Wall Street banks had a rough end of 2015, and now analysts are looking ahead at what's to come this year.
Societe Generale bank analyst Geoff Dawes and his team put together a "Banks Handbook" for the year ahead and took a deep dive into the issues facing the top banks in the US and Europe.
Among other things, they listed the three biggest strategic challenges each of the banks is facing.
These range from adapting to new regulatory hurdles to following through on restructuring plans.
The handbook is particularly timely, as JPMorgan kicks off fourth quarter earnings season on Thursday January 14.
We put together a list of 10 major banks and the the biggest challenges they must overcome this year, via Dawes' note.
SEE ALSO: One bank could win out in 2016 — in good times and bad
Goldman Sachs
Maintaining growth in banking revenues after a period of robust growth.
In the third quarter of 2015, Goldman Sachs produced year-to-date net revenues of $5.48 billion— it's highest performance for that period since 2007.
Ensuring large share buyback policy can be resumed after being impacted by 2015 DFAST process
DFAST refers to the Dodd-Frank Act stress test, which assesses whether large banks have enough capital to absorb losses in the event of an economic crisis. Goldman had to submit a revised dividend and stock-buyback plan to the Fed, after finding that the initial plan would have left the bank short of capital in a stressed scenario.
Managing potentially large RWA inflation from the BCBS Trading Book review
RWA refers to "risk-weighted assets," which measures a bank's assets weighted according to their riskiness. The BCBS Trading Book review refers to a revised market risk framework from the Basel Committee on Banking Supervision which looks set to increase some risk weightings, which in turn will likely inflate total RWAs.
That is important, as it could mean banks will have to hold more capital against those assets.
RWAs are used to calculate bank capital ratios (a measure of stability), and any RWA inflation could lead to a need for more capital.
Morgan Stanley
Implementing management's strategy to improve wealth management operations.
Wealth management has been a key focus for Morgan Stanley since the financial crisis and is its most profitable business. The president of the wealth management division, Greg Fleming, unexpectedly left the bank last week, and that team is now under the purview of president Colm Kelleher.
Deleveraging the FICC business adequately to improve ROE.
In November, news broke that Morgan Stanley would lay off 25% of its fixed income, currencies, and commodities team to help improve the bank's return-on-equity. UBS bank analyst Brennan Hawken estimated at the time that a 25% FICC cut could boost ROE by 125 basis points or more, if reinvested into other divisions of the firm.
Managing the RWA impact from the BCBS Trading Book review.
Like at Goldman Sachs, the impact of the Basel Committee trading book review on risk-weighted assets is a concern for Morgan Stanley too.
JPMorgan
Optimising overall business risk, complexity, size and manage potential GSIB related add-on in stress tests
JPMorgan tops a number of global bank rankings in terms of how interconnected it is with other banks, how difficult it would be to replicate or replace, and how complex its business is.
Regulators are focused on these kinds of institutions, which now have to hold more capital than smaller, less-interconnected institutions.
Optimizing client relationship while minimizing the downside risks to business/revenues
JPMorgan has been focusing on cutting the numbers of clients it deals with. Daniel Pinto, chief executive of the corporate and investment bank at JPMorgan, alluded to the effort in a November presentation, saying: "What we have done in the last few years, and we are really more and more focused in the last couple, we do a lot of work on client planning."
Whether to step-up investments in Asia to bolster presence/growth
JPMorgan finished 2015 as the number one investment bank in the US, and the number one investment bank in Europe, according to Dealogic. In Asia, it ranked seventh.
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