Corporate and Investment Banks Must Reinvent Themselves

BOSTON—Corporate and investment banks (CIBs), facing rising challenges that the COVID-19 crisis has made even more pressing, must fundamentally transform themselves—targeting high-value clients, shedding subscale business lines, and converting to customer-centric operating models while working within integrated, agile teams—if they hope to survive and reestablish themselves as significant contributors to bank growth over the next decade, according to a new report by Boston Consulting Group (BCG). The report, titled Reinventing Corporate and Investment Banks, is being released today.

The report, the second in a series launched with The New Reality for Wholesale Banks in November 2019, says that most CIBs have not recovered from the aftermath of the 2007–2009 global financial crisis. Tighter regulation, unfavorable interest rates, and stubbornly high costs have left many institutions grasping for ways to fund needed investments. At a time when customers are looking for more innovative offerings, and with market stressors likely to intensify—a situation exacerbated by the current COVID-19 crisis—CIBs are at a critical juncture.

“Corporate and investment banks can continue with the status quo and wither, or they can commit to reinventing how they operate,” said Gwenhaël Le Boulay, a Paris-based BCG senior partner, a coauthor of the report, and the global leader of the firm’s wholesale banking segment. “We recommend the latter course, and not simply because it is the surest way to survival. CIBs that take the right actions can increase top-line revenue by 5% to 10% and productivity by 10% to 20%.”   

The report outlines six critical ways in which struggling CIBs can transform themselves and improve performance—both in the near term and over the next decade: refocus the portfolio and footprint; put the client at the center of the model; explore partnership opportunities; work in multidisciplinary, egalitarian teams; embrace digital and data; and prioritize sustainability.

Refocus the portfolio and footprint. CIBs that stubbornly insist on maintaining a broad portfolio must let go of the old notion that doing so will protect and deepen client relationships, in particular when it comes at the expense of sacrificing leadership in areas and businesses in which they have a “right to win.” The most successful CIBs will refocus their businesses in three ways: simplify the customer base, prune noncore product offerings, and realign and consolidate operating and coverage models.

Put the client at the center of the model. In an industry where the client-bank relationship is a core driver of success, the accelerated pace of technological change is forcing CIBs to rethink the way they enforce greater alignment between their operating models and customer expectations and needs. For many CIBs, a lack of effective coordination between product and sales and across the delivery and service functions has created a disjointed experience for customers and diminished growth opportunities for banks. To succeed in a more demanding environment, CIBs need to reorganize in two ways: align the product and sales functions, and redesign processes on the basis of customer journeys.

Explore partnership opportunities. Regional CIBs face growing competition and commoditization by digital entrants. Because digital natives generally have lighter infrastructures and a lower cost basis, they can sell their offerings at attractive price points. Rather than attempting to beat digital natives at their own game, regional CIBs can opt to create partner ecosystems to fill critical capability and service gaps in their portfolios. Strategic partnerships could also help CIBs lower their cost structure.

Work in multidisciplinary, egalitarian teams. In order to provide holistic solutions, regional CIBs need to move away from the status quo, where value generation opportunities are concentrated in a few specific roles—star sellers and traders, or top M&A deal originators, for example—and toward multidisciplinary teams staffed with a wide variety of skills, knowledge, and backgrounds. Banks that use agile methods and collaborative teaming can generate significant impact and unlock value, especially in their technology investments. For example, by applying agile methods to IT and software projects, one bank sped delivery by 30% to 50% and boosted production by 10% to 20%.

Embrace digital and data. CIBs can opt to either transform their core banking systems or create a standalone challenger business. Both approaches have tradeoffs. While the creation of a completely new bank is appealing, since it allows CIBs to take advantage of the latest technology and avoid legacy issues, building a new bank is a massively complex undertaking that can take years to scale. On the other hand, CIBs know all too well that a traditional IT transformation can also take years, and the results may still lag customer and user expectations. In any case, both models require CIBs to make smarter and more strategic use of data. CIBs must also learn how to leverage data along its complete value chain—from data capture and storage to data-driven insight generation and implementation.

Prioritize sustainability. BCG estimates that sustainability-led businesses will contribute roughly $200 billion of the nearly $700 billion in the global wholesale banking revenue pool from 2019 to 2025. The key challenge for many CIBs, however, is figuring out how to build an effective sustainability strategy to capture this opportunity. Some growth will occur organically through the lending portfolio. To spur the vast remainder, however, banks will have to develop sustainability-led value propositions that go well beyond the limited ESG investing and green-bond-style products seen today.

“Overall, while reinvention may seem a fearsome prospect,” said Le Boulay, “our experience shows that for banks willing to commit, the returns can more than make up for the short-term discomfort involved.”

A copy of the report can be downloaded Reinventing Corporate and Investment Banks.

To arrange an interview with one of the authors, please contact Eric Gregoire at +1 617 850 3783 or gregoire.eric@bcg.com.