The “golden age” of U.S. banking profits is over, and financial firms are going to face a tougher environment in the years ahead, according to a new report from international management consulting firm Oliver Wyman.

The report says that banks will face significant revenue and asset growth headwinds in the years ahead, and it highlights six long-term trends that are likely to drive the U.S. banking industry’s changing fortunes:
> the end of declining interest rates;
> consumer deleveraging;
> increasingly active regulators;
> an aging population;
> the end of credit risk-free sovereign borrowers; and
> faster credit growth in emerging economies.

It predicts that these trends will also lead to a sustained period of consolidation in developed markets, innovation of offerings and service models, and migration of relative profitability from mass-market to affluent customers.

“The Golden Era is over and it is not coming back,” the report says, unlike previous recessions or banking crises, after which the industry reverted to above-trend growth. “That will not happen this time, at least in the developed economies. Stable or rising interest rates, relatively slow
GDP growth, and increasing regulatory burdens mean that the near-ideal macro conditions for banking profits that characterized the Golden Era will not pertain in the post-crisis era.”

Instead, it says that the industry will endure slower asset growth, and lower returns on equity due to higher capital requirements. This will ultimately lead to consolidation, it suggests, and more pressure to innovate.

IE