|By Marketwired .||
|December 5, 2012 12:01 AM EST||
BOSTON, MA -- (Marketwire) -- 12/05/12 -- Five years after the onset of the financial crisis, banks are still struggling to create sustainable value and must revise their business and operating models, taking a centralized, comprehensive approach at all organizational levels to make transformation happen, according to a new report by The Boston Consulting Group (BCG). The report, titled "An Inflection Point in Global Banking: Risk Report 2012," is being released today.
At EUR -89 billion in 2011, the economic profit of the global banking industry remained negative for the fourth consecutive year. The primary causes of the poor performance were risk costs -- still 75 percent above precrisis levels despite a slight decline due to lower capital charges. Banks' ability to create value has also been hampered by falling income levels, refinancing costs that are again increasing, and still-rising operating costs.
The pressure on economic profit will not ease in the foreseeable future, according to the report, which covers 145 banks that account for nearly 75 percent of banking assets in Europe, the U.S., and Asia-Pacific. In addressing the implications that structural industry changes have for bank income and costs, the report concludes that banks must take action now on multiple fronts in order to put value creation on a more positive trajectory.
The Equity Investor Perspective: Higher and More Diverse Cost-of-Equity Levels
During the crisis, the cost of equity rose from its stable precrisis level of 9 percent for all banks to 12 percent for commercial banks and 16 percent for investment banks. Investor expectations in the future will continue to differentiate between investment banks on the high end and commercial banks on the low end.
"These shifts in the cost of equity (COE) have sparked a debate on what constitutes an adequate level for banks going forward," said Gerold Grasshoff, a senior BCG partner and coauthor of the report. "In today's environment, with risk-free rates hovering around 0 percent, the real question seems to be whether COE and return-on-equity levels above 10 percent are realistic."
Banks will need to adopt a segment-specific approach to setting target returns in order to create incentives aligned with equity investors' interests. This is common for companies in many other industries, the report says.
The Debt Investor Perspective: Limited Market Access and Higher Funding Costs
The perspective of debt investors is also undergoing a structural change, reflected in particular by limited market access and higher credit-risk premiums for banks. As a consequence, banks have reverted to other sources of funding -- primarily central-bank liquidity but also deposits and secured funding. Many of the trends appear to be long-term, so capital market funding will be more selective and more costly on a sustained basis. "In the future, banks will need to give strong consideration to the availability, sources, and cost of funding in their business models and steering mechanisms," said Peter Neu, a BCG partner and coauthor of the report.
The Regulator Perspective: An Overhaul by the End of 2012
G-20 reforms such as the new Basel III framework -- despite discussions in the U.S. and EU on postponing implementation -- as well as central clearing and margining for over-the-counter derivatives, will form the new global regulatory foundation. While some regulations have already been introduced, virtually all remaining major reforms will be phased in by the end of 2012 or in early 2013.
In addition to the G-20 reforms, banks must contend with a number of domestic reforms -- for example, bank levies and the Liikanen proposal in the EU, the Volcker Rule in the U.S., and the Vickers report in the U.K. Market pressures are speeding the implementation of reforms, ultimately requiring banks to comply with the major elements by the end of 2012 or at least to present a credible plan for fulfilling the requirements.
Implications of the "New New Normal" Will Affect Economic Profit at the Group, Business, and Product Levels
Although the banking industry has reacted to changing market perspectives, major hurdles remain. For example, 50 percent of the banks in our survey are still short of the funds required to reach minimum capital ratios.
"As an inflection point is foreseeable for the industry, banks must ensure that they account sufficiently for all aspects of the new new normal when they adapt their businesses," said Grasshoff. "Each operating model will need to be reviewed separately according to business line and region."
A copy of this report can be downloaded at www.bcgperspectives.com
To arrange an interview with one of the authors, please contact Eric Gregoire at [email protected] or +1 617 850 3783.
About The Boston Consulting Group
The Boston Consulting Group (BCG) is a global management consulting firm and the world's leading advisor on business strategy. We partner with clients from the private, public, and not-for-profit sectors in all regions to identify their highest-value opportunities, address their most critical challenges, and transform their enterprises. Our customized approach combines deep insight into the dynamics of companies and markets with close collaboration at all levels of the client organization. This ensures that our clients achieve sustainable competitive advantage, build more capable organizations, and secure lasting results. Founded in 1963, BCG is a private company with 77 offices in 42 countries. For more information, please visit bcg.com.
Bcgperspectives.com is a new website -- available on PC, mobile phone, and iPad -- that features the latest thinking from BCG experts as well as from CEOs, academics, and other leaders. It covers issues at the top of senior management's agenda. It also provides unprecedented access to BCG's extensive archive of thought leadership stretching back almost 50 years to the days of Bruce Henderson, the firm's founder and one of the architects of modern management consulting. All of our content -- including videos, podcasts, commentaries, and reports -- can be accessed via PC, mobile, iPad, Facebook, Twitter and LinkedIn.
