The combination of liquidity constraints in the eurozone and a wall of new regulations facing banks accelerated the process of adjustment in the banking sector in 2011, with lenders exiting or scaling back businesses that are difficult to fund or will suffer punitive regulatory treatment. Long-term credit-oriented businesses, such as real estate, infrastructure or aircraft and shipping finance, are under the greatest scrutiny. By contrast, derivatives structuring, especially in equity derivatives, has generally been regarded as an area that stands a good chance of generating fee income without incurring heavy capital costs.
The reality is not so simple, however. Yadin Rozov, a managing director in the risk advisory group of independent investment bank Moelis, says his team has seen a steady flow of business advising large players on the unwinding of exotic risks embedded in their derivative books.
