Global banking entered the crisis well capitalized and is far more resilient than it was 12 years ago. By Job Function . Over that same period, global public market AUM has grown by roughly 100 percent, while the number of US publicly traded companies has stayed roughly flat (but is down nearly 40 percent since 2000). Women represent just 20 percent of employees across the private markets and less than 10 percent in investment team leadership positions. Banks that can go further and create their own platforms might capture a small share of some nonbanking markets, which would elevate their ROE to about 14 percent—far above the current industry average. Public interest and LP pressure to take environmental, social, and governance (ESG) factors into account in investing have soared, prompting greater transparency on ESG policies and performance as well as a rise in dedicated “impact funds.” Nine of the ten largest GPs now publish annual sustainability reports. Yield curves are also flattening. But if the market slows (say, if multiples contract or deal activity slows), then this sizable war chest may contribute at least for a period to downward pressure on fundraising.). The third layer will largely be business to business, such as scale-driven sales and trading, standardized parts of wealth and asset management, and part of origination. In the second phase, impact will shift from balance sheets to income statements. On an absolute basis, compared with precrisis growth projections, the COVID-19 crisis may cost the industry $3.7 trillion. Global return on tangible equity (ROTE) has flatlined at 10.5 percent, despite a small rise in rates in 2018 (Exhibit 2). Banks cannot afford to wait any longer to extract the potential of digital to industrialize their operations. This ninth annual Global Diamond report, prepared by the Antwerp World Diamond Centre and Bain & Company, examines the factors that influenced rough diamond production and sales, midstream performance and the global demand for diamond jewelry in 2019. Fully 90 percent of LPs said recently that private equity (PE), the largest private-asset class, will outperform public markets in coming years—despite academic research that suggests such outperformance has declined on average. our use of cookies, and Our view of a streamlined system of financial intermediation, it should be noted, is an “insider’s” perspective: we do not believe that customers or clients will really take note of this underlying structural change. But $778 billion of new capital flowed in. New entrants continue to flock to the industry, and the number of active firms is at an all-time high. In the past year, the use of cash and checks—core transactions for branches—has eased; in most markets, about 20 to 40 percent of consumers report using significantly less cash. However, there should still be further opportunities, including the outsourcing of nondifferentiated activities and the adoption of ZBB, both discussed earlier. Most transformations fail. The shape of the industry has evolved as it has grown: buyout’s share of PE AUM dropped by a third in the past decade, while venture capital (VC) and growth have taken off, led by Asian funds. Boston Consulting Group partners with leaders in business and society to tackle their most important challenges and capture their greatest opportunities. McKinsey’s Private Equity and Principal Investors Practice is pleased to publish A routinely exceptional year: McKinsey Global Private Markets Review (PDF–1.30MB), which details these and many other findings. The share of funds below $1 billion has fallen to a 15-year low. But they have some things going for them. Furthermore, on the cost front, resilients need to pay closer attention to opportunities for improving productivity by exploring the bankwide appetite for ZBB. That feat, along with the recent seesaws in public-market valuations, suggests that a look back at 2007, the last high-water mark, may be in order. Where the resilients differ from market leaders is in inorganic levers. Unsurprisingly, most of these banks are in Western Europe, where they contend with weak macro conditions (for example, slow loan growth and low interest rates). On the supply side, we expect banks to become more selective in their risk appetite. But the problems are not self-made. These are all noteworthy advances. ANNUAL REPORT 2017 [PDF] collaboration with select social media and trusted analytics partners Geospatial analyses help it evaluate the strength of its footprint. Our latest report summarizes our findings, looking at the industry’s capital flows in 2017, including fundraising, assets under management (AUM), and capital deployment. It is early days, but much of the global economy may eventually be reshaped by ecosystems. It used natural-language processing to analyze the public-complaints database published by the US Consumer Financial Protection Bureau. Still, the private markets are only in the early stages of materially incorporating ESG factors into investment and portfolio management processes. President and Chief Operating Officer . In 2016, the most exciting news for private markets may have been what didn’t change. As GPs have become gun-shy about today’s higher prices, deal activity has fallen, and dry powder has reached an all-time high—though our research suggests that dry powder is not nearly the problem that some have suggested. We define private markets as closed-end funds investing in private equity, real estate, private debt, infrastructure, or natural resources as well as related secondaries and funds of funds. In Global Markets, our broad and diverse franchise across FICC and … Even as public markets rose worldwide—the S&P 500 shot up about 20 percent, as did other major indices—investors continued to show interest and confidence in private markets. In anticipation, global banks have provisioned $1.15 trillion for loan losses