Read a report from Accenture Capital Markets on repurposed IB and redesigning an investment bank to support the group.

1. Repurposed Investment
Banking: Redesigning an
investment bank to support
the Group
Top Ten Challenges for
Investment Banks 2015
04
RepurposedInvestmentBanking:
Redesigninganinvestmentbank
tosupporttheGroup

2. 04
Repurposed Investment Banking:
Redesigning an investment bank to
support the Group
Difficult decisions surrounding participation in products and
markets by the investment bank have defined the past few
years. For those whose strategy is solidified, executing on
these choices and coordinating with other business lines to
ensure that the Group becomes greater than the sum of its
parts will now become the priority. For others, increasing
capital requirements and the need to generate shareholder
returns mean these decisions cannot be delayed.
As the experience of the leaders is starting
to show, aligning this internal focus on
returns in the investment bank with the
services of the broader Group will be the
differentiating factor in the coming year.
But the challenge here is twofold: executing
restructuring effectively; and maintaining
profitability during redefinition.
The restructuring imperative
These participation choices are framed by
imperatives making the investment bank
accountable to its Group. The ongoing
profitability challenges, cost of regulatory
conformance, threats of fines and volatility
all place significant pressure on justifying
participation in investment banking
activities. However, it is decreasing revenue
pools in the investment bank (see Fig. 1)
that now seem to be driving restructuring
and repurposing. These downward
pressures on revenue, when set against
increasing Group capital requirements (see
Fig. 2), increase the drag on increasingly
constrained capital. The investment bank
can no longer run as a siloed entity.
2
The shift of focus from
investment bank to Group
capital position requires such
restructuring to shift to highe
returning business lines.

3. 3
Regulatory headwinds make this
accountability explicit. Increased CET1
requirements as part of CRDIV mean
investment banking’s higher Risk-
Weighted Assets (RWAs) may impair the
Group’s capital position; that this capital is
now held at Group level makes the
investment bank’s return on capital a
material matter for the Group’s position.
Unless commensurate profit is generated,
a disproportionate drag on the Group’s
increasingly constrained capital levels will
force a reordering of activities.
We have seen notable efforts to confront
this. Credit Suisse’s non-core run-off,
alongside an increase of CHF15-20bn in
Private Banking and Wealth Management
RWAs, is instructive: the Private Banking
and Wealth Management businesses
reported a return on capital of 32% in Q1
of 2014; the investment bank, 14%
(source: Credit Suisse, Goldman Sachs
Conference 2014). The shift of focus from
investment bank to Group capital position
requires such restructuring to shift to
higher returning business lines.
However, not all investment banks have
defined their offering from this Group
perspective. Credit Suisse, along with UBS, is
advanced in restructuring to complement
the Group’s offering. Other central
European players, for instance, are still
grappling with key participation decisions,
including how to manage their FICC
offering. The positive market reaction to
UBS’s and Credit Suisse’s efforts
demonstrate that repurposing toward
higher returning Group businesses not
necessarily in IB and committing to
shareholder returns are two key imperatives
in the short to medium term.
Internal restructuring
On a standalone basis, investment banking
activities need to meet their cost of capital
and generate sufficient RoE to return
shareholder value proportionate to their
position within the Group. The top line
strategic choices we have seen made in the
past few years by market leaders contribute
to the broad return to positive RoE (see Fig.
3), indicating that the most painful stages
of restructuring have passed.
Divestments to aid the Group’s position are
coming to fruition, with a decline in the past
Figure 1: Declining total revenue in IB activities
• Unicredit
• Commerzbank
• Nomura
• Credit Agricole
• BNP Paribas
• SocGen
• Santander
• Deutsche Bank
• Credit Suisse
• UBS
• Standard Chartered
• RBS
• HSBC
• Barclays IB
• RBC
• BoA
• Citi
• JP Morgan
• Morgan Stanley
• Goldman Sachs
Figure 2: Increasing Group capital requirements- CRDIV (Basel III)
2008 2009 2010 2011 2012 2013
350,000
300,000
250,000
200,000
150,000
100,000
50,000
0
-50,000 Source: Banks,
Accenture Research
Source: Accenture Research
Until 2012 2013 2014 2015 2016 2017 2018 From 2019
14%
12%
10%
8%
6%
4%
2%
0%
• CET 1 capital
• Capital conservation buffer
• Additional Tier 1 capital
• Countercyclical capital buffer
• Tier 2 capital
4.0% 3.5% 2.5%
4.5% 4.5% 4.5%
2.0% 2.0% 2.0% 2.0% 2.0%
2.5%
2.5%
0.625%
1.25%
1.25%
1.875%
1.875%
0.625%
2.0% 1.0%
1.5%
1.5% 1.5% 1.5% 1.5% 1.5%
2.0% 3.5%
4.0%
4.5% 4.5%
(US$ mn)

