By Jack J. Kelly
After years of challenges and regulatory pressure, banks and financial institutions may have finally reached a positive turning point.
A new study conducted by management consulting firm, Oliver Wyman, concludes that Wall Street is poised for strong growth and good times ahead. The report suggests that an array of factors including a stable global economy, the Federal Reserve raising interest rates, and a decrease in new banking regulation, will usher in a Wall Street revival.
Once Trump’s administration’s tax reform, fiscal stimulus, and deregulation agenda is achieved, Oliver Wyman contends that stronger revenue growth will occur and greatly needed capital will be freed-up for positive purposes.
U.S. banks could see a return on equity rising to 15 percent from 11 percent resulting from a combination of revenue growth and removing costs. Regulatory costs, which have been blamed for weaker earnings, are anticipated to peak in 2017 and then dramatically decline by 40 percent. European banks also are forecasted to improve their return on equity.
U.S. banks were forced by regulators to keep $83 billion of excess capital on their books. This money, which was basically kept under the mattress collecting dust, will now be put to good use through investments in profitable business lines, hiring new people, starting new divisions, acquiring other companies, and other lucrative ventures.
Fixed income, currencies and commodities revenues, which faced the brunt of regulation, are forecast to grow over the next five years to $119 billion. “Unlocking excess capital and collateral turns secular headwinds to tailwinds, powering a sustainable inflection in the global FICC pool for the first time in a decade,” the study said.
Putting all the jargon aside, if the study is correct, we will see a resurgence in the fortunes of Wall Street. This will also help other industries.
The job market will be a big beneficiary. As banks and other financial institutions’ fortunes improve they will require additional human capital to manage the growth.