Il private banking it needs a transformation. The new says it McKinsey report entitled "The future of private banking in Europe: Preparing for accelerated change", which analyzes the performance of the sector in Europe in 2019 and in the first quarter of 2020.
According to the study, the pandemic has underpinned changes already underway in customer and employee expectations which, coupled with pre-existing historical pressures in the industry, require an acceleration of its transformation.
But before talking about the future, McKinsey analyzed i 2019 results, a year that confirmed the decade-long downward trend in profit margins and revenues, but also the trend of costs increasing faster than revenues and an increase in the cost/income ratio.
Going into details, i profits declined for the second consecutive year, falling 1,5% to 13,3 billion euros from 13,5 in 2018, while the aggregate profit margin fell to its lowest level in 12 years at 21 basis points of assets under management from 22 points in 2018 (it was 35 points in 2007)
La net collection in 2019 it reached 2% of assets under management, in line with the previous year, even if the favorable markets allowed an overall growth in AUM of 10%.
Down too i revenue margins, down from 75 basis points to 73 basis points of Aum, while overall costs grew in line with revenues, and cost margins fell to 52 (from 53). “This inability to control costs despite the pressure on revenues – comments McKinsey – led the 2019 C/I ratio to reach 71%, 1 percentage point higher than in 2018, and the highest level since 2012”.
Il first quarter 2020 it seemed to show a change of pace, thanks to the increase in trading activity, but the explosion of the Covid-19 pandemic has reshuffled the cards on the table. In detail, in the first three months of the current year, although assets under management fell by 10%, profits rose by 7% to 14 billion, equal to a margin of 23 points on an annual basis. Also aggregate revenues, which grew by 3% to 47 billion, and costs, increased by 2% to 33 billion.
“Relating to the first quarter of 2020, People interviewed by McKinsey identified three main strategic actions to implement in the next three to six months: overall evaluation of their product portfolios and technology investments, reduction of contingency costs and development of new products. These are reasonable actions aimed at solving the immediate challenges of the COVID-19 crisis that should support a gradual return to business”, reads the report, which underlines the need to address three new challenges: revenue and profit pressures resulting from the uncertainties caused by the COVID-19 crisis, accelerating customer demand for digital services and the shift to remote working.
In conclusion, the report outlines the strategic priorities for private banks:
- recognize the need to accelerate transformation,
- set clear and ambitious goals for their future in the new normal and concretely increase the pace of execution,
- reset their cost base to incentivize future investment in new skills,
- remain flexible, given the unknowns surrounding the development of the current crisis.
