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Banks must take “drastic” action to restore profitability if they are to lure investors back to the industry, Hugo Banziger, Deutsche Bank AG (DBK)’s chief risk officer, wrote in the Financial Times.
The industry hasn’t said enough about how it will make banking “safe, useful and profitable,” as regulators prepare stricter rules on capital to avoid further taxpayer-funded bailouts, said Banziger, who will step down from his position at Frankfurt-based Deutsche Bank at the end of May.
Firms should scale back their trading activities and refocus investment banking on its three core competencies of underwriting, market making and helping clients manage risk, Banziger wrote in the newspaper.
Investment banking will become less profitable, and returns on equity will fall to similar levels as utilities, Banziger said. Banks will have to cut the number of traders they employ, while compensation will have to “normalize” in line with other service industries, he added.
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