Investment banks are going for growth again, but there's a catch

Maybe London's finance recruiters are onto something. As we reported last week, they're pretty bullish about the prospects for 2018. After a few quiet years, recruiters' expectation is that the cycle is "about to turn," and that banks are about to focus on growth. Various banks are proving this right.

The latest to do so is SocGen. During today's investor day, the French bank proclaimed its intention of achieving a compound annual growth rate of ~2.5% in its markets business between 2016 and 2020, and a CAGR of ~3% in banking and advisory.

SocGen isn't alone in going for growth. Nor is it especially bullish compared to the rest. Rival French bank BNP Paribas is pursuing a ~5% CAGR in its global markets business between now and 2020. Similarly, Standard Chartered aspires to a 5% to 7% compound annual growth rate in its investment bank in the medium term. And then there's Goldman Sachs, with its $5bn target in cumulative additional revenues over the next three years, implying a CAGR of around 15% in the years to 2020 given likely revenues of around $7.8bn this year (or a CAGR of 10% when retail bank Marcus is excluded).

If you want growth, therefore, investment banks look eager to deliver it. Goldman Sachs is the crazy outlier, followed by Standard Chartered and BNP Paribas. SocGen comes in at the more modest end of the spectrum.

Of course, higher revenues don't necessarily equate to more jobs. Revenue growth isn't as straightforwardly linked to hiring as it used to be.

In today's presentation, SocGen's growth targets for its global banking and investor solutions business come with caveats. As revenues in the division are supposed to grow, so costs in the division are supposed to shrink. By 2020, SocGen wants to reduce costs to 68% of divisional revenues and to achieve a return on net equity of around 14%. In the first nine months of 2017, costs ate 77% of revenues in SocGen's global banking and investor solutions business, and its return on net equity was 11.5%.

New growth does not imply new jobs, or at least not new jobs in the front office. Instead, as SocGen's "Transform to Grow" presentation makes clear, the French bank is pursuing growth while simultaneously cutting costs, changing its business mix to focus on higher returns, and applying the magic formula of "digital transformation".

Not all banks agree this is possible. - "You cannot cut yourself to glory and those that try will ultimately fail,” said Barclays' CEO Jes Staley last month. The blueprint for the new 'cut to grow' approach looks like Credit Suisse, whose investor day this Thursday will likely broadcast its success cutting costs whilst simultaneously hiking revenues in its investment bank over the past 12 months. If only things were that straightforward: while Credit Suisse has certainly cut costs and hiked revenues this year, individual employees in its investment bank were a lot more productive and profitable before the restructuring process began.

Have a confidential story, tip, or comment you’d like to share? Contact: sbutcher@efinancialcareers.com

Bear with us if you leave a comment at the bottom of this article: all our comments are moderated by actual human beings. Sometimes these humans might be asleep, or away from their desks, so it may take a while for your comment to appear. Eventually it will – unless it’s offensive or libelous (in which case it won’t.)