DevOps Summit 2015 New York, co-located with the 16th International Cloud Expo - to be held June 9-11, 2015, at the Javits Center in New York City, NY - announces that it is now accepting Keynote Proposals. The widespread success of cloud computing is driving the DevOps revolution in enterprise IT. Now as never before, development teams must communicate and collaborate in a dynamic, 24/7/365 environment. There is no time to wait for long development cycles that produce software that is obsolete at launch. DevOps may be disruptive, but it is essential.
Jan. 31, 2015 12:15 PM EST Reads: 2,645
The 3rd International Internet of @ThingsExpo, co-located with the 16th International Cloud Expo - to be held June 9-11, 2015, at the Javits Center in New York City, NY - announces that its Call for Papers is now open. The Internet of Things (IoT) is the biggest idea since the creation of the Worldwide Web more than 20 years ago.
Jan. 31, 2015 12:00 PM EST Reads: 8,121
Connected devices and the Internet of Things are getting significant momentum in 2014. In his session at Internet of @ThingsExpo, Jim Hunter, Chief Scientist & Technology Evangelist at Greenwave Systems, examined three key elements that together will drive mass adoption of the IoT before the end of 2015. The first element is the recent advent of robust open source protocols (like AllJoyn and WebRTC) that facilitate M2M communication. The second is broad availability of flexible, cost-effective storage designed to handle the massive surge in back-end data in a world where timely analytics is e...
Jan. 31, 2015 12:00 PM EST Reads: 2,737
"There is a natural synchronization between the business models, the IoT is there to support ,” explained Brendan O'Brien, Co-founder and Chief Architect of Aria Systems, in this SYS-CON.tv interview at the 15th International Cloud Expo®, held Nov 4–6, 2014, at the Santa Clara Convention Center in Santa Clara, CA.
Jan. 31, 2015 11:45 AM EST Reads: 3,679
The Internet of Things will put IT to its ultimate test by creating infinite new opportunities to digitize products and services, generate and analyze new data to improve customer satisfaction, and discover new ways to gain a competitive advantage across nearly every industry. In order to help corporate business units to capitalize on the rapidly evolving IoT opportunities, IT must stand up to a new set of challenges. In his session at @ThingsExpo, Jeff Kaplan, Managing Director of THINKstrategies, will examine why IT must finally fulfill its role in support of its SBUs or face a new round of...
Jan. 31, 2015 11:45 AM EST Reads: 2,812
The BPM world is going through some evolution or changes where traditional business process management solutions really have nowhere to go in terms of development of the road map. In this demo at 15th Cloud Expo, Kyle Hansen, Director of Professional Services at AgilePoint, shows AgilePoint’s unique approach to dealing with this market circumstance by developing a rapid application composition or development framework.
Jan. 31, 2015 11:30 AM EST Reads: 2,360
ARMONK, N.Y., Nov. 20, 2014 /PRNewswire/ -- IBM (NYSE: IBM) today announced that it is bringing a greater level of control, security and flexibility to cloud-based application development and delivery with a single-tenant version of Bluemix, IBM's platform-as-a-service. The new platform enables developers to build ap...
Jan. 31, 2015 11:15 AM EST Reads: 3,239
Building low-cost wearable devices can enhance the quality of our lives. In his session at Internet of @ThingsExpo, Sai Yamanoor, Embedded Software Engineer at Altschool, provided an example of putting together a small keychain within a $50 budget that educates the user about the air quality in their surroundings. He also provided examples such as building a wearable device that provides transit or recreational information. He then reviewed the resources available to build wearable devices at home including open source hardware, the raw materials required and the options available to power s...
Jan. 31, 2015 11:00 AM EST Reads: 2,503
An entirely new security model is needed for the Internet of Things, or is it? Can we save some old and tested controls for this new and different environment? In his session at @ThingsExpo, New York's at the Javits Center, Davi Ottenheimer, EMC Senior Director of Trust, reviewed hands-on lessons with IoT devices and reveal a new risk balance you might not expect. Davi Ottenheimer, EMC Senior Director of Trust, has more than nineteen years' experience managing global security operations and assessments, including a decade of leading incident response and digital forensics. He is co-author of t...
Jan. 31, 2015 11:00 AM EST Reads: 3,408
The Internet of Things is not new. Historically, smart businesses have used its basic concept of leveraging data to drive better decision making and have capitalized on those insights to realize additional revenue opportunities. So, what has changed to make the Internet of Things one of the hottest topics in tech? In his session at @ThingsExpo, Chris Gray, Director, Embedded and Internet of Things, discussed the underlying factors that are driving the economics of intelligent systems. Discover how hardware commoditization, the ubiquitous nature of connectivity, and the emergence of Big Data a...
Jan. 31, 2015 10:45 AM EST Reads: 3,279
The Internet of Things promises to transform businesses (and lives), but navigating the business and technical path to success can be difficult to understand. In his session at @ThingsExpo, Sean Lorenz, Technical Product Manager for Xively at LogMeIn, demonstrated how to approach creating broadly successful connected customer solutions using real world business transformation studies including New England BioLabs and more.
