
Optimization of collateral management activities are non-core and, if so, whether
will continue to be critical to enhancing 1. Adaptation levers: firms must ask they really need to be delivered in-house.
the financial performance of banks. It is whether they need to continue This should also include analysis of
also true that the demand for high-quality conducting particular activities whether investment banks can better
collateral will remain high, but supply and abandon or re-engineer them utilize group resources rather than relying
(access to and availability) of high-quality if necessary. on investment bank-only functions.
collateral will be more limited. We believe Shoring strategies (on/off/near) should
2. Quality levers: banks must consider
this will drive changes in the collateral continue to be explored as viable means
the appropriate level of service for
business model and an increase in the of reducing cost, but these strategies
internal and external clients.
types of collateral services offered by must also support the institution’s ability
If necessary, they should adjust
both existing and new players, such as to deliver a controlled, trusted and digital
the service quality, reduce the
utilities and consultancies. environment, as well as slimming down
number of clients or reduce the
the organization. We have already seen
frequency of interactions.
While existing settlement-service a number of institutions relocate both
providers will continue to provide new 3. Productivity levers: banks need back- and front-office activities from
offerings and means of accessing to ask who should be executing their head offices to lower-cost onshore
collateral pools, we expect a new wave of particular tasks and whether these locations where oversight is greater than
market entrants to connect institutions can be pooled, decentralized or with fully offshored alternatives. We
with collateral globally, allowing them outsourced. Banks should also expect this trend to accelerate.
to track, manage and access their consider whether tasks can be
collateral across entities and across simplified or automated and
assets held at multiple venues. Though should do so wherever possible. Determining the role of utilities
there are a number of investment banks In addition, they should look for in the supply chain will also be
and custodians offering new services, opportunities to deploy technology critical to driving efficiency
the market is yet to fully mature. A as an enabler for staff.
financial market utility that can offer such We believe that cost constraints and an
4. Resourcing levers: institutions should
comprehensive service will see a sizable increased awareness that many services
explore whether the resources
revenue opportunity and will acquire do not provide differentiation mean that
carrying out tasks are overqualified
Service
differentiation
(impact on client
experience) Collateral
Onboarding services
Relationship
management
Payments Payments
and fees
Confirmations
Settlement
Reconciliations
Corporate
actions Data
Marketing
HR
Tax Procurement
Finance
Savings opportunity
Client support services Internal support services Execution services
Source: EY analysis
Set-up
Costs
Run
Source: EY analysis
Banks face cultural crisis … … but most attempts to change employees for bragging and vulgarity on
culture have been reactive social media and banning employees from
Weak controls and employee behavior “point” solutions using expletives in instant messages,
unaligned with delivering client and emails and texts. Furthermore, in an
shareholder value have proven costly Senior executives are beginning to attempt to stem the loss of talent,
for investment banks [see Figure 9]. recognize the importance of transforming investment banks have also resorted to
Furthermore, cultural issues mean banks culture. In 2014, 66% of banks globally tactical initiatives. “Lifestyle” programs
are struggling to attract leading talent (and 84% of global systemically that restrict the time employees can be
to their organizations. A recent survey important banks) were working to change at work appear out of touch with the
showed that while 48% of the Wharton their culture.5 However, it is unclear millennial generation.
Business School’s class of 2007 took whether these exercises — generally
finance jobs, only 25% did so in 2013. launched in the immediate wake of
The investment bank of tomorrow will fines, settlements and scandals — will Banks need to look more closely at
be one where culture and behavior are be truly transformative or will merely what is driving behavior
afforded the same importance as address “optics.” Reforms instituted by
revenue generation. investment banks include admonishing Although some banks are going further —
establishing internal review committees
to understand poor practices and
Figure 9: Cost of control
establishing board-level committees of
internal and external experts to address
specific problems — truly transformative
change must be founded on employee
incentives. It is worrying, therefore, that
while 74% of banks globally are focusing
on enhancing communications about
behavior, only 26% are thinking about
adapting compensation to reflect softer
5 Shifting focus: risk culture at the forefront of banking — 2014 risk management survey of major financial
institutions, EY, 2014.
