>GLOBAL BANKING TRENDS AFTER THE CRISIS (DEUTSCHE BANK)

Introduction
The ongoing global financial crisis, with its historic dimensions, will have a lasting impact on the world economy, the worldwide distribution of influence and power and, above all, on banks. In this paper, we first provide a brief overview of the consequences of the crisis for US and European banks. This entails taking a look at how much value has been destroyed in the banking industry, which regulatory response is looming, and what issues arise from a sweeping shift in ownership structures as well as in the debate about deleveraging and an increase in capital levels. The second part focuses on the impact the crisis may have on major structural trends that have been shaping the industry for the last 15 years. We will analyse the effects on consolidation, on the structure of revenues and on the geographic composition of banks’ business, i.e. on the internationalisation strategies of European banks and on interstate banking in the US.

The near-term prospects for US and European banks are decidedly grim. The global financial crisis will bring about the most significant changes to their operating framework banks have seen in decades. There will be fundamental re-regulation of the industry, ownership structures are shifting towards heavier state involvement and investor scrutiny is rising strongly. Equity ratios will be substantially higher. As a result, growth and profitability of the banking sector as a whole are likely to decline.

Lean years lie ahead for US banks. Performance improvements during the last 15 years have often been due to strong lending growth and low credit losses. As private households reduce their indebtedness, revenue growth in some European countries but especially the US may remain depressed for several years. With weak loan growth and a return of higher loan losses as well as a fundamentally diminished importance of trading income and modern capital market
activities such as securitisation, banks may be lacking major growth drivers.

Consolidation to continue but with a different focus. While there will still be a considerable number of deals, transaction volumes are likely to decline and restructuring stories rather than strategic M&A may dominate. The probability of domestic deals has increased, while that of cross-border mergers has declined.

Internationalisation of European banks likely to slow. Uncertainty about the future prospects especially of foreign markets and strictly national banking sector stabilisation programmes are triggering a re-orientation towards domestic markets. This is more relevant for European banks that have greatly expanded into other European countries recently, while American banks overall may continue to target the national market rather than going abroad.

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