The investment banking industry is only now beginning to reveal its new shape in the wake of the global financial crisis, a senior banker at Barclays has told Emerging Markets.
The financial crisis era has seen investment banks revamp, trash and then reconstruct entire business models as they have sought to deleverage but also take up opportunities left behind by other firms.
The recent evidence... suggests that capacity is coming out of the market for the first time, Tom King, co-chief executive of corporate and investment banking at Barclays, said in an exclusive interview.
Banks are rescaling their investment banking operations to concentrate on their genuine world-class businesses, be it wealth management, cash management or corporate banking. Theres real tangible evidence of banks retreating to defendable market positions.
Although such retrenchment may favour local firms with strong local distribution and entrenched relationships with decision makers and clients, a firm like Barclays has scale on its side, if it chooses the right battles to fight in markets where bigger is better.
Many pieces of [this business] have very high barriers to entry, said King. There are businesses that are real scale businesses. Take rates trading if youre not in it, its a very hard one to get into. If you are in it without the scale then its a very hard one to make money at. Equities is a business like that. The economics of it are very tough.
As for emerging markets, King said he saw opportunities in those countries that were positioned to benefit from the cyclical recovery in the developed markets and they could benefit disproportionately.
But picking the winners of the future while maintaining the banks focus on continuing to deliver returns for shareholders is no easy task. What everyone is struggling with is how much do you invest and how quickly can you capture that future opportunity because the marginal investment dollar right now has a higher return on equity in the developed market, said King.
Youre going to wake up in two years, three years, or certainly in five years and youre going to have missed a fantastic opportunity. But shareholders are demanding banks be return-focused. The trouble is that once the opportunity is apparent, it can sometimes be too late.
But the attractions are clear. In the emerging markets, you can see theres huge potential, he says. You can almost feel the capital markets developing in certain emerging market economies. You have to be in those markets both to position yourself for what the world is going to look like 10 years from now but also to serve your clients in the more established markets. Read the full transcript