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Mckunsey

&company

GlobalBankingAnnualReview2024

Attainingescapevelocity

ThisreportisacollaborativeeffortbyAsheetMehta,

KarimThomas,KlausDallerup,LucaPancaldi,

MiklosDietz,PradipPatiath,ValeriaLaszlo,and

VikSohoni,representingviewsfromMcKinsey’s

FinancialServicesPractice.

October2024

Contents

Executivesummary2

Theindustry

3

Attainingescapevelocity12

Thewinners13

Howtowin(execution)18

‘Managementquotient,as21

adifferentiator

Executivesummary

Thepasttwoyearshavebeenthebestforbankingsincebeforetheglobalfinancialcrisis(GFC)of

200709,withhealthyprofitability,capital,andliquidity.Buteventhoughbankingisthesinglelargestprofit-generatingsectorintheworld,themarketisskepticaloflong-termvaluecreationandranksbankingdeadlastamongsectorsonprice-to-bookmultiples.

Inadditiontoamixofmacroeconomicfactors,therearealsosomeindustry-specificones:

Laborproductivitygrowthinbankinghasbeenmixed,eventhoughbanksspendthehighest

proportionofrevenuesacrosssectorsontech.

Regulatorychangesaroundtheworldcontinuetorequireinvestment.

Themoreprofitablepoolsinbankingare

witnessingcompetitionfromfocused

attackers(includingprivatecredit,payments,andwealthmanagement).

Therecentliftinperformancehaslargelybeenbuoyedbyrisinginterestrates.

Despitetherecentvaluecreation,overthepastdecade,thesectorhaserodedeconomicvaluewhenmeasuredagainstcostofcapital.

Sowilltheliftoffinoverallindustryresultsachievedin2023givewaytothegravitationalpullof

theindustrysrecenthistory,asquestionsaboutbankingfundamentalspersist?

Lookingatbanksthatoutperformedoverthepast

fivetotenyearscouldholdtheanswertohowbanksmightachieveescapevelocity.Weidentifiedthesewinnersthroughmultipleanalyticallenses.Whatwefoundisthattheywinthroughacombinationof

smartmovesonthreestructuraldimensions(selectingsegmentscarefully,findingscalewhereitcan

matter,andstrategicallylocatingthemselves,

whethergeographicallyorinthevaluechain)and

rigorousoperationalexecutionacrossarange

ofcapabilities(forexample,analytics,marketing

effectiveness,operatingmodel,andtech).Forsomecontextswherewemodeledtherelativeeffects,

executionhadtwotimestheimpactofstructure,thoughbothwereimportant.Nobankwefound

amongthewinnersappearedtobeoutperformingwithonlyanaveragestructuralcontextnorbeingpropelledsolelybyitsstructuralposition.

Thegoodnewsfortherestoftheindustryisthat

thingscanbeimproved.Indeed,about10percentoftheindustryimprovedasmuchasfivedecilesof

returnontangibleequityoverthepastfiveyears

(thoughconversely,roughlytwo-thirdsoftheindustrystayedwithintwodecilesoftheirpriorperformance).Forbankingtorecoveritsmultiple,management

teamswillneedtoconjurethedynamismofthese

winners.Webelievethis“managementquotient”willbewhatmakestherealdifferenceintheremainingyearsofthe2020s.

2GlobalBankingAnnualReview2024:Attainingescapevelocity

Theindustry

Everythingisgoingtobefineintheend.Ifit’snotfine,it’snottheend.

—Unknown(oftenattributedtoOscarWilde)

There’ssomesolaceinthewitticismaboutitnotbeingtheendifit’snotfine.Butrecently,thingshavebeenfineindeedforbanking,sowhatdoesthatsayabouttheendgame?Infact,thepast

twoyearshavebeenthebestforbankingsincebeforetheGreatRecession.Globally,banks

generated$7trillioninrevenue(Exhibit1)and$1.1trillioninnetincome,withreturnon

tangibleequity(ROTE)reaching11.7percent

(Exhibit2).Bankshavereturnedtohealthylevels

ofcapital(12.8percentcommonequitytierone

capitaldividedbyrisk-weightedassets)andliquidity(77.2percent),whichbothimprovedover2022.In

fact,bankinggeneratedmoretotalprofitthananyothersectoraroundtheworld(Exhibit3).

