THE OPINION OF THE STRATEGIST - Mind costs and capital, key factors.
Lombard interviews Silvio Angius, a partner of McKinsey's Italian branch, where he heads up the Risk Management practice for the Mediterranean area.
Lombard: Since the great crisis began seven years ago, there has been largescale restructuring in investment banking, especially in costs and products. Nonetheless, there has been little or nothing to show for it in terms of margins. Why is that?
Angius: It is very difficult to steer strategic business decisions due to the overall strategic instability that continues in the wake of the 2009 crisis and the huge volatility in profits, as demonstrated by the Brexit-influenced results of the last quarter. In addition, there is a structural reason. The banks were equipped to do business of a universal nature, which involved an initial cost structure that was difficult to dismantle.
Lombard: All the same, despite the big cuts made by all of the banks after the crisis hit, there was a significant drop in ROE. Why?
Angius: The market challenges have made the business more complex and led to a fall in revenues. This is more true of Europe than the United States, where more incisive measures were taken to resize or refocus businesses. Consequently, the average ROE in the industry in Europe is approximately half the amount in the US, where it stands at around 8% to 10%. (..)