Investment banking: The upside of downsizing

Regulators want banks to shrink their investment banking activity and, by introducing rules that make much of it uneconomic, have got shareholders onside. Banks now need to get the business mix of their corporate and investment banking arms right, and get the size of these divisions right. Maybe then they can work out where to invest and even grow. Outside the top tier of investment banks, there’s plenty of reinvention going on.

The partial re-rating of shares in UBS in November, following the announcement of substantial cuts to the fixed-income, currency and commodities arm of its investment bank, sends a stark message to managements of other financial institutions. UBS is cutting the size of its investment bank by two-thirds, with equity capital allocated to investment banking set to fall to just SFr7 billion ($7.4 billion) by 2015, down from SFr22 billion in the third quarter of 2012.

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