Value-Based Cost Reduction: Finding the Optimal Strategy for Growth

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Value Based Cost Reduction:
Finding the Optimal Strategy for Revenue Growth

But most have realized only modest improvements in
their cost-income ratios.
And the work isn’t done yet.
Investment banks have worked hard
to control costs.

In fact, research reveals the largest investment banks
collectively may need to further reduce costs by up
to US $20 billion to improve the average return on
equity.

So what has the game plan been up until now?
All firms have
increased their
compliance
activities.
Firms have
focused on
reducing “unit
costs.”
Improved
virtualization and
cheaper
computing power
have helped to
reduce IT costs.
Cost reduction
has taken place
largely within the
four walls of
banks.

Now, as one investment banking executive puts it:
“We have squeezed this lemon dry. There is no way to continue with historical
cost-reduction activities and expect more savings or any sustainable cost
advantage. We need to solve this differently—with industry-wide cooperation
and with different techniques within our institutions.”
New ideas are starting to take hold, however,
with five hot topics worth noting:

Broker use is increasing as a result of
remediated broker policy and controls,
and a shift in the role of inter-dealer
brokers in the over-the-counter (OTC)
market.
1
FIVE TOPICS SHAKING UP INVESTMENT BANKS

Market data use is increasingly
driven by proactive enforcement of
usage agreements by data vendors.
2

Sales and trading workforces are
being resized to accommodate ongoing
electronification across asset classes
and changing market conditions.
3

Control workforces, particularly
compliance and risk departments,
are growing as a result of new rules
regarding conduct and supervision.
4

Technology is being simplified,
driven by increased consumption of
change, IT infrastructure and third-
party application services. In addition,
zero-based budgeting and spending
has the potential to play a pivotal role
in helping banks make effective,
value-adding investments to
continually refuel for growth.
5

Banks can optimize return on investment
through three steps to profitability:

Take an outside-in view to create
cost visibility and insight.
Compare how much it would cost to
house a specific function outside the
bank with how much it costs to
maintain it internally.
1
THREE WAYS BANKS CAN OPTIMIZE RETURN ON INVESTMENT

Build an end-to-end governance
model that drives accountability to
the rightful owners. A governance
model, along with related financial
controls and performance incentives,
plays a key role in ultimately shifting
mind-sets toward long-term growth.
2

Use cost savings to fuel growth.
Design transformation programs
based on sustainable operating
models that promote efficiency and
cost savings.
3

LEARN MORE
about how investment banks are controlling costs to
fuel long-term growth with our full report:
Value Based Cost Reduction:
Finding the Optimal Strategy for Revenue Growth

Value-Based Cost Reduction: Finding the Optimal Strategy for Growth

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Value-Based Cost Reduction: Finding the Optimal Strategy for Growth