through third quarter 2020, much more than they did through all of 2019 (Exhibit 2). McKinsey has 32,487 employees across 146 locations and $10.50 B in annual revenue in FY 2019. Another adviser has gone a step further and digitized several of its due-diligence processes. Who they are. Banking valuations have traded at a discount to nonbanks since the 2008–09 financial crisis. As an essential first step, those that have not yet fully digitized must explore the new tools at their disposal and build the skills in digital marketing and analytics that they need in order to compete effectively. Even in an adverse scenario, we estimate that CET1 ratios would fall only an additional 35 to 85 basis points, depending on region. It is not too far-fetched to imagine a day when banks will offer a range of services, reach a vastly larger customer base, and succeed at their digital rivals’ game. In the United Kingdom and the United States, only 10 to 15 percent of consumers are more interested in digital banking than they were before the crisis (and 5 to 10 percent are less interested). Not only do they have exceptional data that they exploit with remarkable effectiveness but also, more worrisome for banks, they are often more central in the customer journeys that include big financial decisions. 02 Special Features. Our view is that the current complex and interlocking system of financial intermediation will be streamlined by the forces of technology and regulation into a simpler system with three layers (Exhibit 5). SOURCE: Annual reports; press searches; McKinsey . Sub Title. Never miss an insight. True, fundraising was down 11 percent. The early prognosis for 2020 is for continued strength: by the end of 2019, large firms had announced targets collectively approaching $350 billion, more than at year-end 2018. Most agree that public markets, despite their recent run-up, are becoming structurally less attractive to many limited partners (LPs), who will likely respond by further raising their allocations to private markets. See McKinsey & Company's revenue, employees, and funding info on Owler, the world’s largest community-based business insights platform. Supersize venture rounds in which start-ups attract $1 billion or more from VC firms emerged in 2015. Within 2017’s tide of capital, one trend stands out: the surge of megafunds (funds of more than $5 billion), especially in the United States and particularly in buyouts (Exhibit 1). These often turn out to be unusual combinations of characteristics that no one would otherwise have suspected had much bearing on performance. . Priorities for the late cycle. As one CEO told us, “Some of these changes in the US will raise the base case for GPs, but the tails are very fat.”. We see opportunities on both the numerator and denominator of ROE: banks can use new ideas to improve productivity significantly and can simultaneously improve capital accuracy. Within resilients are banks that are less challenged by the macro conditions and more by the declining economics of their own underlying business models. This gain from digitization would lift the average bank’s ROE by about 2.5 percentage points—not enough to fully offset the 4.1-point drop forecasted in our unmitigated scenario. In this brief excerpt from our new report, we look at the problems in credit losses and revenue and offer some of the insights that can help banks repair their short-term economics and ready themselves for the postpandemic world. Industrializing regulatory and compliance activities alone could lift ROTE by 60 to 100 bps. In most cycles, a downturn creates the best opportunities, and now is the time to create the wish list. Then comes scale. Select topics and stay current with our latest insights. While these unknowns will create opportunity for some, most GPs acknowledge that this sort of uncertainty is very difficult to price. Although the deal volume of $1.3 trillion was comparable to 2016’s activity, deal count dropped for the second year in a row, this time by 8 percent (Exhibit 2). Emerging-market banks face a different challenge. In 2015, that discount stood at 53 percent; by 2017, despite steady performance by the banking sector, it had only seen minor improvements at 45 percent (Exhibit 3). The first layer would consist of everyday commerce and transactions (for example, deposits, payments, and consumer loans). This approach should allow them to expand revenues in a short period of time without spending significant amounts in development or acquisition costs. In these markets—mainly private equity, but also closed-end real estate, infrastructure, natural resources, and private debt funds—investors’ desire to allocate remains strong. In China, for example, they dropped 35 basis points in the past two years, shaving 6.7 percentage points off ROE. Rules-based workers can be redeployed in different roles, based on assessed skill adjacencies. The report, the fifth in our annual series, drills down into the major themes affecting the fashion economy and assesses a range of possible responses. Who they are. To do so, banks will have to fully deploy the vast digital tool kit that is now available—something most have failed to do thus far. Customer acquisition cost (rough estimates) USD per customer . Zero percent interest rates are here to stay and will reduce net interest margins, pushing incumbents to rethink their risk-intermediation-based business models. See insights on McKinsey including office locations, competitors, revenue, financials, executives, subsidiaries and more at Craft. Another structure gaining prominence, capital-call lines of credit have (along with other factors) compressed the J-curve (Exhibit 2), while drawing a watchful eye from some LPs. Banks will surely be affected, as credit losses cascade through the economy and as demand for banking services drops. Be it scale across a country, a region, or a client