Exhibit1

In2023,theglobalfinancialsystemintermediated$410trillioninassets,generatingabout$7trillioninrevenue.

Sourceoffunds

Useoffunds

Globalfinancialintermediation,2023,$trillion

Other

alternatives

410

410

Digitalassets1

Sovereign

wealthfunds/pensionfunds

Other

institutional

AUM2

Insurance

andpension

AUM

RetailAUM1

Personaldeposits

Privatecapital

Banks’bonds,Corporateotherliabilities,andpublicandequitydeposits

59

52

65

32

78

10

66

9

39

On-balancesheet

Of-balancesheet

49

60

60

10

62

17

61

12

79

Retailloans

Securitiesheldonbalance

Corporateandpublicloans

GovernmentCorporateEquitySecuritizedOther

bondsbondssecuritiesloansinvestments3

sheetOtherassets

Shareoftotal

annualrevenue

fromglobal

financial

intermediation,

bytype,2023,⁴%

Retailbanking33

Payments516

Corporateandcommercialbanking28

Investment

banking5

Wealthandassetmanagement14

Other63

$6.8

trilliontotal

Marketinfrastructure2

1Assetsundermanagement.2Includingendowmentsandfoundations,corporateinvestments.3Includingrealestate,commodities,cross-borderdeployments,derivatives.4Figuresdonotsumto100%,becauseofrounding.5Netinterestincomefromdepositsconsideredinretailandcorporatebanking.6Includes

revenuesfromrealestatefunds,infrastructurefunds,hedgefunds,commoditiesfunds,absolutereturn,liquidalternatives,aswellasfrommining,buyingandsellingofdigitalassetsviaexchanges,custody,payments,andliquidityproviders.

Source:McKinseyPanorama

McKinsey&Company

GlobalBankingAnnualReview2024:Attainingescapevelocity3

4GlobalBankingAnnualReview2024:Attainingescapevelocity

Exhibit2

Bankingrevenues,returnontangibleequity,andliquidityallgrewin2023,maintaininghealthylevelsacrosstheboard.

Keyindustrymeasures

Strongprofitability,returnontangibleequity,%

Healthycapital,commonequitytier1asaratioofrisk-weightedassets,%

Sustainableliquidity,totalloansasaratioofdeposits,%

2011–21average10.2

11.5

+0.2

percentage

points

11.7

20222023

11.9

+0.6

12.2

12.8

2022

2023

78.6

+1.7

75.5

77.2

2022

2023

Source:S&PCapitalIQ;McKinseyPanorama;McKinseyValueIntelligence

McKinsey&Company

Exhibit3

Theglobalbankingindustrygenerated$1.15trillioninnetincomein2023,roughlyequaltothecombinedenergyandindustrialsindustries.

Netincomeof

publiclytraded

companies,

byindustry,2023,1$billion

24%

Materials314

Nondepositoryfinancial

institutions142

Insurance249

Conglomerates141

Infrastructure,travel,and

logistics197

Businessservices54

Realestate42

Healthcare30

Pharmaandmedical144

Total4,772

Globalbankingindustry1,151

Energy663

Industrials618

Technology,media,andtelecommunications597

Consumer429

1Basedon35,000publiclytradedcompanies.Source:McKinseyValueIntelligence

McKinsey&Company

GlobalBankingAnnualReview2024:Attainingescapevelocity5

Sowhytheforeboding?Simply,globalbankingis

valuedataprice-to-bookratioof0.9—thelowestofallindustries—whichsuggeststhemarketis

expectingtheindustrywillerodeeconomicvalueasawhole(Exhibit4).Andthischallengeexists

acrossmostmarkets(Exhibit5).Therearemanypotentialreasonsforit:

—Theimprovementinreturnscouldbefleeting.Lookingback,whiletheindustryhasreduced

costsandkeptcreditqualityhigh,the

improvementinreturnssince2021appears

tobelargelyowedtorisinginterestrates

(Exhibit6).Modeling,whileimperfect,suggeststhatwithoutratesupport,industryROTEin

Exhibit4

Capitalmarketsplacealargeandgrowingvaluationdiscountonbankingrelativetootherindustries.

