Investment banks - merge trading units, cut products

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'Ruthless prioritization' is in order.

Bloomberg News reports that the world’s largest investment banks should enact changes including 'ruthless prioritization' of clients and combining fixed-income and equity trading to avoid a sharp decline in profitability, according to McKinsey & Co.

The companies should cut the number of products they offer and push many clients to electronic platforms, New York-based McKinsey said in an annual review of the investment banking and trading industry released today. The firms must also understand which clients are most profitable and restrict use of balance sheet to those customers, according to the report.

McKinsey offered ideas to help improve profitability as it says the return on equity was 8% last year at the 13 largest investment banks and may drop to 4% by 2019 without remedies. Companies have largely dealt with issues as they arise instead of implementing a more comprehensive strategy, the consulting firm said in its report.

'The extent of the challenges facing the current business model suggest there is a serious question over its viability', the consultants wrote. 'The mathematics of the old world view no longer add up'.

Hit the link below to access the complete Bloomberg article:

McKinsey Says Investment Banks Should Merge FICC, Stocks


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