Simplification, Brexit & Mergers: What’s Left for 2016?

Summer is starting to wind down and September is now upon us; accordingly, I now have my annual sense of unfocused dread. Perhaps this is because September is inextricably linked in my mind with "back to school," but it's also a signal that most of the year has now passed and thoughts must now turn to what's to come.

So much has happened this year ─ much of which is largely negative ─ that 2017 already has a lot to live up to. But what's in store for the last four months of 2016? I've picked out three topics I think will have a significant degree of influence on the rest of this year.

Simplification
Last week I wrote about how asset managers are pursuing wider asset portfolios through alternative products and new markets, which is putting strain on existing front-office systems. The feedback I've received from that article has largely validated my opinion, but it seems the tide is starting to shift.

While the middle office is currently enjoying its share of attention, many asset managers are in the process of simplifying their technology stacks to introduce more holistic, enterprise-wide platforms that can handle numerous functionality.

This will, for some, be a massive undertaking that will involve a great deal of investment and co-operation with the vendor that has been selected to provide the underlying technology, but the wholesale outsourcing model simply isn't up to the task. I expect to see a lot more firms investing in this area as the year wears on and into 2017 ─ just because asset managers want diversification doesn't mean it can't be simplified.

Brexit
Brexit has been one of, if not the most, seismic events to occur this year, not least because of the unexpected outcome of the UK referendum. Most believed there was little chance of the result panning out the way it did and there is still much ─ too much in my opinion ─ uncertainty around what is actually going to happen now. UK Prime Minister Theresa May has repeatadly told her Cabinet that "Brexit means "Brexit," which is just about the level of insight and eruditeness I've come to expect from our politicians. 

While the impending departure of the UK from the European Union is unlikely to have any direct effect on capital markets technology, it's the ripples that will be felt most; it will certainly become much harder for institutions to attract new technology talent to London from overseas, and start-ups will begin eyeing other European locations instead. What it means for regulatory compliance is anyone's guess.

It's also indicative of how politics is now able to affect the financial world to a much wider extent than in the past. He-Who-Shall-Not-Be-Named has also stuck his perma-tanned nose into capital markets affairs, and while his ideas will probably (read: hopefully) be ignored, this is a case of a another political figure getting involved.

Hopefully there will actually be some kind of plan formulated and implemented before the end of the year regarding what now seems inevitable, and once it does, those ripples will become much more forceful.

Mergers
Earlier this week, John Cryan, chief executive of Deutsche Bank, called for more mergers between European banks, while at the same time slapping down suggestions that his bank is in talks over a deal with Commerzbank.

Of course, Deutsche Bank has suffered its share of ignominy this year, from plummeting shares to several run-ins with European regulators, but I don't see the likelihood of Cryan's words being acted upon. Far be it from me to match financial nous with the CEO of one of Europe's best known banks, but I just can't see it happening.

At the end of the day, the capital market is a zero-sum game; money needs to be made and if you don't make it, your competitors aren't going to be lining up to help you out. Can you imagine the chances of similar deals taking place on the buy side? Me neither. In fact, if anything, buy-side firms are now in a much stronger financial and economic position than many of their sell-side counterparts.

The point here is that I don't expect to see many, if any, deals taking place in the remainder of the year. 2017, however, might well be a different story.