Price-to-bookratio,2003–231

3.5×

3.0×

2.5×

3.5×

3.0×

2.5×

2.0×

1.5×

1.0×

0.5×

0×

Allotherindustries

2.0×

1.5×

–30%

1.0×

–68%

Globalbankingindustry

0.5×

iiiiiiiiiiiiii

2005201020152020

0×

Price-to-bookratio,byindustry,20231

4.7

4.5

4.1

3.7

3.03.0

2.7

2.3

1.91.81.7

1.41.3

0.9

Energy

Healthcare

Nondepository

financial

institutions

Technology,

media,and

telecom

Pharmaceutical

andmedical

products

Business

Travel,logistics,

servicesConsumerIndustrialsandinfrastructure

Insurance

Realestate

MaterialsConglomerates

Globalbankingindustry

1Averageexcludingoutliersandfirmswithanegativeprice-to-bookratio.Basedon~15,000publiclytradedcompanies.Source:McKinseyPanorama;McKinseyValueIntelligence

McKinsey&Company

Web<2024>

Exhibit5

<GBAR2024>

Exhibit<5>of<17>

6GlobalBankingAnnualReview2024:Attainingescapevelocity

Thevaluationchallengeinthebankingindustryexistsacrossallmarkets.Shareofinstitutionswithprice-to-bookratio<1,%

Japan

UK

China

Germany

Nigeria

Australia

SouthAfrica

US

Brazil

Canada

India

SaudiArabia

96

92

90

86

82

60

57

55

41

27

26

20

Source:McKinseyPanorama;McKinseyValueIntelligence

McKinsey&Company

Exhibit6

Netinterestmarginimprovementhasbeenthekeydriverofimprovedreturnsontangibleequityinrecentyears.

Comparisonofimpactonreturnontangibleequity(ROTE),2021–23,¹index(2021=100)

3.6–4.6

–0.3

10.5

mm–1.9

Non-interest

income

Riskcosts²

107.3

Tax

100

Operatingexpenses

Net

interest

income

Actual

Withinterestrateincreases

20212023

–12.64.21.00

–0.9OperatingTax91.7intstNon-csi²expenses

100

interestincome

income

Theoretical

Withoutinterestrateincreases

20212023

1GreaterChinaisexcludedgivendiferentinterestrateenvironment.

²Includesloanlossprovisions,otherfinancialimpairments,andwrite-downs.

Source:McKinseyGlobalBankingPools;McKinseyPanorama;McKinseyValueIntelligence

McKinsey&Company

GlobalBankingAnnualReview2024:Attainingescapevelocity7

manygeographieswouldhavebeenaround

8percent,orbelowcostofcapital.Ifonebelievesthatrateswillbelowerthantheyaretoday,someofourscenariossuggesttheindustry’sROTE

couldreverttonearitscostofequityoverthe

nexttwoyears(Exhibit7).Naturally,werecognizethatsignificantregionaldifferencesmightexist,dependingondriverslikelocalinflationandthepaceandeffectsofreductionsininterestrates.Butifinterestratesgloballydecline,onaverage,assomeforecastersareprojecting,ourmodels

suggestthatnetinterestmargins(NIMs)mightcompressby50to60basispoints,fromjust

over3.1percentin2023toroughly2.7percentby2030.Ifthisoccurs,economicprofitgrowth

witnessedrecentlyfromtheincreaseininterestrateswilldiminishandROTEscouldagaintrendtowardcostofcapital.

