Investment banks still see opportunities amid unfavorable economic conditions, but they require a change in mind-set, a report released by BCG showed on Tuesday.
The report said unfavorable economic conditions, escalating capital requirements and stubbornly high costs continued to depress the performance of many investment banks.
The same can't be said for the capital markets industry, and revenues in the sector will grow by an estimated 12 percent over the next five years, increasing to $661 billion from $593 billion in 2015.
The asset base of buy-side entities is expected to reach around $100 trillion by 2020, up from an estimated $74 trillion in assets under management in 2014.
If this transpires, the buy side will generate nearly $300 billion in fees by 2020, and the investment banks on the sell side are expected to generate just over $205 billion by 2020, the report said.
Information service providers and exchanges are poised to benefit, and they will profit from increased demand for technology solutions and greater access to market information and analytics, the report noted.
Yet even as competition intensifies, opportunities for investment banks will continue to arise. Some larger or niche players will be able to absorb market share from those that are retrenching.
Others will require a change in -mind-set and approach to explore alternative -revenue opportunities beyond their traditional roles as capital raisers and market makers.
The report also said the role of capital itself is changing, and if the investment banks are to compete, they must recognize their ability to generate revenues as information companies.
Investment banks will need to be the right size, develop the right model, and take the right approach to return to consistent profitability. Dealers must learn to compete within the critical sectors of the new capital-markets ecosystem, data and financial technology, the report said.
