In October, McKinsey & Company has published that the past two years have been the best for banking since before the global financial crisis (GFC) of 2007–09, with healthy profitability, capital, and liquidity. Nevertheless, the market is skeptical of long-term value creation and ranks banking dead last among sectors on price-to-book multiples.
Looking at banks that outperformed over the past five to ten years could hold the answer to how banks might achieve escape velocity. Banks that win use a combination of smart moves on three structural dimensions (selecting segments carefully, finding scale where it can matter, and strategically locating themselves, whether geographically or in the value chain) and rigorous operational execution across a range of capabilities (for example, analytics, marketing effectiveness, operating model, and tech).

The good news for the rest of the industry is that things can be improved. Indeed, about 10 percent of the industry improved as much as five deciles of return on tangible equity over the past five years (though conversely, roughly two-thirds of the industry stayed within two deciles of their prior performance). For banking to recover its multiple, management teams will need to conjure the dynamism of these winners. We believe this “management quotient” will be what makes the real difference in the remaining years of the 2020s.

Download the complete report at McKinsey & Company.