—Thewidevariationsintheindustryacross

subsectorsandgeographiesmayskewhowcertaininstitutionsareviewedrelativeto

others.Structureandmixcouldsignificantly

influencehowindividualbanksfareasconditionschange.Insomecountries,includingtheUnitedStates,theUnitedKingdom,India,Germany,andNigeria,performanceimprovedin2023versusthe2010–22period,whileothercountries,likeBrazil,Canada,China,Japan,andAustralia,sawlowerROTEs.Thesevariationsarealsosectoral,witharoughlyten-pointgapinreturnsbetweenthehighest-andlowest-returningsectors

(Exhibit8).

—Banksmaynotbeabletocountonraising

productivityorharnessingscale.Thesecontinuetobeconundrumsforbanksinmanyregionsoftheworld.AIhasn’tyetprovedapanacea(thoughquiterecently,someleadingbanksthathave

beenfirstmovershavepubliclyannounced

efficienciesfromAI—forsomeoftheminthe

billionsofdollars,alreadyworthasmuchas

apointofefficiencyratio).Despiteaglobaltotalofapproximately

$600billionbeingspent

bybanksontech

thatshouldbeboosting

productivity,laborproductivityinsomemajor

Exhibit7

Whilehigherinterestrateshavesupportedrecenteconomicprofitabilityacrossbanking,thistrendcouldreverseifinterestratesfall.

Returnontangibleequity(ROTE),bycostoftangibleequity(COTE),2003–23,%

20

18

16

Global

financial

crisis

Interestratehike

Economicallyprofitable

14

12

10

8

6

4

2

0

20032005200720092011201320152017201920212023

AverageCOTE

10.5%

Economicallyunprofitable

Source:S&PGlobal;McKinseyPanorama

McKinsey&Company

Web<2024>

BhAii2t04>

Exhibit<8>of<17>

8GlobalBankingAnnualReview2024:Attainingescapevelocity

Performanceinthebankingindustryvariesacrossandwithinsubsectors.

Distributionofreturnontangibleequity(ROTE),2023,1%ofinstitutions

Consumer

finance

Financialexchange

andtradingvenue

Investmentbanking

andbrokerage

WealthmanagementAssetmanagement

andbrokerageandcustodybanks

Universaland

Specialized

Payments

commercialbanks

finance

ROTE,%

143850

37

34

31

27

24

1254

2

1

3

16

10

7

11

10

8

8

8

4

2

9

13

5

10

13

18

5

16

13

13

38

14

25

48

34

32

66

45

11

Average

ROTE,%

11222162

14

17

12

19

11

Price-to-

bookratio3.1×3.3×1.6×

6.0×

1.9×

0.8×

1.5×

1.0×

1Basedon~3,000financialinstitutions.Figuresmaynotsumto100%,becauseofrounding.

2IndicatesROE,consideringthatsubstantialgoodwillinthesegmentresultsinnegativetangibleequity.Source:McKinseyPanorama;McKinseyValueIntelligence

McKinsey&Company

markets(forexample,theUnitedStates)is

declining(Exhibit9).1AIcouldchangethat,butatmostbanks,generativeAI(genAI)iscurrently

inpilotmode.Andwithitcomesmorespendingandmoreregulatoryrequirements,somany

bankshaveadoptedacautiousposture.Someofthewinnersaremovingfromthispilotapproachtoadomainapproach,wheretheyarelookingtostreamlinedomainsendtoendandapplying

alllevers,includingAIandgenAI.Wewillsee

whenthoseeffectsshowupinthedata.Bankinginmanyglobalmarketsalsodoesn’texhibit

absolutescaleeconomies,thoughwedoseescaleeffectsinspecificsubsectors,like

retirementrecordkeepingandsomepartsofcapitalmarkets(seesidebar,“Doesscale

stillmatter?”).Asaresult,neithertechspending

toraiseproductivitynorsizehastrulybentthecostcurveforbankstosqueezeoutsomeextrapointsofmargin.