Transforming investment banks | 18
estimates suggest that for every dollar Management teams must lead by … hold people accountable for
paid to staff at a global bank in 2013, example … misconduct …
shareholders received just 25 cents,
compared to 65 cents pre-crisis.
6
It is evident that investment banks must Words must be followed by actions. To
look beyond high salaries for ways to embed cultural change throughout the
Furthermore, EY analysis suggests that engage, motivate and retain talent organization, the right environment
current incentive structures are not and must transform their culture to must be established. This requires
driving performance effectively. At an align employee behaviors to clients’ accountability and clear definition of
organizational level, pay per head is and shareholders’ interests. This roles and responsibilities. Alongside
not correlated to employee productivity starts with the tone from the top. Top strong risk governance practices,
[see Figure 11]. Investors are asking executives should articulate — and banks must establish a clear — and
when returns will go to the owners of model — desired behaviors. Standards safe — protocol for escalating breaches.
the capital, rather than the providers of should clearly identify unacceptable A culture of silence can no longer be
labor. However, changes to remuneration behaviors and clearly communicate tolerated. Therefore, banks must define
shouldn’t mean cuts in pay merely to expectations firm-wide. specific and meaningful controls with
mollify investors and regulators, nor consequences for culture breaches.
be a response to poor organizational Furthermore, consequences must be
performance. They must be an enforced, even if that means making
attempt to offer incentives for the right someone an example where he or she
organizational culture. might previously have gotten away with
misconduct. Banks must establish robust
Figure 10: Top initiatives to strengthen risk culture internal communications and training
programs to reinforce the culture and
Enhancing communication and training desired behaviors.
74%
regarding risk values and expectations
Source: Shifting focus: risk culture at the forefront of banking — 2014 risk management survey
of major financial institutions, EY, 2014.
6 “Regulatory reform and returns in banking,” speech given by Jon Cunliffe of the Bank of England, October 2014.
Figure 11: Compensation costs per employee vs. revenue per employee FY12–14 (average)
1,000
950
Revenue/employee (in US$k)
900
850
Average
800
750
650
600
180 230 280 330 380 430
Compensation costs/employee (in US$k)
“ Investment banks do not operate prominence in some of the largest merger To regain trust, banks must
in the interests of their clients.” and acquisition deals. Boutiques advised put their clients at the heart of
on 22% of M&A deals globally in 2014, everything they do
up from just 16% in 2007.
7
Regrettably, that is a common perception
of the industry [see Figure 12]. Although To rebuild public, regulatory and client
the public’s view may not be the same We know that the global financial crisis trust, investment banks must reflect on
as that of sophisticated investment and attendant scandals have eroded the their primary purpose — serving clients.
banking clients, trust in investment banks relationship between clients and their
has generally been eroded. Institutions investment banks. We also know that The challenge for banks in achieving
have been criticized in high-profile clients have diversified their relationships this is that their traditional operating
investigative articles highlighting claims on the sell-side and often spread business model, with its vertical asset classes
that banks willfully misled mortgage across multiple firms as a means of and horizontal functional support lines
security investors, that the interests of securing the best price, as well as [see Figure 13], is losing its relevance.
clients have been sidelined, and that managing risk. Furthermore, it is clear It is a model drawn to reflect product
institutions are still ignoring conflicts that clients are demanding a much higher priority and a business based on product
of interest. This perception of large service level but are not willing to pay a innovation to drive the bottom line — a
investment banks is impacting their premium for offerings that do not provide model unlikely to meet the future needs
business, and boutique firms are gaining a clearly differential experience. of the investment banking business. As
we enter an era when client service and
customer needs must be king, inflexible
business models that serve internal
needs, rather than those of clients, have
Figure 12: A crisis of trust? no place if banks are to survive.
