The European banking sector has been facing significant changes in the post crisis era. Regulatory headwinds, a myriad of litigation charges and the lack of a credible strategy at many institutions have seen the sector fall out of favor with equity investors. Though, admittedly, these challenges might not have been completely overcome yet, there are signs that the prospects for the European banking sector are set to brighten up. The regulatory outlook has become clearer recently and the European economy seems to be on a (moderately) positive growth trajectory.

As regulations is the biggest driver of change, we focus on the analysis of Europe’s investment banks as we deem them disproportionally affected by the new rules. In this piece, we identified four trends that will reshape the landscape of financial institutions: Rising capital requirements, a financing switch from bank loans to bonds, the increasing importance of asset and wealth management, and decreasing market liquidity. We describe the underlying drivers for each of the trends, assess how their impact might alter the current business model of investment banks and shed some light which individual names are particularly well positioned to benefit from the looming trends.

As they represent c.15% of the European market, the banking industry cannot be avoided by investors. By means of this report, we attempt to foster some understanding of the industry and make sense of some of the acronym soup relating to the new rules governing the sector.

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