Bloomberg News

Global Investment Banks’ Revamp to Continue for Years, S&P Says

December 18, 2012

Global investment banks are likely to go on cutting costs and deleveraging for several years as regulators push them to bolster capital, ratings company Standard & Poor’s said.

“Tougher regulatory requirements for capital and leverage are set to lower the industry’s return on equity potential, causing banks to reassess the scale of their capital market activities,” Standard & Poor’s credit analyst Richard Barnes said in a statement today.

Inconsistencies in how regulators are implementing global capital rules explain the “uneven” way in which banks are restructuring, with some, such as Switzerland’s UBS AG (UBSN), announcing more extensive overhauls than competitors, he said. Most investment banks have “fewer incentives” to reposition their business models, he added.

UBS, Switzerland’s biggest bank, said in October it would cut about 10,000 jobs and retreat from capital-intensive trading businesses to boost profitability. Barclays Plc (BARC), the U.K.’s second-biggest lender, will announce the results of a review of its operations in February. That may result in 3,500 job reductions at its securities unit, Goldman Sachs Group Inc. (GS:US) analysts led by Frederik Thomasen estimated last month.

“Eventually, continued consolidation of the industry may result in stronger market shares and possibly margins for the leading ‘flow monsters,’” Barnes said.

The rating company estimated that capital markets revenue climbed 5 percent in 2012 over the previous year, with U.S. banks outperforming their European competitors.

To contact the reporter on this story: Elena Logutenkova in Zurich at elogutenkova@bloomberg.net

To contact the editor responsible for this story: Frank Connelly at fconnelly@bloomberg.net


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