Investment banks must provide “immediate” service improvement says TABB
As the world’s banks continue to struggle with severe regulatory change, economic turbulence and technological evolution, a new report by analyst firm Tabb Group says that investment banks will have to provide immediate, friction-free access to content, community and execution, or face extinction.
The impact of declining broker commissions, lower equity trading volumes, newer, tougher rules on bank capital under Basel III and expensive collateral requirements has already made itself felt in the form of significant headcount reductions at many of the larger firms. HSBC recently closed its equities desk, with tens of thousands of jobs lost at Barclays, RBS, Lloyds, HSBC, UBS and others.
At the same time, Tabb argues that the financial services sector is seeing a shift from passive relationships to engaged collaboration across asset classes – a shift that it says will transform capital markets from simply selling clients a bank’s product suite to delivering true client centricity, in which optionality will be key.
“Access to the right information, at the right time, in the right format is critical, and this will differ from client to client, desk to desk, and from one portfolio to another,” said Rebecca Healey, report author and senior analyst at Tabb. “Technology will facilitate this efficient, portable and real-time access to content and community. However, only by creating an interactive network of people and content, and harnessing technology to resurrect the most important aspect of investing – the trusted relationship – will true innovation in capital markets continue to thrive.”
Tabb notes that both the buy- and sell-sides need to ensure greater control over their trading activity, aggregating liquidity and ensuring compliance in an environment where the rules are rapidly changing. At the same time, inputs such as social media sentiment need to be included in investment decisions. The need for a holistic viewpoint across all products and departments has never been more acute, according to Healey.
However, higher capital standards will continue to force banks to shrink their balance sheets further, pushing many businesses to fundamentally change and evolve. Algorithms may have “industrialised” execution in equities, but the process will continue across other asset classes in the near future, she says.
“From idea generation to portfolio management, the changing focus on customer centricity will break the mould,” she said. “Whereas legacy siloed systems worked in isolation, cross-asset execution will require a standardised approach to pricing, routing and execution. Capital markets siloes are finally being broken down, enabling a greater holistic view and providing more efficient risk management and regulatory compliance through better data analysis of current positions.”