Accenture’s latest analysis, our Capital Markets Vision 2022, shows a highly diverse picture of investment bank performance and outlook. Yes, the top four investment banks (all generating above $20bn in revenue and all US domiciled) are creating significant economic profits and thus shareholder value. And yes, profitable niches do exist further down the scale for banks in the $1-5 billion in revenue range.

But the rest? The truth is that most of them are failing to generate their cost of capital. And the plot is thickening – with most large players having now reported FY18 results, we are seeing exactly the same pattern!

An industry in flux

And we believe that for most players, the industry context won’t change. The next few years will remain challenging. We don’t expect markets to grow as a whole as shareholders, regulators and customers are continuing to ramp up the pressure to deliver higher value at lower cost.

It means the era of “lucrative inefficiency” will come to an end as unsustainable cost structures are reformed. For smaller banks, for instance, only around half the current cost base is aligned to core functions. That makes incumbents highly prone to disruption.

Our research has found about $150 billion of complexity costs that could be reduced – or nearly eliminated – through digital transformation. In fact, digital innovation is shifting the whole balance of the industry core, as technology-intensive models mean investors now dominate and market access becomes all-to-all.

On top of this, the impact of artificial intelligence (AI) is already being felt across the industry, and significant advances should be expected in AI-augmented research and risk analysis, automated deal-making and back office efficiencies.

Distributed ledger technology will bring perhaps even more profound changes to capital markets. Although still very much in its exploratory phase, the technology holds huge potential in enabling friction-free transactions and a single source of truth that competing organizations can all agree on.

Investing in a journey to the new

The question for investment banks is – how can we thrive in this uncertain new landscape? And the answer is that all institutions, however profitable, should now be preparing their businesses for change. That means asking three fundamental questions:

  1. What opportunities does this new operating environment create?
  2. How does our organization need to adapt to capture those opportunities and thrive in the new?
  3. How can we make that happen given resource constraints and profitability pressures?

To help investment banks find answers to these questions, Accenture has been talking to players across the capital markets industry. The result is a framework of 17 key strategic decisions to guide organizations on their journeys to the new.

It’s all explained in our Capital Markets Vision 2022 white paper. To find out what’s in store for your organization, please take a look.

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