2009-12-17-Bain-Tighter_regulation_blocks_old_paths_to_profit_2页_171kb

Summary of Bank Earnings Analysis

This content provides an analysis of the challenges facing U.S. banks post-financial crisis, emphasizing the need for fundamental business retooling to restore profitability. Key points include:

• Profit Decline: U.S. bank profits dropped sharply from a peak of $230 billion in 2006 to a $39 billion loss in 2008. The structural shift in profit pools is expected to reduce earnings by at least $200 billion over the next five years.

• Regulatory Constraints: Tighter regulations, including new disclosure rules and limits on securitization, will likely crimp profitability, forcing banks to raise additional capital (e.g., $200 billion more than previously needed).

• Cost Management: Banks must significantly reduce operating costs by $450 billion by 2012 to offset lost returns on equity, achieved by simplifying complex operations and avoiding linear cost assumptions.

• Customer Loyalty: Focusing on customer retention through metrics like Net Promoter Score is critical, as banks work to rebuild trust amid changing consumer behavior and rising household savings rates.

• Risk and Capital Oversight: Financial institutions need to tighten risk management by improving risks assessments, allocating capital strategically, and implementing governance reforms to prevent past failures in profitability control and product mismanagement.

Overall, banks are urged to embrace a more rigorous approach to risk and capital, fundamentally retool business models, and adapt to a more challenging regulatory environment to regain pre-crisis performance levels.