4. 4
Figure 3: ROAE % across major investment banks
Note: UBS and Credit Suisse do not separate IB
revenue as a line item. Though discussed below,
they are not included in this graph
• Goldman Sachs
• Morgan Stanley
• JP Morgan
• Bank of America
• Wells Fargo
• Citi
• PNC
• Charles Schwab Corp
• St ifel Financial Corp
• Deutsche Bank
40.00
30.00
20.00
10.00
0.00
-10.00
-20.00
-30.00
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
financial year (see Fig. 4). However, the
restructuring of portfolios to non-core
groups and creation of “bad banks”,
reducing the strain on capital and
mitigating risk whilst maintaining RoE, is
still being managed. Certainly, the haircut
required in a wind -down makes this a
sub-optimal choice, as we have seen in
recent efforts to reduce the drag on
Group RoE. But with this resettling of
RoE and market restructuring, effective
alignment and, if necessary, repurposing
can now begin.
Some have already reacted to this by
feeding the appetite of other business
lines during restructuring, as seen with
Lloyds Banking Group Insurance’s
acquisition of £2bn of infrastructure
and long-dated assets from the
Commercial Bank to match growing
annuities liabilities. Where a captive
Asset or Wealth Management arm
exists, similar opportunities to repurpose
productively present themselves – but
are yet to be fully realised.
From restructuring to repurposing
Repurposing can assist in growing the
Group’s core revenue from existing
market share, whilst aiding client
acquisition. UBS is a leader here, in
aligning its investment bank to provide
market access for its core Wealth
Management client base. It achieved
significant growth in new investment
by defining a “full service offering”
around this core, increasing its net
money flow to Wealth Management by
CHF7bn in Q4 FY13 and shaping its
market-accessing products to support
this growth. Moreover, Morgan
Source: Accenture Research

5. 5
Figure 4: Total value of disclosed divestments by investment banks ($bn)
2006 2007 2008 2009 2010 2011 2012 2013 2014
70
60
50
40
30
20
10
0
Stanley’s pursuit of stock trading, acquiring
the Smith Barney brokerage whilst growing
the Wealth Management offering has seen
impressive returns.
Defining a full service offering around the
Group’s core client base, moving away from
the unsustainable suite of products that
previously defined “full service”, is crucial.
This offering will vary by Group, and
Morgan Stanley’s acquiring Smith Barney
from Citi demonstrates that repurposing
can benefit by acquiring businesses now
deemed non-core by competitors.
Of course, repurposing is not without
challenges. Detaching legacy technology and
operations from the core offering can, due to
entrenched complexity, hinder realignment.
That the required transformation
programmes must justify themselves by
becoming self-funding within a year is a
further challenge. Yet the standardisation of
products, as supervision gathers pace, has
combined with a growth in demand to
create a significant outsourcing market
capable of winding down or managing in a
cost-efficient manner.
Moreover, rapid transformation can
generate these returns by enabling more
effective cross-marketing. Growing
services such as Transaction Banking for
existing FX clients, as Deutsche Bank has
done, opens further revenue lines from
an investment banking client base. Cost
savings can be achieved at the same
time as execution risk is moved outside
of the bank to third parties, and the
enhanced profitability from an existing
client base generates the returns that
decision makers require.
Shifting focus from the Group’s balance
sheet to its PL, where differentiated IB
platforms and operational capabilities
exist, they can be repurposed to have a
positive impact on operating
expenditure. Furthermore, they reduce
the capex required to meet updated
regulatory transparency requirements.
For example, the scalability provided by
platforms designed for a broad offering
can assist in meeting reporting
requirements elsewhere, driven by
Dodd-Frank and EMIR. Credit Suisse is
repurposing its differentiated back
office reporting functions for their
expanded Private Banking and Asset
Management division. The tying up of
operations, in short, can be
productively pursued from the front to
the back of the service offering, from
products to operations.
Successful repurposing, we can see,
can take many forms. What will
differentiate leaders in 2015 will be the
execution of participation choices
whilst creating an investment bank in
productive partnership with its Group.
With a lack of clarity surrounding
regulated leverage ratios, the question
of profitability remains, and the
effective use of capital will continue to
be a focus. Some are closer to the
repurposing watershed than others.
Those still approaching it should apply
the lens of the Group, as some leaders
have done, and discern how the
investment bank would be best
positioned to serve its Group’s offering.
With a lack of clarity
surrounding regulated
leverage ratios, the question
of profitability remains, and
the effective use of capital
will continue to be a focus.
Source: Accenture Research

6. About Accenture
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Accenture Experts
To discuss any of the ideas presented in
this paper please contact:
Owen Jelf
Global Managing Director
Capital Markets
owen.jelf@accenture.com
+44 20 7844 2792
Christopher Hook
Capital Markets, London
christopher.j.hook@accenture.com
+44 20 3335 1373
Tomasz Walkowicz
Capital Markets Research, London
tomasz.m.walkowicz@accenture.com
+44 20 7844 5542
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