Roland Berger Strategy, one of the world's leading consulting firms, said the global investment banking sector would need another 40,000 job cuts to restore sustainable economics.
The sector has already stepped up restructuring programmes, reduced headcount by about 15,000 since mid-2011 and has announced another 25,000 job cuts. According to a report issued by the consultancy firm, these cuts will take a year or two to fully translate into improved profits. A further 40,000 jobs could be on the line in the next few years.
"Restructuring will need to a move from tactical reductions to more radical redesign and refocusing," said Markus Boehme, senior partner at Roland Berger Strategy. "Most efforts have been focused on increasing productivity, with very little capacity exiting, but we are now seeing a change."
According to its estimates, global investment banks have improved their performance over recent months but structural problems persist. Investment banks generated third quarter revenues of about euro 60 billion (Rs 4.2 lakh crore), up sharply compared to the depressed third quarter of 2011. Full year 2012 revenues are expected to grow around 10 per cent to euro 250 billion (Rs 17.5 lakh crore), although downside risks due to the sovereign debt crisis still persist.
"This is more a stabilisation than a turnaround," said Boehme. "Banks shouldn't rely on further growth in the near term, but rather focus on creating higher profits out of a flat revenue pool," he said.
The consulting firm expects only five to 10 investment banks with a global footprint to survive over the next three to five years.
It expects most of the job cuts in the developed markets while says that players in emerging markets will continue hiring.
"Developed markets are already suffering and won't be saved by growing revenues. Emerging markets offer opportunities due to higher growth dynamics (GDP, trade, assets, etc.) as well as the need for a structural catch up," said Dr. Wilfried Aulbur, managing partner – Roland Berger Strategy Consultants India. He declined to specify any figure for job cuts in India.
By 2016, emerging markets could create more than EUR 30 billion (Rs 2.1 lakh crore) in added revenue. Most of this additional growth will require solid presence of bankers on the ground, since global banks are expanding their local footprints and have to compete with local and regional banks that are strengthening their product capabilities.
From product perspective, it believes that fixed income products are likely to grow stronger than equities and primary markets.