Since the financial crisis, however, the industry has been struggling with low interest rates and significantly lower activity and profits in the formally lucrative securities lending and foreign exchange businesses. This economic pressure has been accompanied by new regulations impacting both providers and clients, changes in client needs, and a shifting of the post-trade landscape.
In this report, Securities Services: The Good Times are Over, It Is Time to Act, we describe the state of the industry and explore five illustrative and non-comprehensive strategic hypotheses that could help providers address the current challenges:
- Hypothesis 1. From profitable business to commoditized business to market utility?
- Hypothesis 2. Diversified players will have a competitive advantage?
- Hypothesis 3. Opportunities outside of the core market?
- Hypothesis 4. Scale is overrated, specialization is in?
- Hypothesis 5. Technology and data to the rescue?
This is no longer the same securities services market we knew from 20, 10 or even five years ago. It has changed and will likely to continue to evolve in ways that make it imperative for players to take action. It is therefore important for securities services players to define their strategic direction and take concrete actions consistent with that direction.
The road to sustained growth and healthier margins is not straightforward in this complex and challenging economic and competitive environment, and there is not going to be a single “one size fits all” winning strategy or business model going forward. The right answer, as is usually the case, will depend on the provider’s starting point, risk appetite, investment capacity and execution capabilities. The winners will be those who deploy a portfolio of strategic and tactical initiatives consistent with their own position and supported by facts and informed hypotheses.
David Maya – Partner in the Americas Corporate & Institutional Banking Practice
Hugues Bessiere – Principal in the EMEA Corporate & Institutional Banking Practice