—Improvementinmarginsmaynotbeable

tocomefrommorecostcutting.TomaintaincurrentROTEinthefaceofsomemacro-

drivenscenarios,theindustrywouldneedtoreduceitscostperassetby5percentper

annum,orfivetimestheindustry’shistoricperformanceof1percentreductionper

annum(Exhibit10).

—Attackerscontinuetopressureincumbents.Aswedescribedinlastyear’sGlobalBanking

AnnualReview,abouttwo-thirdsoffinancialassetvaluegrowthwasinoff-balance-sheet

1GregorPetri,JeffCasey,andDebbieBuckland,“2024outlook:EnterpriseITspendingforecastforbankingandinvestmentservices,”Gartner,December4,2023.

Web<2024>

Exhibit9

<GBAR2024>

Exhibit<9>of<17>

GlobalBankingAnnualReview2024:Attainingescapevelocity9

Despitetechspending,productivityatUSbankshasbeenfalling,andeconomiesofscalehavebeenelusive.

USlaborproductivity,bysector,2010–22,1index(2010=100)

Professional,scientific,andtechnicalservices²

125

120

1.9%

115

CAGR

110

105

100

95

90

Privatenonfarmbusinesses

125

120

1.2%

115

CAGR

110

105

100

95

90

Commercialbanking

125

120

–0.3%

115

CAGR

110

105

100

95

90

201020222010202220102022

CorrelationbetweenrevenuesandnumberofemployeesatUSbanks,2023

150

R²=0.9399

Revenue,$billion

100

50

050100150200250300

Full-timeemployees,thousands

1Three-yearmovingaveragesareusedforprofessional,scientific,andtechnicalservicesandforcommercialbanking.

²Includessubsectorssuchasaccounting,computersystemsdesign,consultingservices,legalservices,andscientificresearch.Source:USBureauofLaborStatistics;McKinseyPanorama;McKinseyValueIntelligence

McKinsey&Company

Web<2024>

Exhibit10

<GBAR2024>

Exhibit<10>of<17>

10GlobalBankingAnnualReview2024:Attainingescapevelocity

BankinghasaIeveragedbusinessmodeIandcannotsimpIycutcoststo6escapegravity.,

Cost-to-assetreductionrequiredtomaintain2023IeveIsofreturnontangibIeequity(ROTE)givenanticipatedrevenuemargincompression¹

CosttoassetsneededtomaintaincurrentIeveIsofROTEgivenmargincompression,²%

Costtoassetsrequiredtomaintain2023vaIuecreation,%

Revenuemargin

3.1

-2%

perannum

2.7

20232030

Costtoassets

1.3

-5%

perannum

0.9

20232030

1.6

1.4

1.2

1.0

0.8

0.6

0.4

0.2

0

-1%

perannum

-5%

perannum

Historicalcosttoassets

Projectedcosttoassets

requiredto

maintain2023

valuecreation

201020232030

TomaintaincurrentROTEmargins,bankswillneedtocutcosts~2.5xasfastasrevenuesdecline

Thisimpliesareductionoverthenext5yearsthatis5×asrapidastheprevious5years’reduction

1Revenuemarginisdefinedasnetinterestrevenue+feeandcommissionrevenuedividedbyoutstandingbalances.2Foranaverageglobalbank.

Source:EconomistIntelligenceUnit,OxfordUniversity;McKinseyPanorama;McKinseyValueIntelligence

McKinsey&Company

assets(forexample,mutualfundsand

alternatives).2Nontraditionalcompetitors

(forexample,nondepositorycompanies

andprivatecapital)andwell-fundedneobankspeckatthelargestprofitpools.