In the UK, just 13% of people believe that those who work in investment banks in the The key challenge for banks is how to
City of London generally behave honestly.
shift from being product-centric to being
client-centric while retaining the ability
to innovate.
Source: EY analysis
answered from the perspective of clients: client revenues as their benchmark. This do not exist in the investment banking
it is the buying behaviors of clients that has led to a view that the industry should environment. Therefore, we believe that
must inform the service model and front- offer high-touch service to a small pool of for investment banks to build enduring
office proposition of the future. large clients and degrade service levels relationships with clients, it is critical to
for the remainder. We believe that a focus install permanent ways of measuring
on the bottom, rather than the top line, client satisfaction.
Banks must identify their core may reveal that the dispensations banks
clients and their needs … have offered some of their larger clients
have severely eroded their profitability. … and enhance the client
To win and retain business, investment experience by creating a “single
banks need to develop client-centric Banks should recalibrate their services shop-front”
models that deliver what their clients according to profitability, but should also
want. To truly understand this, we believe recognize that if they can deliver lower- We believe that all clients will come to
institutions should analyze strategic lines cost, higher-quality services to mid-tier expect a single customer experience.
of business to determine the top 20% of clients, they may be able to acquire Although a single customer experience
clients that typically account for 80% of market share and grow revenues. has been discussed within the industry
profits. Having identified this client pool, for a long time, it is difficult to see any
they must determine, for each of those radical changes that have occurred.
clients, what they need to do to retain … improve systems to monitor Nevertheless, it is only a matter of time
and strengthen the relationship. client satisfaction … before customer demand forces change.
There can no longer be traditional asset
Institutions may argue they already do In our experience, unlike other industries silos to serve clients individually. It is
this. However, in our experience, banks that actively measure satisfaction, essential for banks to enhance internal
are traditionally poor at understanding investment banks do not have a solution communications across systems and
client profitability. Frequently, they use to do this. Tools like Heartbeat or Temper processes to create a “single shop-front.”
Foreign
Fixed income
exchange
Conduct and surveillance
Asset
Product management
IT
servicing
Cash
Equities
Client Financial
Rates
management
Settlement and liquidity services accounting HR
Source: EY analysis
Employees are currently seen The transition to a technology- Even so, they must look for additional
as a key differentiator for led business will not be easy, and opportunities to reallocate spend from
technology maintenance to investment.
investment banks budgets will be stretched
Moreover, as budgets continue to be
One-half to two-thirds of costs typically Investment banking systems are creaking stretched, investment banks need to
are spent on staff. We believe that, at the seams. The last 15 years have seen make coordinated strategic decisions
with the exception of a handful of staff, some significant market restructuring, about where to invest in technology —
technology will be the real differentiator takeovers, business exits and volume which is critical to support changes in
in the future. increases, but investments in technology the business and operating models.
have lagged behind and IT departments Many of these decisions will have a
The traditional investment banking model continue to be under pressure to do more knock-on impact on how the supply
has highlighted the importance of staff as for less every year. Although industry chain will be composed going forward.
a differentiator. In a more commoditized IT spending typically rises by around
risk-averse future, the capacity of staff 4% a year, the scale of the challenge for
to innovate to drive revenues will be investment banks is so great that they Banks must invest to transform
limited. Instead, cost-to-serve, speed will continue to be forced to do more with the business …
of execution and quality of service will less. Furthermore, global banks typically We believe there are a number of key
distinguish the leading investment banks. spend about three-quarters of their IT areas in which banks must invest over
As a result, we expect that, beyond budgets on systems maintenance rather the next one to three years to support
advisory and underwriting businesses, than on investment. business transformation as they seek to
the largest share of costs in the future will optimize, transform culture and become
be technology. We believe that through salary client-centric and enhance profitability
optimization, operating model efficiency [see Figure 15].
and supply chain enhancements, banks
can free up a further 5%–10% of their
staff costs to reinvest in technology.