segment. Most transformations fail. Please click "Accept" to help us improve its usefulness with additional cookies. It now stands at a record $2.3 trillion (Exhibit 3). Over time, huge tech companies may be able to insert themselves between banks and their customers, capturing the vital customer relationship and presenting an existential threat. Banks need to reset their agenda in ways that few expected nine months ago. Finally, our supply-demand projections through 2… “Platform” companies such as Alibaba, Amazon, and Tencent—about which we’ll have more to say later—are staking a claim to banks’ customers and the revenues and profits they represent. Harnessing the new powers of data-driven marketing, a digital workbench for sellers, robotic process automation, the cloud, application programming interfaces and apps, and all the other tools now available is an essential step for banks. Underlying constraints of a business model also have a significant role to play. 5-7 5 110 300 Direct banks. We see new evidence of those trends—and they are happening faster than we expected. New McKinsey research shows that while most fund managers consider cyclical risk as part of their due diligence and portfolio management processes, only a third have adjusted their portfolio strategy to prepare for a potential recession. Ok Developed-market banks are most affected, with $90 billion, or 25 percent, of profits at risk, but emerging-market banks are also vulnerable, especially to the credit cycle. Furthermore, recent studies have established that a strong ESG proposition correlates with higher equity returns. ANNUAL REPORT 2020 [PDF] Previous annual reports: ANNUAL REPORT 2019 [PDF] Accenture reported another year of outstanding financial results in fiscal 2019. When it comes to customers’ decisions about where to place their money, research shows that banks enjoy greater trust than tech companies. Priorities for the late cycle. At 8.6 percent for 2016, ROE was down a full percentage point from 2015. The global banking industry shows many signs of renewed health. First will come severe credit losses, likely through late 2021; almost all banks and banking systems are expected to survive. And in many cases, they are better positioned for distribution than banks are. We exclude hedge funds and publicly traded or open-end funds. Please email us at: The industry continued to scale, but amid growth in private markets, some challenges remain. Digital upends old models. In addition, costs (especially complexity costs) could creep up as the group chases higher revenue yields through product introductions. The industry continues to provide a source of excess capital for investors; in 2016, distributions outstripped capital calls for the fourth year running. Detailed information on the use of cookies on this Site, and how you can decline them, is provided in our cookie policy. Japanese and US banks have between $1 billion and $45 billion in profits at risk by 2020, depending on the extent of digital disruption. With an average C/A ratio of 130 bps, challenged banks as a group still have a good 50 bps to cover before they produce the best-in-class cost bases we’ve seen from Nordic banks. When one comes, the way that LPs and their governing boards react to impaired positions will bear watching. A decade after the crisis, these accomplishments speak to the resiliency of the industry. Our work in 2019 laid the foundation for how we’ve tackled the challenges of 2020, and we are glad to be able to share what we’ve been doing and learning with you. Private markets firms may be missing an opportunity: increasing evidence shows that greater representation may meaningfully enhance performance. Investors have a new motivation to allocate to private markets: exposure. Emerging-market banks have seen ROTEs decline steeply, from 20.0 percent in 2013 to 14.1 percent in 2018, largely due to digital disruption that continues unabated. This includes both organic and inorganic options. As our report examines in detail, secondaries have scaled rapidly and made the asset class easier to access and to exit. Already we are seeing early success stories from around the world, as banks start to develop platform capabilities. Yet private-asset managers did not have it all their way in 2017. And they have achieved this leadership without having to focus too much on improving productivity, as reflected in their average cost-to-asset ratio (C/A) of approximately 220 bps. DUKE MBA EMPLOYMENT REPORT 2018 – 2019 . For the second group, a strategic decision is at hand: get bigger, or stay the course. Subscribed to {PRACTICE_NAME} email alerts. For banks that can, it will offer a substantial competitive advantage and a source of new business or defense of an existing one. 3. By our estimates, this financial-intermediation system stores, transfers, lends, invests, and manages risk for roughly $260 trillion in funds (Exhibit 4). Consulting 121 34% $149,970 $150,000 $180,000 $85,000 Finance 81 23% $135,999 $150,000 $325,000 $70,000 . It has shaken off concerns about adverse selection to become an effectively standard dimension of pricing. Investors have a new motivation to allocate to private markets: exposure. The global banking industry continues to progress on the road back from the global financial crisis, improving return on equity 9.5% in 2013 and 9.9% in the first half of 2014. Operating Expense % of . The investments made now—whether organic or inorganic—will decide their place at the top table in the next cycle. True, fundraising was down 11 percent. ... its second highest annual net revenues. All acknowledge that an extraordinary number of wild cards are now in play, especially in geopolitics. Defense of an existing one t abandon the branch, of course, is correlated., improvements to the next strategic crossroads: as ecosystems emerge, should beat... 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