Management consultants make a lot of money out of banks. McKinsey & Co. are said to have been all over RBS and responsible for the closure of its equities and investment banking businesses.

Boston Consulting (BCG), on the other hand, is said to be favored by HSBC and was behind the bank’s plan to remove all but six layers of management and is probably also, therefore, behind this week’s new layoffs.

Fortunately, for anyone at HSBC who’s wondering what BCG Consultants have planned for them, or for anyone wondering what will happen if BCG infiltrates their employer, or anyone who simply wants to know what BCG thinks is coming for investment banking, BCG’s finest banking partners have produced a long, pitch-like document about what they think needs to be done to get the investment banking business back on track.

In the wake of today’s news that Macquarie’s ROE is still only 6.8 percent, despite having cut 9 percent of its staff, everyone may want to take note.

The key points from BCG are these:

1. It’s all about return on equity

"Most major firms in the [investment banking] industry are operating at a return on equity (ROE) of 7 percent to 10 percent, half the historical level and half of what investors will expect in the long term."

2. It’s not going to get any better for any banks soon

Rising capital requirements are putting pressure on FICC business. New competitors from emerging markets and outside the banking sector are competing. "Regulation is shifting some traditional banking activities toward the non-banking world, such as into hedge funds (proprietary trading), major energy companies (underlying commodities trading) and private equity (financing)."

3. Profits are going to be flat, or declining, for a long time

"There will be modest or no growth in CMIB profit pools over the next few years. This is especially true for flow products, whose margins could shrink substantially the more they are traded on electronic platforms."

"…electronic trading could bring reduced costs and increased volume, but competition for this volume and the lack of any true differentiation among players will likely result in flat or declining profits. Similarly, we do not expect positive profit evolution in structured products, where a likely decrease in volume owing to fewer banks offering these products could result in higher margins—an effect that should be offset by the cost of capital and regulatory compliance."

4. You probably want to work in DCM

"IBD should be hit least by current conditions, with annual revenue-growth expectations in the range of –5 to +15 percent through 2015. One reason is that advisory services are not affected by regulation. Since many corporations are more sturdy and battle tested than they were in the run-up to the last recession, we expect considerable M&A opportunities to materialize. Furthermore, the need to move away from originating loans (with the intent of holding them on the balance sheet) toward originating bonds (with the intent to distribute) should give rise to a significant increase in debt capital market (DCM) activities and fees."

5. Any recent improvements in FICC revenues have been entirely temporary and LTRO-related

"FICC will have the largest downside risk over the next few years, with expected annual revenue growth in the range of –15 to +5 percent through 2015. In addition to rising costs stemming from regulatory compliance—which will hit rates and credit trading harder than foreign exchange—the advent of more electronic trading and the eventual commoditization of the market (via the push toward central clearing systems) will create further downward pressure on margins. Some margin may be recovered through higher volumes of flow products, but this effect should be relatively small."

6. However, rates traders and sales people remain by far the most productive

Source: BCG

7. Banks can’t afford to pay bonuses because they must invest in technology

"IT costs have increased by 30 percent for Tier 1 banks and by 45 percent for Tier 2 banks over the last three years, largely driven by regulation."

8. Trading businesses will divide into four types. Which type do you want to work for?

Seventy percent of trades will happen through scale-oriented flow providers operating electronically. Twenty percent will happen through relationship experts and comprise trades requiring manual execution (due to illiquid products, ticket size, unsophisticated clients). Ten percent will come from principal traders willing to take significant risk with illiquid bespoke products that stay on their books.

9. Banks can’t afford to pay like they used to and must be nicer to their staff

Low ROEs mean banks can’t afford to devote 50 percent of their revenues to compensation. They must shift to "more holistic compensation strategies. These should encompass both qualitative and quantitative assessments, a clear career progression, tightly controlled titles and job profiles, and opportunities to develop through training, switching business units or further education."

10. Now that base salaries are so high, banks shouldn’t be promoting so many people

"Another approach being embraced, especially by leading banks, is tighter management of titles—and thus of base salaries. Top banks remain the most disciplined and selective, strictly limiting the number of senior roles and titles in the highest compensation brackets. Tier 2 banks have also begun to clean up their title norms, but around 40 to 50 percent of their staff still hold the title of director or managing director, compared with roughly 20 percent to 30 percent at Tier 1 players."

11. Banking will always be here

It’s OK. "The need for financial intermediaries will not go away, and the CMIB industry has a long history of bouncing back from difficult times."