Friday, October 20th, 2017

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Banks Could See Drop in Profitability

Consulting firm McKinsey predicts new reforms could push down bank profits.Banks have performed well since the recent crisis, but a recent reports suggests the good times could be short-lived at least for the financial sector, according to Financial News.

Global consulting firm McKinsey & Company released a report analyzing the returns on equity of the world's 13 largest investment banks and found prospects for the businesses worrisome. The 20 percent average returns could drop as low as 7 percent with the implementation of the upcoming Basel III reforms, and is expected to fall to 10 percent at the very least.

McKinsey attributed roughly 75 percent of the decline to Basel III, which looks to impose stricter requirements for capital held in reserve and also plans to force banks to make use of often expensive services to reduce the risk of a trading partner failing to deliver assets.

The Telegraph notes that some parts of these businesses, such as proprietary trading desks, could see declines in profitability as high as 80 percent.

"Some of the worst-hit businesses with ROEs below the cost of capital may have to be disposed of, especially at banks with weak franchises," the report suggests, according to Bloomberg.

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