End of year report card: Investment banking

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Performance: C-
Not enough time is being spent on homework! Global investment banking revenues across the largest firms look set to drop for a fourth consecutive year in 2016, according to analysis by research firm Coalition.

Banks excelled in at least one subject with which they had struggled for years. Revenue from fixed income, currencies and commodities sales and trading took off during the third quarter. But equities sales and trading was trickier, and a rise in bond revenues did little to soften the blow of falling advisory and equity capital markets income.

Bankers pointed out that many of the events of the year that affected their businesses were out of their control, not least the UK’s vote to leave the European Union and its effect on deal flow.

While not quite on the level of “the dog ate my assignment”, that’s still a lacklustre excuse. If banks had done better preparation for the test, with better contingency plans and closer contact with clients to understand the ramifications of Brexit and other chance events, they might have suffered less in the aftermath.

Behaviour: C
The year saw the UK-based members of the class getting to grips with the Senior Managers Regime, the latest attempt to heighten accountability in an industry beset with scandals for many years now.

Other moves including plans for a working group set up by the Banking Standard Board to promote “professionalism” in the sector suggest that firms have embraced accountability and transparency.

Their grade is better than the D earned last year. But it’s a long way off from getting an A. Fines in the UK are a shadow of 2015 levels but there’s a long delay between bad behaviour and a fine being levied – there could be plenty of setbacks still to come.

Areas to work on
The year 2017 will be pivotal for several European firms that have been slogging through restructuring initiatives, and there will doubtless be more painful decisions to take. Frankly, the restructurings so far simply haven’t improved grades. Banks generally need to make tougher calls about what they want their businesses to look like – and how they’re going to boost returns for shareholders.

Banks were already pondering their business models when the extra test came along in the shape of the UK’s decision to leave the EU. Brexit will mean a lot of geography homework for the class in the coming months. Study trips to Frankfurt, Paris, Amsterdam and other cities may be possible next term.

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