zeb/ value compass 2012 Banking industry in strategic trap between short-term regulatory compliance and long-term value creation

During the last two years the rules of the game in banking have changed substantially. Due to tighter regulation, liquidity and capital have become true bottlenecks rendering some old, capital-intense business models unsustainable. Banks are struggling to create value and often lack a strategic vision of how to reorganize the business model.

In this context, the third zeb/value compass gives a comprehensive view on value creation in the global banking industry based on empirical analyses and expert interviews with the senior management of leading national and international financial institutions. The main results of this year’s edition of the zeb/value compass are:

  • The global banking industry showed a solid TSR performance of 7.3% in the first half of 2012 in a friendly market environment after a very poor TSR performance in 2011 of -23.6%. 
  • Our analysis of the underlying factors shows the increasing importance of a holistic value management in the current difficult economic climate and in light of the increasing regulatory pressure. This can be shown with the help of the zeb/ value explanation model which takes all relevant value dimensions and constraints into consideration and has an explanatory power of 61.9%. Thus, the R2 is far greater than the one of a simple RoE model which can only explain 8.7% of the observations.
  • A deeper look into the disclosure reveals that while many banks have started to implement holistic value generation frameworks1, most of them still have not yet entered the last part of the TSR journey, namely the pro-active communication with investors via consistent and transparent disclosure. In this respect even the largest global banks fail to present a holistic view on their value generation approach.
  • Discussions with senior managers also reveal that dramatic changes in the global banking industry have left the majority of banks with many operational challenges but no clear strategic vision.
    While most bankers agree that the old, capital-intense business models no longer work for the vast majority of banks, few of them actually have a clear vision of what their future business model will look like. The immense operational workload and regulatory pressure poses the threat that banks get caught in a strategic trap: Due to low profitability and regulatory pressure banks focus on regulatory compliance only and try to run the old business model in a Basel-III- compliant way. By doing so, they focus their activities on the capital-
    efficient businesses, such as, for example, retail banking or fee-based activities. Given the current market environment with low interest rates and increased competition for these activities, margins erode and profitability declines further. Banks need to cut back activities even more to meet regulatory compliance. The vicious circle con-tinues driving banks into the strategic trap as they lose sight of what really matters: sustainable value creation.
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Author Dr. Dirk Holländer

Dr. Dirk Holländer

Senior Partner Office Frankfurt

Volker Abel

Senior Manager zeb

Oliver Rosenthal

Leiter Research zeb Münster


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