Posted January 24, 2013 by Lisa Johnson in World

Wall Street’s Bulge Bracket likely to reduce to 5 companies :McKinsey


Northern, WI 1/24/2013 (avauncer) - McKinsey & Co. has said that investment banks have to take further steps to boost returns and more companies will have to exit businesses. Just 5-6 companies will comprise the “bulge bracket” firms that provide complete range of investment banking and trading products globally. This was stated by the consulting company in a report headlined “After the Reckoning.” It said, others will exit from few businesses to concentrate on sectors where they have an upper hand.

UBS AG (USA)(NYSE:UBS), the most aggressive company in lowering expenses and risk-weighted assets, said last year it was cutting 10,000 jobs and quitting many fixed-income businesses. RBS (NYSE:RBS) intends to shut down or sell its loss-making cash equities, equity capital markets and mergers advisory departments, the bank said last year. The biggest 13 investment banks have declared plans to trim $15 billion in costs, inclusive of  compensation, and $1.03 trillion worth of risk-weighted assets, the report said. Despite that, the investment bank departments of these companies gave 7% as an average return on equity. In absence of any major actions, the ROE they will generate will be 6-7%.

If banks can increase their ROEs to the sector’s cost of equity, an approximate of 11.7% in 2017, they can reinstate $160 billion of shareholder value, the report said. The first 3 companies in every asset class take up around two-thirds of trading volume in it, as per the report. Banks lacking this scale or bearing higher expenses will normally concentrate on sectors such as foreign exchange or structured rates and credit, McKinsey maintained.

The 13 companies included in the report were Bank of America Corp.(NYSE:BAC), Barclays PLC (ADR)(NYSE:BCS), BNP Paribas SA(Paris:BNP.PA), Citigroup Inc.(NYSE:C), Credit Suisse Group AG (NYSE:CS), Deutsche Bank AG (NYSE:DB), Goldman Sachs Group Inc.(NYSE:GSF), HSBC Holdings Plc(NYSE:HBC), JPMorgan Chase & Co (NYSE:JPM), Morgan Stanley(NYSE:MS), RBS (NYSE:RBS), Societe Generale SA (Paris: GLE.PA)and UBS AG (USA)(NYSE:UBS).

The shares of UBS AG (USA)(NYSE:UBS) were down by 0.70% to close at $17.12

Shares of Bank of America Corp.(NYSE:BAC) were up by 0.62% to close at $11.42

Shares of Barclays PLC (ADR)(NYSE:BCS) were down by 0.89% to close at $18.83

Shares of HSBC Holdings Plc(NYSE:HBC) were up by 0.24% to close at $55.24

Shares of JPMorgan Chase & Co (NYSE:JPM) were down by 0.67% to close at $46.23

Shares of Morgan Stanley(NYSE:MS) were down by 1.35% to close at $22.67

Lisa Johnson

Lisa Johnson is an award-winning journalist, host, author and critic, who has appeared as an expert on the CBS Early Show, NBC s Today Show, Dr. Phil, CNN, CNBC, Fox News, CNBC, Bravo and many more. Her work has been featured in The Wall St. Journal, the New York Times, Forbes, Oprah.com, AOL and numerous other media outlets. She has authored three books from major publishers