Macrouncertaintiesandindustry-levelissuesalsoposechallenges:

—Thecostoffundsforbankscouldincrease,

drivenbycontinuedquantitativetighteningthatreducestotaldepositvolumes(–6percent

CAGRsince2021intheUnitedStatesand

–10percentatEuropeanCentralBank)and

increasedcompetitionwithmoneymarket

flowsinsomemarkets(since2021,12percentCAGRintheUnitedStatesand7percentin

theeuroarea).Theresultingcompetitionfordepositscoulddrivecostshigher.

—Loanoriginationsfacethedualchallengeof

decliningconsumerandcorporatedemand.Forexample,UScommercialrealestate(CRE)

originationsaredown55percentfromtheir

pandemicpeakand25percentbelowtheirten-yearaverage.Atthesametime,existingassetsfacepotentialdevaluations—someofwhichareyettobefullyrealized.Forexample,CREpriceindexwasdown9percentinthefourthquarterof2023intheUnitedStatesandtheeuroarea.

Areductionininterestratesmayhelptosmoothsomeoftheseeffects,butwithalargeshare

ofRussell2000Indexcompanieslosingmoney,3there’snocertaintythatmodestreductions

willturnthetide.Additionally,risingcreditcostsfromstressedconsumerscouldcrimpthat

growthtosomeextent,andmanymarketsfacedevaluationsofloanportfoliosandrefinancing

cliffsfromhigh-yielddebtcomingdueforrenewal.

2“GlobalBankingAnnualReview2023:Thegreatbankingtransition,”McKinsey,October10,2023.

3TheDailySpark,“40%ofcompaniesinRussell2000havenegativeearnings,”blogentrybyTorstenSløk,November17,2023.

GlobalBankingAnnualReview2024:Attainingescapevelocity11

Doesscalestillmatter?

Scaleinbanking—andtheadvantagesitconfers—hasbeendebatedacrossthe

industryformanyyears.Acrossourglobalstudyofmorethan2,000banks,weoffersomeempiricalobservationsonthetopic:

—Localscalestillmattersinmany

places.IntheUnitedStates,branch

densityisstillpredictiveofdeposit

marketshare,andthevastmajorityofcheckingaccountsarestilloriginatedinbranches,evenasservicinghas

movedtodigitalchannels.Withthe

importanceofoperationaldeposits,branchnetworksseemtobe

experiencinganewleaseonlifeafterenduringadecadeofskepticism

anddigitalconversionoffootfalls.

Havingsaidthis,intherecentdecadeorso,aswesaidin“

Customer

mindshare:Thenewbattlegroundin

USretailbanking

,”branchdensityhasnowbecomeonlyoneoffourkey

variables(theothersbeingDigital

Quotient,customerexperience

perceptions,andlocalmarketingspend)thatpredictshareinlocalmarkets.

Inothermarkets—particularlythose

thatarehighlydigital,withhigh

populationdensityandhomogeneity—branchdensitymaybelessrelevant.

—Scalemattersincertainplaces.For

example,inretirementrecordkeeping,ourbenchmarkingsuggestsa

plateauingofthescalecurveatfive

millionparticipants.Insomecapital

marketsorconsumerservicing

businesses,amortizingakeyfixedcosttechplatformbecomesacritical

driverofuniteconomics.Scalecan

alsohelpinmarketing,withahalo

effectbeingconferredonless-

advertisedproductsunderthesame

brand.Insomemarkets,wealso

observea“minimumscale”requiredtobecompetitive,althoughthebenefitsofscaleplateauafterthispoint.

—Digitalcancutbothways.Whiledigitalcanlowerbarrierstoentryinsome

marketsandreducescaleadvantages,sometimesthecapitalrequirements

tobuildacredibledigitalplatformcancreateanentrybarrierandconfer

scaleeffectsonthefirstmovers.

—Vendornetworkscanreducescale

effects.Insomemarketsuptoa

certainsizeandcomplexity,it’seasyto“rent”capabilities.Beyondthat,it

becomesmoreprudenttoownthose(forsystemicresilience,proprietarydifferentiation,orotherreasonsliketalentattraction).Thematurityand

vibrancyofthevendorecosystemisthereforeanimportantfactortohowprominentscaleeffectsbecome.

