Investment banks ditch the diet and look to expand: study

Fri Mar 17, 2017 12:13pm EDT
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By Anjuli Davies

LONDON (Reuters) - After several years of restructuring and regulatory pressure, investment banks have reached a turning point after Donald Trump became American president and can look to grow again, according to a study published on Friday.

"The world has turned upside down post the U.S. elections," said the joint annual study by Morgan Stanley and management consultants Oliver Wyman.

"This is the first year since we've been producing this paper that we're looking to see a significant shift to the positive in terms of revenue growth, operational leverage and return on equity," said Magdalena Stoklosa, head of European financials research at Morgan Stanley.

Globally, investment banks have been on an "intensive diet" since 2011 and have shrunk their balance sheets on aggregate by a third, according to the analysis produced in the 7th edition of the "Blue Paper".

With the global economy appearing to be on a stable footing, the Federal Reserve raising interest rates and political rhetoric pointing to a pause on new banking regulation, growth beckons for an industry reshaped by the global financial crisis.

In three years' time, return on equity could reach 13 to 14 percent across the industry from 10 to 11 percent currently, the study said.

Regulatory costs are expected to peak in 2017 and decline by as much as 40 percent by the end of 2020.

However, European banks, lagging in their restructuring programs, are expected to continue to underperform their rivals on the other side of the Atlantic.   Continued...

Lower Manhattan including the financial district is pictured from the Manhattan borough of New York, U.S. June 1, 2016. REUTERS/Carlo Allegri/File Photo