Value-Based Cost Reduction: Finding the Optimal Strategy for Growth

Value Based Cost Reduction: Finding the Optimal Strategy for Revenue Growth

But most have realized only modest improvements in

their cost-income ratios.

And the work isn’t done yet.

Investment banks have worked hard

to control costs.

In fact, research reveals the largest investment banks

collectively may need to further reduce costs by up

to US $20 billion to improve the average return on

equity.

So what has the game plan been up until now?

All firms have

increased their

compliance

activities.

Firms have

focused on

reducing “unit

costs.”

Improved

virtualization and

cheaper

computing power

have helped to

reduce IT costs.

Cost reduction

has taken place

largely within the

four walls of

banks.

Now, as one investment banking executive puts it:

“We have squeezed this lemon dry. There is no way to continue with historical

cost-reduction activities and expect more savings or any sustainable cost

advantage. We need to solve this differently—with industry-wide cooperation

and with different techniques within our institutions.”

New ideas are starting to take hold, however,

with five hot topics worth noting:

Broker use is increasing as a result of

remediated broker policy and controls,

and a shift in the role of inter-dealer

brokers in the over-the-counter (OTC)

market.

FIVE TOPICS SHAKING UP INVESTMENT BANKS

Market data use is increasingly

driven by proactive enforcement of

usage agreements by data vendors.

Sales and trading workforces are

being resized to accommodate ongoing

electronification across asset classes

and changing market conditions.

Control workforces, particularly

compliance and risk departments,

are growing as a result of new rules

regarding conduct and supervision.

Technology is being simplified,

driven by increased consumption of

change, IT infrastructure and third-

party application services. In addition,

zero-based budgeting and spending

has the potential to play a pivotal role

in helping banks make effective,

value-adding investments to

continually refuel for growth.

Banks can optimize return on investment

through three steps to profitability:

Take an outside-in view to create

cost visibility and insight.

Compare how much it would cost to

house a specific function outside the

bank with how much it costs to

maintain it internally.

THREE WAYS BANKS CAN OPTIMIZE RETURN ON INVESTMENT

Build an end-to-end governance

model that drives accountability to

the rightful owners. A governance

model, along with related financial

controls and performance incentives,

plays a key role in ultimately shifting

mind-sets toward long-term growth.

Use cost savings to fuel growth.

Design transformation programs

based on sustainable operating

models that promote efficiency and

cost savings.

LEARN MOREabout how investment banks are controlling costs to

fuel long-term growth with our full report:

Value Based Cost Reduction:Finding the Optimal Strategy for Revenue Growth

Value-Based Cost Reduction: Finding the Optimal Strategy for Growth

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