—Complexitynegatesscalebenefits.Inmostmarkets,asbanksgetlarger,

sodoestheirmanagementcomplexity,regulatoryoversight,andobligations.Thisincreasescomplexity,whichinturnleadstoadditionalcostsandnegatesanyeconomiesofscale.

Ourconclusion,therefore,onscale:it

mattersselectively,andCEOsand

managementteamsneedtoknowwhenit’screatingtailwindsversusheadwinds.

Butquiteoften,countingonscaleeffectstoboostcomparativeeconomicsisn’t

areliablestrategy.

—Unrealizedlossesforheld-to-maturitysecuritiesarepredictablyburningoffandwillshrink,with

revaluationsatlowerrates,potentiallyopeningtheapertureforM&A.WhiletherightM&Adealhasthepotentialtotransformafranchise,or

justaddvaluablenewcapabilities(forexample,digitalcustomeracquisitiontools),large-deal

M&Aisnotacertainpathtosuccess,sincescalealoneisn’tapredictorofmargingrowthinmany

markets.Puttingasideanylegalandregulatoryuncertainty,successfulM&Aalsorequires

robustintegrationplanningandexecutionto

mitigatetheoperational,cultural,andtalent

risks(amongothers)thatcandistractfromday-

to-daybusinessoperations.Saidanotherway,thebarforM&Ainbankingshouldremainhigh,evenastheaperturefordealsopens.

—OurprojectionsfortheoriginalBaselIIIendgameimpactonROEwerematerial.Itremainstobe

seenwhattherecentlyreleasedrevisedproposalwillresultin,butthatcouldhaveafurther

moderatingeffectonROTEs.

Addthesechallengestothegeopolitical

uncertaintiesoftheworldtoday,andonecancontextualizetheimpactonROTEthatthe

marketsareforeseeing.

12GlobalBankingAnnualReview2024:Attainingescapevelocity

Attainingescapevelocity

Forthingstostaythesame,thingswillhavetochange.

—GiuseppeTomasidiLampedusa(TheLeopard,1958)

Webelievethatbankswantingtoattainescape

velocitywillneedtooperateverydifferentlyfrom

todayto“avoidgravity.”Tounderstandhowthey

coulddothis,welookedatthetrackrecordof

performancebysomeleaders,hopingtofindcluestotheirlonger-termhealth.

Aswesaythis,it’salsoimportanttonotethatbanksarebynaturefragileentitiesthatfirstandforemostneedtoprioritizesafetyandsoundness.Poor

structuralbets,likealackofdiversificationby

concentratingononesegmentorover-rotatingonaportfolio,candestroybanksthroughliquidity

orcreditquality.SomeoftheleadingbanksintheUnitedStatesbythemeasureofROE(andoften,growth)fromafewyearsagowereconsumedbytheregionalbankingdisruptionof2023.Furtherback,priortotheGFC,theleadersweresubprimeoriginators.Sowhenwelookatwinners,we’re

cautious,lookingatwhattheydothroughthelensofwhethertheyareachievingtheirleadership

prudentlyandsustainably.

Withthatinmind,weidentifiedpotentialwinnersfromaroundtheworldinfourways:

1.First,welookedatbanksthathaveseparatedfromthepackinbothROTEandprice-to-book

multiples.Thisidentifiedinstitutionsthathaveoutperformedtheirpeers.

2.Second,welookedatbanksthathavechangedtheirpositionbymorethanfivedecilesof

performancevis-à-vistheirstartingpointfiveyearsago.Thisidentifiedinstitutionsthat

havebeensuccessfulatchangingtheirperformancepositively.

3.Third,welookedatbanksthathaveconsistentlydeliveredabovetheircostofcapital(arelative

rarityinanindustrywhere,between2013and2023,theaveragebankgloballygenerated

a$1millioneconomicloss,afigurewhichwouldhavebeensubstantially