LONDON There may be room for only a handful of firms at the top table of investment banking as the industry reshapes, leaving bosses scrambling to keep their seat and influence at the same time as they need to shrink.
Even the biggest global players have been cutting costs heavily in the face of a changing regulatory landscape that has caused a shift widely viewed as structural, rather than cyclical.
"By the time we are finished with the unintended consequences of regulation, my feeling is we will have five to six (global) banks remaining," Anshu Jain, Deutsche Bank's (DBKGn.DE) chief executive, said on Wednesday.
Others share that view. Tougher regulations and shaky markets have forced all banks to streamline, and the shakeout is expected to relegate many to a second tier that lacks the scale to compete and needs to narrow its focus to be profitable.
"It will be ever more minnows and whales," said Peter Hahn, of Cass Business School's finance department. "Some will be rubbing their hands with glee to see rivals pull back, and if there used to be 20 banks that wanted to be in the top five, there are now maybe eight. But it is still more than five."
Wall Street powerhouses will take the majority of the top slots, bankers and analysts predict.
J.P. Morgan (JPM.N) and Goldman Sachs (GS.N) will stay at the top table, with Citi (C.N), Bank of America Merrill Lynch (BAC.N) and Morgan Stanley (MS.N) also staking a claim. In Europe, Deutsche Bank and Barclays (BARC.L) expect to be in the top echelon.
Others, including Credit Suisse CSGN.VX, UBS UBSN.VX, HSBC (HSBA.L) and BNP Paribas (BNPP.PA), each have key areas of strength but are seen as more likely to be among a second tier in the pecking order, along with the likes of Royal Bank of Scotland (RBS.L), Royal Bank of Canada (RY.TO), Nomura (8604.T) and Societe Generale (SOGN.PA).
As banks have to hold more capital to conduct business, many areas are viewed as unprofitable and others marginal, forcing bosses into big decisions, particularly in Europe.
UBS this month announced that it would axe a further 10,000 jobs as it exits big parts of debt and rates trading to focus on its stronger equities and advisory operations.
State-backed RBS has abandoned ambitions to challenge Wall Street's biggest names and slashed its investment bank to narrow its focus on fixed income and foreign exchange.
Change elsewhere is more modest. New CEOs at Deutsche Bank and Barclays are trimming businesses and still reviewing plans, while Credit Suisse this week restructured, but stopped well short of UBS's radical moves.
Being in the top five in each product areas is crucial to being profitable in it - and to be in that batch, banks need a market share of about 6 percent in most areas.
There is no chance of banks returning to the boom years before the 2007/08 crisis, when their return on equity - a key measure of profitability - often topped 20 percent. Most need to cut jobs, pay and other costs just to get above the average cost of equity of 10-12 percent, analysts estimate.
Technology is becoming increasingly important, as banks try to grab more "flow" business - income from the low-margin processing of clients' orders. This offers huge benefits of scale because technology has slashed the cost of trading.
14 into 5?
Banks also have an eye on rivals as they consider their plans. UBS's retreat from fixed income, for example, should allow rivals to pick up business and lift margins.
BNP Paribas said on Wednesday that it should be able to steal investment banking business from rivals lagging behind it in adjusting for the new regulatory regime.
"The more competitive large firms are positioning themselves for a battle of attrition in trading — confident that a new business model will arise with profitability accruing to the last few standing," Brad Hintz, senior analyst at Bernstein Research, said in a note on Wednesday.
Tackling industry overcapacity is likely bring further severe job cuts and at least a third of the global players will exit, consultancy Roland Berger predicted this week.
There are 14 firms that maintain a global investment banking footprint with aspirations in FICC (fixed income, currencies and commodities), equities and advisory; and in three to five years there will be fewer than 10, Roland Berger said.
"Perhaps only five will maintain a full-scale model across all major products and regions," it said. "(Banks) with global ambitions have to ask themselves whether they should stay on and invest to realistically close market share or profitability gaps, or whether they should exit."
(Editing by David Goodman)