Banks can boost their valuations by a combined $7 trillion over the next five years but must take bold steps to get there, according to a report published Monday.
Global banks are unlikely to return to the profitability levels and valuations of before the global financial crisis, a report by Boston Consulting Group found. But $7 trillion in value can still be created, roughly doubling current valuations, it added.
“The goal can be reached if banks take a step back, get to the bottom of their performance issues and sketch out a bold strategic agenda that enables growth, higher productivity, and adequate shareholder returns,” it said.
The major U.S. banks began earnings season Friday in mixed fashion as
JPMorgan Chase,
Citigroup,
Wells Fargo
and
Bank of America
all reported fourth-quarter results. Bank stocks closed mostly lower.
Goldman Sachs
and
Morgan Stanley
are next up on Tuesday and investors will be watching closely for further signs of how the year ahead may play out for banks.
Over the longer-term, Boston Consulting Group’s strategists believe bold measures are needed for banks to increase shareholder value. The report called for banks to exit business lines or at least reduce exposure to low-return asset classes and invest instead in new areas of growth with more favorable levels of return on equity.
It added the banks should “drastically simplify” their business models and leverage generative artificial intelligence to gain a competitive advantage.
“If banks want to win competitively, they must drive forward far-higher productivity and radically reduce the cost of complexity,” it added, suggesting banks conduct a detailed cost-driver analysis with a view to creating a business model enabling a 40% jump in productivity.
Write to Callum Keown at [email protected]
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