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Corporate Banks Need to Get Used to the "New Normal" If They Are to Survive and Thrive, Says a Report by The Boston Consulting Group
[December 09, 2008]

Corporate Banks Need to Get Used to the "New Normal" If They Are to Survive and Thrive, Says a Report by The Boston Consulting Group


(Marketwire Via Acquire Media NewsEdge) BOSTON, MA, December 9 / MARKET WIRE/ --

The financial turmoil has permanently altered
the corporate banking landscape and will give rise to a new post-crisis
status quo characterized by tougher operating conditions as well as by a
widening divide between leading banks and those that had profited from
favorable economic conditions -- notably low loan losses -- but were
unprepared for the crisis, according to a report by The Boston Consulting
Group (BCG). The report, titled "Thriving in the New Normal: Corporate
Banking 2008/2009," is released today.

Analyzing a database of more than 100 financial institutions with around
200 business units focused on corporate banking, BCG found that revenues
are under unprecedented pressure as a result of the credit crunch: those
from former growth businesses such as structured finance and leveraged
buyouts have already slumped by more than 70 percent from the levels
witnessed last year.

But the world's economies are poised to get worse before they get better,
so corporate banks need to get used to what BCG is calling the "new
normal": a time of slower economic growth, scarce liquidity, and more
realistic pricing of risk.

In particular, the low loan losses witnessed in 2005, 2006, and early 2007
are unlikely to be seen again: delinquency rates among U.S. commercial and
industrial lenders -- which only amounted to 1.49 percent in the second
quarter of this year compared to 4 percent during the 2002 downturn -- are
likely to surge.

The new environment will be challenging on several fronts. While banks'
corporate clients may still be asking for credit, they will also be
riskier. At the same time, there will likely be less demand for lucrative
fee-based services provided by corporate banks -- including payment
services and services that facilitate trade. And there will be greater
competition, as banks that chose to pursue alternative clients during the
boom years renew their focus on the corporate sector.

"The crisis is squeezing every corporate bank harder every day -- but the
pain is especially intense for banks that had relied on low loan losses and
easy growth in lending volumes," said J?rgen Schwarz, a BCG senior partner
and lead author of the report. "Even in the so-called good times from 2005
through 2007, only about half of corporate banks were actually generating
positive and rising economic profit."

Action Plan: Top Performers Need to Focus on Business Fundamentals

If corporate banks face some tough challenges, there is nevertheless an
opportunity for proactive banks to seize market share from more sluggish
rivals. To succeed, they need to focus on a handful of fundamental drivers
of performance.

"BCG's research and client work have identified six key levers that can
drive strong performance even in difficult times," said Achim Schwetlick, a
BCG partner and a coauthor of the report. "These six levers should be used
to shape a long-term agenda for corporate banking executives, but they can
also be pulled in the short term to produce immediate results."

These levers are:




-- Create a value-driven mix of revenues from credit and especially
noncredit products


-- Redesign the distribution model and improve sales force productivity

-- Improve pricing capabilities

-- Strengthen risk management

-- Invest in ongoing cost-management programs

-- Enhance capital management capabilities

How these levers are used can determine the success or failure of a bank.
For example, sales force productivity at a leading European mid-market
corporate bank was more than three times higher than that of some
competitors -- an enormous competitive advantage. It all depends on how the
strategy of focusing on business fundamentals is implemented.

"Some may call this a back-to-basics strategy, but this label hardly does
justice to the challenge that corporate banks face," said Mr. Schwarz. "It
is true that these fundamentals are not new to corporate bankers, but
capturing the value from them will be anything but basic. The good news is
that we have seen some banks succeed by focusing on these levers, even in
today's difficult environment."

To receive a copy of the report or arrange an interview with one of the
authors, please contact Eric Gregoire at +1 617 850 3783 or
gregoire.eric@bcg.com.

About The Boston Consulting Group

The Boston Consulting Group (BCG) is a global management consulting firm
and the world's leading advisor on business strategy. We partner with
clients in all sectors and regions to identify their highest-value
opportunities, address their most critical challenges, and transform their
businesses. Our customized approach combines deep insight into the dynamics
of companies and markets with close collaboration at all levels of the
client organization. This ensures that our clients achieve sustainable
competitive advantage, build more capable organizations, and secure lasting
results. Founded in 1963, BCG is a private company with 66 offices in 38
countries. For more information, please visit www.bcg.com.

Copyright ? 2008 Marketwire

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