Booking/
Spending theme Dealing with Collateral and New trading Customer- Security, Improving Other
business
legacy IT capital systems/ centric resilience and data
model
processes solutions surveillance
optimization
Expected budget
20%–25% 15%–20% 15%–20% 15%–20% 10%–15% 10%–15% 10%–15% 5%–10%
spend
Expected profit
5%–10% 15%–20% 5%–10% 10%–15% 1%–2% 8%–12% 8%–10% 3%–5%
impact*
Banks will also have to invest significantly Looking over the next 36 months,
in combatting cyber threats and financial investment banks will need to rationalize
crime — now a key agenda item for their technology architecture,
investment bank management teams, integrating trading platforms and
with one major universal bank spending centralizing existing systems. In doing
US$250 million enhancing cybersecurity so, organizations must assess whether
capabilities in 2014 alone. We also technology functions, processes and
believe there will be opportunities for underlying services are best provided
banks to use social media and mobile internally or externally. And if a particular
technology to enhance organizational technology is not a differentiator, then it
performance — for example, by should no longer be serviced in-house.
supporting greater connectivity with
clients or enabling staff to access As banks come to grips with legacy
information they need for their jobs technology, they will be able to reinvest
more quickly and easily. cost savings in new technology to support
wider organizational change. This is
critical because being technology-led is
not an end in itself: it is about technology
enabling the bank to transform — to
take control, to rebuild trust, to drive
efficiency and to become digital.
To deliver sustainable, double-digit control failures. Banks must go further as investment banks embrace digital
returns, regardless of their business than setting the tone from the top and transformation. Being technology-
model, institutions will need to be in enhancing communications and training. led means banks should not only look
control, efficient, digital and trusted. They must fundamentally transform to rationalize systems and invest in
Achieving this will require considerable their employee propositions to recruit technology to defend against emerging
investment and an unrelenting focus on and retain the top talent while driving threats and drive efficiency; they should
four pillars of change [see Figure 16]. behavioral change. also look to adopt new technologies —
such as mobile and social media — across
First, banks must optimize assets In addition to changing behaviors, banks the enterprise. Although the initial costs
and operations. They must look for must put their clients at the heart of of a technology transformation may be
opportunities to make more efficient everything they do. By being client- high, it should enable banks to drive
use of their balance sheet and optimize centric — understanding their clients efficiency and reduce staff costs,
capital and liquidity, as well as take cost better and tracking their satisfaction — allowing them to reinvest these savings
out of the business through simplification they will be better placed to deliver value in IT that supports transformation
and innovative sourcing options. and enhance their own profitability. organization-wide.
Second, they must transform the Finally, they must invest in technology as The banks that do not just react to the
culture of their organization to rebuild a key enabler of business transformation. pressures of the markets today, but adapt
stakeholder trust. This is critical to This will support optimization, cultural to them with an eye to the future, will be
reducing future fines and losses from transformation and client-centricity those that thrive in the long run.
Figure 16: Applying the four pillars of change to deliver sustainable returns
IT investment
Up to Be
Thrive 3.5%
technology-
Engagement
led
ROE uplift 12%–15%
Productivity Sustainable ROE
Assets
Legacy systems
Controls Become
Up to Efficient client-centric
Survive 3% Costs
ROE uplift
Business lines
8% In control
FY14 industry Transform
ROE below the culture
cost of equity
Trusted
Optimize
Digital
Contacts
Global Regions
Bill Schlich Chris Bowles
Global Banking & Capital Markets Leader Head of Financial Services Risk UK & Ireland
Toronto London
bill.schlich@ca.ey.com cbowles@uk.ey.com
+1 416 943 4554 +44 20 7951 2391
Karl Meekings
Global Banking & Capital Markets
Strategic Analyst
London
kmeekings@uk.ey.com
+44 20 7783 0081
About EY
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