Jan. 31, 2015 10:45 AM EST Reads: 2,733
We certainly live in interesting technological times. And no more interesting than the current competing IoT standards for connectivity. Various standards bodies, approaches, and ecosystems are vying for mindshare and positioning for a competitive edge. It is clear that when the dust settles, we will have new protocols, evolved protocols, that will change the way we interact with devices and infrastructure. We will also have evolved web protocols, like HTTP/2, that will be changing the very core of our infrastructures. At the same time, we have old approaches made new again like micro-services...
Jan. 31, 2015 10:30 AM EST Reads: 2,593
Enthusiasm for the Internet of Things has reached an all-time high. In 2013 alone, venture capitalists spent more than $1 billion dollars investing in the IoT space. With "smart" appliances and devices, IoT covers wearable smart devices, cloud services to hardware companies. Nest, a Google company, detects temperatures inside homes and automatically adjusts it by tracking its user's habit. These technologies are quickly developing and with it come challenges such as bridging infrastructure gaps, abiding by privacy concerns and making the concept a reality. These challenges can't be addressed w...
Jan. 31, 2015 10:00 AM EST Reads: 3,252
The Domain Name Service (DNS) is one of the most important components in networking infrastructure, enabling users and services to access applications by translating URLs (names) into IP addresses (numbers). Because every icon and URL and all embedded content on a website requires a DNS lookup loading complex sites necessitates hundreds of DNS queries. In addition, as more internet-enabled ‘Things' get connected, people will rely on DNS to name and find their fridges, toasters and toilets. According to a recent IDG Research Services Survey this rate of traffic will only grow. What's driving t...
Jan. 31, 2015 10:00 AM EST Reads: 3,254
The Internet of Things is a misnomer. That implies that everything is on the Internet, and that simply should not be - especially for things that are blurring the line between medical devices that stimulate like a pacemaker and quantified self-sensors like a pedometer or pulse tracker. The mesh of things that we manage must be segmented into zones of trust for sensing data, transmitting data, receiving command and control administrative changes, and peer-to-peer mesh messaging. In his session at @ThingsExpo, Ryan Bagnulo, Solution Architect / Software Engineer at SOA Software, focused on desi...
Jan. 31, 2015 10:00 AM EST Reads: 2,464
Today’s enterprise is being driven by disruptive competitive and human capital requirements to provide enterprise application access through not only desktops, but also mobile devices. To retrofit existing programs across all these devices using traditional programming methods is very costly and time consuming – often prohibitively so. In his session at @ThingsExpo, Jesse Shiah, CEO, President, and Co-Founder of AgilePoint Inc., discussed how you can create applications that run on all mobile devices as well as laptops and desktops using a visual drag-and-drop application – and eForms-buildi...
Jan. 31, 2015 10:00 AM EST Reads: 2,922
"For over 25 years we have been working with a lot of enterprise customers and we have seen how companies create applications. And now that we have moved to cloud computing, mobile, social and the Internet of Things, we see that the market needs a new way of creating applications," stated Jesse Shiah, CEO, President and Co-Founder of AgilePoint Inc., in this SYS-CON.tv interview at 15th Cloud Expo, held Nov 4–6, 2014, at the Santa Clara Convention Center in Santa Clara, CA.
Jan. 31, 2015 09:30 AM EST Reads: 2,428
The Industrial Internet revolution is now underway, enabled by connected machines and billions of devices that communicate and collaborate. The massive amounts of Big Data requiring real-time analysis is flooding legacy IT systems and giving way to cloud environments that can handle the unpredictable workloads. Yet many barriers remain until we can fully realize the opportunities and benefits from the convergence of machines and devices with Big Data and the cloud, including interoperability, data security and privacy.
Jan. 31, 2015 09:00 AM EST Reads: 2,916
Things are being built upon cloud foundations to transform organizations. This CEO Power Panel at 15th Cloud Expo, moderated by Roger Strukhoff, Cloud Expo and @ThingsExpo conference chair, addressed the big issues involving these technologies and, more important, the results they will achieve. Rodney Rogers, chairman and CEO of Virtustream; Brendan O'Brien, co-founder of Aria Systems, Bart Copeland, president and CEO of ActiveState Software; Jim Cowie, chief scientist at Dyn; Dave Wagstaff, VP and chief architect at BSQUARE Corporation; Seth Proctor, CTO of NuoDB, Inc.; and Andris Gailitis, C...
Jan. 31, 2015 09:00 AM EST Reads: 2,872
Since 2008 and for the first time in history, more than half of humans live in urban areas, urging cities to become “smart.” Today, cities can leverage the wide availability of smartphones combined with new technologies such as Beacons or NFC to connect their urban furniture and environment to create citizen-first services that improve transportation, way-finding and information delivery. In her session at @ThingsExpo, Laetitia Gazel-Anthoine, CEO of Connecthings, will focus on successful use cases.
Jan. 31, 2015 08:45 AM EST Reads: 2,090