UK's investment banks 'must be competitive'

Summary

The conventional wisdom is that top banks, the largest players in the market, have managed to deal with the ongoing financial crisis relatively well, while their smaller counterparts struggle to keep their heads above water. However, a new report from McKinsey & Co has indicated almost 100 of the world's biggest banking groups could be at risk of collapse over the coming years as they are overtaken by rivals and fail to change their operating model to reflect the current conditions. Some one-fifth of the world's top 100 banks could be takeover targets for their rivals due to their underperformance in the market, reports the Telegraph. McKinsey is a respected advisor on the banking sector, working with many of the world's largest financial institutions to help them deal with the ongoing changes across the industry. These concerns were raised in its annual report on the financial services trade, in which it also suggested only ten organisations will be able to adapt in such a way they emerge from the also-rans to become leading banks. It also called for more firms to utilise a back-to-basics strategy whereby they avoid complicating their approach too much. "Banks that get caught in these traps are more likely to be among the 20 per cent of institutions worldwide that, in our estimate, may become acquisition targets in the next several years," McKinsey claimed. Royal Bank of Scotland hired the firm two years ago to help come up with a strategy that focused less on its investment banking arm, indicating a major part of the organisation's approach - it feels that, with global growth dropping, banks should become more focused and less wide-ranging. McKinsey also called on banks to embrace technology, something which could prove a major divider between those firms that succeed and those that fail in the coming decade. Investment in cyber-security, automated systems and more could save banking groups billions over the next few years, assuming they are set up effectively.

Summary

The UK's financial services sector has endured a difficult few years but appears to be coming up swinging, with a new report from the Confederation of British Industry (CBI) and PricewaterhouseCoopers (PwC) highlighting the sector's growing confidence and positivity. Optimism surged in the three months to September, as firms admitted to seeing more pluses in their business situation than they have done for almost 17 years. A major factor in this improvement is employment - the number of people working in the financial services sector jumped by 24 per cent, the fastest rise since September 2007. Furthermore, the CBI anticipates 10,000 more jobs being created in the third quarter of 2013, with an additional 2,000 coming in the final quarter of the year. This will bring the number of financial services jobs to 1.14 million as the sector continues to expand and recover. "With optimism rising and jobs and profitability growing, this is an encouraging quarter for the financial services sector, despite a fall in business volumes in banking," said CBI director of economics Stephen Gifford. However, anyone experiencing a fuzzy feeling of warmth and excitement about the industry's growth prospects needs to bear in mind the many problems continuing to hold it back from expansion. Dealing with high levels of regulation "is increasingly weighing on plans for business expansion", concluded Mr Gifford. Concerns have long been mooted that the government's desire to avoid any further financial crises could prevent the sector form enjoying strong levels of growth, with business leaders warning against an excess of red tape. Amendments to the Banking Reform Bill have been introduced in a bid to ensure senior executives avoid serious misconduct. The possibility of a referendum on EU membership has also caused ripples in the world of financial services, which has strong links with many European firms and banking groups. Nevertheless, the minor economic recovery seen across the UK as a whole has been reflected in the banking industry's new-found buoyancy.