BCG - The Boston Consulting Group

• Note to the Reader
• Preface
• Navigating a New Landscape
• What the Crisis Means for Different Businesses
• The State of the Banking Industry in 2008
• Rankings of Top Performers
• Appendix: Sample and Methodology
• For Further Reading

The losses suffered by the banking industry are astounding. Since the precrisis peak, the market capitalization of the global banking industry has fallen by $5.5 trillion. This is equivalent to about 10 percent of global GDP. But losses are only half the story. The financial crisis has done more than destroy value and topple banks. It has redefined what financial institutions must do to compete and win. It will prove to be as transformative as it is destructive.

Many banks are eager to move beyond dissecting the causes of the crisis and tallying the damage. They want to figure out how to move forward—and not just over the next few months. This is challenging because the future is clouded by uncertainty and a deepening economic downturn. We are likely to see more significant change as governments and regulators pursue measures that are both unconventional and without precedent.

If the financial crisis has made one thing clear, it is that no one knows exactly what lies ahead. But that should not stop banks (or us) from looking past the immediate—and largely defensive—responses to the turmoil, such as the scramble for funding and hurried efforts to cut costs. The crisis will precipitate changes that are more fundamental than actions driven solely by self-preservation.

To begin moving forward, banks must ask, What is the right business model for the postcrisis era? The business model includes the shape of the business portfolio, the bank’s operating and governance models, its approach to talent management, and its strategy for establishing competitive advantage.

Several new realities will change the face of the industry in general:

• We expect the much-maligned universal-banking model to reestablish its primacy. The fundamentals of the model are sound. These banks are built on strong customer relationships and funded predominantly from their own deposit base.
• At the same time, banks will become more focused. They will compete where they can win. Large banks will still loom over the landscape, but they are much more likely to be multilocal institutions—repeating a simpler, more standardized business model across fewer countries—rather than wide-ranging, highly complex global titans. Competitive advantage is back in fashion.
• Banks will move forward by returning to the past. They will once again emphasize “old-fashioned” products and practices, where the bias is to lend what gets taken in as deposits. Their business models will reflect a more cautious, more highly regulated, and less risk-oriented environment. There will be a stronger focus on transaction, processing, and fee-based activities.
• This does not mean that banking will be dull or easy. If anything, it will become more demanding as banks get back to the business of focusing on their customers—the emphasis will be on relationships, not products. Branches may need to extend their hours of operation. Advice will need to be more meaningful and relevant, and thus more valuable. Operations will need to become not only more efficient but more responsive to customers.

The new realities will force many banks to fall back on core businesses and leaner cost structures, reverting to the things they do best and competing only in the markets where they have strong positions. These actions—coupled with better risk management and an up-to-date view of how the crisis is playing out—should do more than just ensure stability. They will position a bank to gain substantial ground in their core markets at the expense of competitors that do not respond quickly and with purpose.

The report begins with an overview of the impact of the crisis on the banking industry as a whole. What follows is an in-depth look at the imperatives for five businesses: retail banking, corporate banking, investment banking, asset management, and wealth management.

The report concludes with detailed analysis of the banking industry’s performance in 2008, along with rankings of top performers by size and country.

Ranu Dayal is a senior partner and managing director in the Singapore office of The Boston Consulting Group.

John Garabedian is a senior partner and managing director in the firm's Chicago office.

Lars-Uwe Luther is a partner and managing director in the firm's Berlin office.

David Rhodes is a senior partner and managing director in the firm's London office and global head of BCG's Financial Institutions practice.

Tjun Tang is a partner and managing director in the firm's Hong Kong office and the head of BCG’s Financial Institutions practice in Greater China.