Garnet Capital Advisors Blog

Are the 'glory days' for big banks ancient history?
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Those were the good old days.

Big banks used to enjoy massive profits and had a huge influence on the banking habits of consumers before the financial crisis of 2008 hit the US. But it seems as though these days are long gone and may never be coming back.

Analysts are no longer convinced that the idea of a 'universal bank' - where customers could have all of their financial needs met all under one roof - will prove to be as huge of a success for banks as it was once thought to be.

Specifically, former chairman and CEO of Citigroup, John Reed, recently penned an article in the Financial Times about the biggest banks in the world, and how they may never again see those precious pre-crisis glory days of enjoying a big influence and even bigger profits.

The source of the problem seems to come from banks' struggles with managing both the traditional deposit gathering and lending business and the risky, expensive investment banking and trading sectors. But lower-risk banking, including providing loans and taking deposits, is not something that big banks can rely on for the profit growth they need, especially in today’s low interest rate environment.

Maintaining the universal banking model is proving to be more and more challenging, if not impossible, for big banks across the US and the world. Mixing all sorts of finances into one conglomerate is not only expensive, it also creates a conflict of cultures.

Sure, plenty of investors have still been holding a candle out for the return of these times, but the flicker of hope is continuing to dwindle.

During those pre-crisis days, big banks enjoyed sizable lending profits and flourishing investment and commercial banking. But as time goes on, analysts are becoming more convinced that things may have changed permanently.

And with low-interest rates lingering, banks have been feeling the crunch with sluggish revenues from lending.

Most of the country's biggest banks may have had decent earnings in the second and third quarters, but much of that success had more to do with slashing expenses, lower legal bills and lower nonperforming assets than a robust increase to earnings and net interest margins. Ideally, such earnings should be attributed to growth from lending and other key businesses.


Big banks like Morgan Stanley and Goldman Sachs have taken measures to refuse their banking efforts.
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As a result of the economic crisis, the financial sector has undergone structural changes - including heightened regulations - that appear to be here for the long haul. In fact, restructuring is happening on a regular basis as big banks continue to put forth an effort to reach those pre-2008 financial crisis levels of success.

Banks Need to Start Taking Action

What big banks might have to do is start thinking smaller and more granular in order to be better able to manage. It might be time to ditch the idea of being a universal bank as was once thought to be desirable before the financial crisis hit.

It may also be time to start refocusing their efforts from investments and trading to more consumer-focus businesses that will not only satisfy customers but also, will attract more investors.

And some big banks in the US are starting to grasp this concept.

Take Morgan Stanley, for one, which is planning to push more into retail banking. The bank intends on lowering its fixed-income trading assets by approximately 30 percent compared to levels from 2011's third-quarter.

And Goldman Sachs has taken similar steps by expanding into consumer lending late this summer after agreeing to purchase GE Capital Bank's online deposit business and move into online lending in 2016.

Making changes such as these have afforded banks such as Morgan Stanley and Goldman Sachs with the opportunity to better manage their banks.

What banks need is a professional ally with plenty of transaction expertise across all loan types and performance categories in the banking sector to help them continue to adjust their balance sheets with loans of the appropriate risk and return levels. And Garnet Capital is one such partner.

At Garnet Capital, we can help revamp your loan portfolios to make them more profit-generating and less risky.

Find out more about how our firm can help your bank boost profits while staving off risks, and browse the white papers at GarnetCapital.com today.