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In its report "Creating value in banking 2009: Living with new realities", the Boston Consulting Group looks at how the crisis will affect banks' business models.



It summarises the realities that will change the face of the industry:

• Reestablishment of the universal-banking model’s primacy. These banks are built on strong customer relationships and funded predominantly from their own deposit base. The competition for deposits has already intensified.
• Banks will become more focused. Large banks will still exist but they are likely to be multilocal institutions rather than wide-ranging, highly complex global titans.
• Banks will move forward by emphasizing again “old-fashioned” products and practices. This business model will reflect a more cautious, more highly regulated, and less risk-oriented environment. A complete reversion to the originate-to-hold model is not expected. However, banks will need to develop prudent business models.
• Banks will focus on their customers and not on products. Advice will need to be more meaningful and relevant. Operations will need to be more responsive to customers.

In summary, these new realities will force many banks to refocus on core businesses.

As a result of these new realities, the Boston Consulting Group expects financial institutions to rein in their ambitions and concentrate on the businesses they know best and focusing on their role as financial intermediaries. Several different business models are expected to emerge:

• Large, integrated banks in developed markets

A group of large, vertically integrated banks will carve out top five positions in multiple markets. But this will constrain their geographic reach with the majority of their revenues coming from retail and commercial banking.

• Emerging market champions

A few banks will continue to build meaningful positions in emerging markets (e.g. Brazil, Russia, India, and China as well as Central and Eastern Europe). Their strategy will be based on a long-term plan for building a competitive presence in these markets.

• Global specialists

Some institutions, particularly investment banks, private banks, securities servicers, and asset managers, will focus on a set of core businesses that give them leading positions in markets around the world.

According to this report, there will be no room for global banking titans as they existed before the crisis. Their size was actually a disadvantage as it made them too complex to manage.

In summary, large banks will still exist but they will be multilocal rather than global and they will concentrate on a smaller set of activities and probably a more limited number of markets. Their business models will be consistent from country to country.

The report also looks more closely at different types of financial institutions, including retail banks.

In the short term, it predicts that the performance of retail banks will suffer dramatically and margins will shrink. These will face serious funding and profit challenges. To confront these problems, they must go back to the basics of the business: assets, deposits, and branches. As a result, it is expected that the battle for deposits will largely determine the winners and losers in many markets.

The report is available under related files.