How the mighty have fallen. Ten years ago, would anyone have predicted investors would one day urge a CEO to cut loose his bank's investment-banking arm in the hopes of increasing share price? Just such a thing is happening right now at Britain's Barclays (NYSE:BCS), and for good reason.
Demoted to supporting role
Financial Times is reporting that some of Barclay's biggest investors want CEO Antony Jenkins to get rid of the bank's investment-banking unit. Their hope is that the share price will pop like it did at Switzerland's UBS (NYSE:UBS) when, after a radical restructuring of the role of its investment bank, the bank's share price increased more than 15%.
UBS's investment bank had been faltering, and was trailing far behind the bank's market-leading wealth and asset management business in terms of return on allocated equity. So Sergio Ermotti, UBS's CEO, devised a plan to cast the investment bank in a supporting role to wealth management.
Investment banking is so yesterday
Ermotti became CEO in the wake of a rogue-trading scandal that left the bank with a multi-billion dollar loss. It's no wonder he has no love for the investment side of UBS.
Scandals aside, other factors are at work changing the heretofore unchallenged dominance of investment banking. In the U.S., the Volcker Rule, the portion of 2010's Dodd-Frank financial reform legislation that bans banks placing bets in the market with their own money, has forced America's big banks to look elsewhere for profit. And like in Europe, they've turned their attention to wealth management in particular:
- Bank of America (NYSE:BAC) just published its Insights on Wealth and Worth, it's annual survey -- and barely disguised pitch -- for its own wealth management division, U.S. trust.
- Goldman Sachs (NYSE:GS), which recently got into the private-wealth management game, as well: opening a bank-within-a-bank this year to cater to its wealthiest clients.
And why shouldn't investors turn their gaze from investment banking to wealth management? Wasn't it investment banking that led the charge into the mortgage-backed securities boom, that led directly to the financial crash? Wealth management might not be as exciting as investment banking, but maybe the world's had enough of that kind of excitement for now and would gladly trade it for the excitement of a share price pop.
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