What's Next for Global Banks?

The McKinsey Quarterly claims to have found the answer.  Artilce available here.  Note:  you may have to register with McK to obtain access.

Three words: tough times ahead.

1. More capital needed.  US$600 billion over the next five years for the 25 banks in McK sample - some 40 to 45% of global industry assets.
2. Higher funding costs for long-term funding. McK sees banks lengthening tenors and avoiding shorter term markets which dried up in the Subprime Meltdown thus exacerbating liquidity problems.
3. Tighter regulation.
4. Overall lower ROE's.   
5. Better prospects in Asia.
6. Emerging market giants will outperform developed-market universals.

Two observations.

Like any industry facing regulation, the banks are beside themselves  issuing  jeremiads about the dangers that will be done to the world economy from hasty regulation.  As responsible corporate citizens, they are most decidedly not opposing these measures because they would harm their profits, but rather for the damage that would be done to the world's economies and thus to the innocent average citizen.

McK sees a bright future for Asia.  If McK is focused on the PRC, they may be a bit too optimistic.  There are a lot of unresolved economic issues in the PRC that could affect the health of the banking sector there.  So while they will have pride of place for size, the question is the future of their ROA and ROE metrics.   

For those wondering about the Middle East, I don't think there are any "giants" here.  The largest bank in the ME would be a nice sized regional bank in the USA.