Opinion
From double fault to European champion
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...a 'European champion' capable of competing with the Americans might be put together from the parts of the European players...In terms of market share, the idea is compelling.
By Roy C. Smith and Brad Hintz
Barclays, Deutsche Bank and Credit Suisse have all announced plans to cut back capital market activity under new chief executives brought in to revise the business models. What to do with the investment banking remnants is the difficult part, but an imaginative solution is available.
The three European universal banks have used investment banking as a way to supplement slow-growing domestic banking and sub-scale asset management businesses.
Over many years, going back to Big Bang, they have poured their dreams and capital into acquisitions of businesses and talent that they hoped would enable them to occupy the high ground of global capital markets, only to encounter wave after wave of pain and suffering. Finally they appear to be bowing to the inevitable – cutting back investment banking to the bare minimum needed to sustain and protect their basic banking businesses and, one way or another, jettisoning the rest.
What makes this difficult to do is that investment banking represents 20% to 40% of these banks’ net revenue, and over half of their balance sheet. What makes it good to do is that at least 70% of their troubles come from this culturally alien business that they have had to engage mostly American hired guns to manage.
Read full article as published in Financial News.
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Roy C. Smith is the Kenneth G. Langone Professor of Entrepreneurship and Finance and a professor of Management Practice. Brad Hintz is an adjunct professor of Finance.
The three European universal banks have used investment banking as a way to supplement slow-growing domestic banking and sub-scale asset management businesses.
Over many years, going back to Big Bang, they have poured their dreams and capital into acquisitions of businesses and talent that they hoped would enable them to occupy the high ground of global capital markets, only to encounter wave after wave of pain and suffering. Finally they appear to be bowing to the inevitable – cutting back investment banking to the bare minimum needed to sustain and protect their basic banking businesses and, one way or another, jettisoning the rest.
What makes this difficult to do is that investment banking represents 20% to 40% of these banks’ net revenue, and over half of their balance sheet. What makes it good to do is that at least 70% of their troubles come from this culturally alien business that they have had to engage mostly American hired guns to manage.
Read full article as published in Financial News.
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Roy C. Smith is the Kenneth G. Langone Professor of Entrepreneurship and Finance and a professor of Management Practice. Brad Hintz is an adjunct professor of Finance.