20% of world's biggest banks may shrink or merge

Honey I Shrunk The Banks

A radical course correction for big banks ?

Bloomberg News reports that one-fifth of the world’s biggest banks may be broken up or sold as part of a 'radical course correction' to boost shareholder returns, according to McKinsey & Co.

The number of global universal banks may drop to fewer than 10 from about 25 as they narrow their focus on products or regions, the consulting firm said in an annual review of the industry released Wednesday. Ninety global lenders are generating higher returns by following one of five distinct strategies described by McKinsey, according to the report.

'It’s not as if it can’t be done', Fritz Nauck, a director at the consulting firm and a co-author of the report, said in an interview Wednesday. 'It’s about how do the other banks get there or how does this consolidation start to bring the overall industry up in terms of performance'.

Global banks’ return on equity climbed to 8.6% in 2012 from 7.9% a year earlier, still below the 10% to 12% average cost of equity, a measure of the minimum return required by shareholders, McKinsey said in the report.

U.S. banks earned an average return of 8% last year and European lenders earned 2%, excluding those in the most indebted nations such as Spain and Greece, according to the report titled Breakaway: How Leading Banks Outperform Through Differentiation.

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McKinsey Says 20% of Biggest Banks May Shrink or Merge

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