Today’s global financial landscape presents investment banks with ever-evolving challenges through market pressures and regulatory requirements. As they strive to remain competitive, investment banks continue to simplify their business models, while identifying the optimal set of revenue streams. One key question for investment banks to consider will be where to have a geographic presence, along with the degree of operational consolidation and diversification in those locations.
Before devising a new location strategy, investment banks of all sizes should consider a number of key internal and external drivers.
Internal drivers include:
- Revenue creation. Remain in close geographical proximity to potential clients, while having a presence in markets with a high wealth density and mergers and acquisitions activity.
- Cost reduction. Decide what functions to offshore, rationalize business lines and asset classes and restructure legal entities.
- Organizational effectiveness. Embrace the digital workforce, be strategic about what capabilities to augment or replace.
External drivers include:
- Macroeconomic and geopolitical factors. Be mindful of changes in GDP, local interest rates, currency exchange rate fluctuations and political developments such as Brexit.
- Regulatory obligations. Consider local laws requiring firms to keep assets on site.
- Tax and legal benefits. Look for locations with rules and laws providing incentives. Switzerland, Dubai and New Jersey are some of the locations offering special benefits to investment banks.
With those internal and external drivers in mind, investment banks can set up their vision and objectives for a location strategy. In order to chart a sustainable course, banks should align their geographic presence plan to the strategic objectives of their organizations’ operating models. Building brand awareness and sensitivity to local cultures are among the operating model factors to consider.
Next, investment banks should pick the right-sized financial services hubs for their operations. While global hubs are optimal for revenue-generating activities and general management processes, regional hubs offer critical mass in certain areas of expertise. Investment banks should carefully weigh the pros and cons of each hub type before making geographic decisions.
In addition to choosing the right geography, investment banks should consider the market factors in play at each location. Each market will feature a different maturity and sustainability. In some markets, there may be barriers to entry for foreign corporations. Other markets may be short on the local talent pool.
By aligning their location strategy to their operating model and choosing locations and markets wisely, investment banks would be able to satisfy business aspirations, and withstand changes in external factors.
To learn more, download: Challenge 4: Pressing the Reset Button on Location Strategy