Outlook Bleak For Bank Profitability

Bank profits have enjoyed some fat years, and now it is time to get ready for some lean years, analysts say.

Bloomberg reported Wednesday (Dec. 9) that global investment banks are on the cusp of five years of belt tightening through 2020, with operating expense cuts as an attempt to compensate for revenue pressure from tougher regulations and a slowing trading environment.

[bctt tweet=”The newswire said that the survey of 147 analysts found a consensus of 9 percent return on equity.”]

The newswire said that the survey of 147 analysts found a consensus of 9 percent return on equity through the period, with research spearheaded by Institutional Inventor and Broadridge Financial Solutions. The majority (61 percent) of those surveyed said they expected tougher examples of regulatory reform, which should, in turn, hamper fixed-income trading, which could see only limited growth moving forward. Revenues from trading have been cut roughly in half since 2009.

And in an effort to offset that anemic growth, large players within global finance, like Morgan Stanley and Deutsche Bank, have started cutting jobs. The employment mantra on the Street seems to typically be: “overhire and then overfire.”

Yet, there’s a more sanguine attitude by analysts toward mergers and acquisitions in the sector, which still may have some gas left in the tank, as sales from those divisions have been growing and will continue to grow in the upcoming year, up about 5 percent compared to 2015.

Banks seem cognizant of the fiscal challenges that loom, with an emphasis on using technology to cut operating costs, especially in the back office. Yet, 54 percent of analysts said banks had not invested enough in their efforts to harness technology in order to cut costs and boost efficiency. The survey was conducted, Bloomberg said in its report, among analysts in a timeframe that stretched from June 2015 to September of this year.