Discover your dream Career
For Recruiters

Wednesday's Headlines: Researchers Say Top banks' ROE will slump due to regulation

Return on equity at top banks will drop by two-thirds unless they find a way to recoup the costs of tighter regulation, according to a new research from McKinsey, eFinancialCareers reports.

The world's 13 largest banks posted average ROE of around 20% in 2010, McKinsey says. Basel III's more stringent capital and liquidity requirements will likely push ROE down to 7%. Banks that work to counter the decline, in part by passing the cost on to consumers, can push ROE back to 11-12% initially and up to 12-14% in coming years.

"Even this level is still well below the 20% or more banks were chalking up in the heady days before the financial crisis and above what some banks still forecast," says the McKinsey report. "Rebuilding returns will involve a full menu of immediate actions in four areas: improving risk and capital models, raising the bar for data quality, improving financial and operational efficiencies."

Not surprisingly, the spectre of further job cuts has been raised: "Especially for businesses with crisis- or regulation-induced declines in volumes and revenues, banks can adjust resources in both front- and back-office functions."

It's also called for a more wide-ranging revision of compensation practices, saying (a little vaguely) that "risk-adjusted compensation sets the right incentives and compensates to some extent for increased capital costs", but concedes that the need to hold on to talent could be a stumbling block.

Other News:

SEC whistleblower Markopolos accuses Bank of New York Mellon, State Street of deceptive forex practices. [Financial Times]

Bank of America plans to exit correspondent mortgages business as it focuses on core strengths. [Wall Street Journal]

US Bancorp sues Bank of America for allegedly violating $1.75 billion loans contract. [Reuters]

Barclays CFO says bank liquidity, funding, capital "rock solid" despite recent turmoil. [Dow Jones Newswires]

Wall Street firms' donations to charities still low despite banks' recovery. [DealBook]

Bank of America adds 40 mid-Atlantic Merrill Edge financial solutions advisors. [On Wall Street]

Insider trading trial begins for Ex-Primary Global Research's James Fleishman. [Financial Times]

Citadel wins restraining order against employee accused of stealing data. [New York Times]

Bank of America ABS lawsuit by BNP Paribas and Deutsche Bank dismissed. [Bloomberg]

Wells Fargo in Twin Cities adds 90 mortgage bankers to meet refinancing demand. [Biz Journals]

Bank of America's $8.5 billion mortgage settlement challenged by homeowner lawsuits.

[DealBook]

Wells Fargo increases commercial and real estate lending while competitors draw back.

[Wall Street Journal]

author-card-avatar
AUTHORDalia Fahmy Insider Comment

Sign up to Morning Coffee!

Coffee mug

The essential daily roundup of news and analysis read by everyone from senior bankers and traders to new recruits.

Boost your career

Find thousands of job opportunities by signing up to eFinancialCareers today.
Latest Jobs
Asian Infrastructure Investment Bank
Senior Communications Officer (Investment Operations) (Base in Beijing)
Asian Infrastructure Investment Bank
New York, United States
Asian Infrastructure Investment Bank
Senior Civil Society Coordinator (Base in Beijing)
Asian Infrastructure Investment Bank
New York, United States
Asian Infrastructure Investment Bank
Economist (Project Economics) (Base in Beijing)
Asian Infrastructure Investment Bank
New York, United States
Asian Infrastructure Investment Bank
Senior Procurement Policy Specialist (Base in Beijing)
Asian Infrastructure Investment Bank
New York, United States
Asian Infrastructure Investment Bank
Senior Investment Operations Specialist- Transport (Base in Beijing)
Asian Infrastructure Investment Bank
New York, United States
Asian Infrastructure Investment Bank
Investment Operation Specialist- Transport (Base in Beijing)
Asian Infrastructure Investment Bank
New York, United States

Sign up to Morning Coffee!

Coffee mug

The essential daily roundup of news and analysis read by everyone from senior bankers and traders to new recruits.