The wholesale banking industry entered 2025 in a strong position, thanks to record revenues generated in 2024. This foundation looks set to continue in 2026 according to the latest research by Oliver Wyman and Morgan Stanley.
But among the positive figures lurk rising costs - have the strong returns of the past two years finally given firms the space and opportunity to address their systemic challenges? If so, what will be the main competitive differentiators over the coming 12 months as leaders put efficiency firmly on the agenda?
Attendees of our Innovation Day: London event were given a special walkthrough of the findings by Oliver Wyman Partner Harriet Roberts.
Here are the key takeaways.
Rising costs lurk below strong revenue growth in 2025
Last year saw the wholesale banking industry escape from a long period of underperformance. Revenues eroded between 2021 and 2023, while before that the industry had underperformed relative to GDP for over ten years.
The 2026 market outlook bluepaper from Oliver Wyman and Morgan Stanley noted that:
“Wholesale Banking revenues surpassed all-time highs in 2024; revenues increased 4% y/y to $611BN, driven by growth in equity derivatives, DCM, and securitization globally.
Global markets ended the year with excitement for the pro-growth agenda that the new US administration was expected to deliver. Strong revenue growth was the primary driver of a 200bps improvement in return on equity (RoE) to 14.3% vs. 12.3% in 2023 and cost income ratio improvement of 300bps to 59% in 2024.
The industry delivered some cost improvements as management teams reported workforce reductions and realignment of costs with priority growth areas, offsetting increased investments in talent and platform modernization (e.g., decommissioning of non-core and legacy platforms).
Capital improvements had an even more muted impact on RoE given the lack of changes to capital requirements and relatively minor impacts of balance sheet optimization implemented by banks.”
So - an overall rosier picture than the 2025 wholesale banking forecast Oliver Wyman presented at Innovation Day 2024. This strong performance has also driven improvements to cost-income ratios of a couple of percentage points.
Roberts noted that “the returns of the industry have largely recovered and are averaging just over 15%; relatively healthy from a long term perspective. Which means that your corporate investment banking divisions are on track to make returns that are above their cost of capital. Ultimately, they may have more capacity to invest in the coming cycle.”
Which is important, she cautioned, as Oliver Wyman believes that “this improvement in efficiency is masking an increase in overall costs”. Underlying costs are rising for a number of reasons. Front office compensation is obviously higher in light of the higher revenues they’re delivering, but technology, regulatory and compliance costs are also increasing.
Senior leadership are already considering how to best invest in tackling known structural issues that are holding the business back.
But what approaches are they likely to take?
Reducing costs to retain the right to win
Bank analysts are already pricing in expectations of cost-income ratio improvements. But, as was the case in 2024, the data shows that the cost of doing business - particularly around technology, regulatory and compliance - is rising for the industry.
Many of the senior leaders in wholesale banking that Oliver Wyman have spoken to are thinking about ways to increase efficiency; those that successfully tune their operational engines will gain a competitive advantage.
“We think that the ones that will win will be those that invest in scalable technology platforms,” Roberts said - platforms that address common operational challenges.
These platforms will enable key initiatives such as consolidating accurate data, whether that is customer data, reference data, or so on.
Roberts summarised: “Banks are focusing on technology, on data, on end-to-end processes. And where they can scale to keep their right to win.”
AI expectations extend beyond horizon one
Naturally, AI was a key focus of the 2026 outlook.
The activity seen across the industry so far has largely focused on “no regret moves” - small projects that deliver incremental results. But the leaders Oliver Wyman have spoken to are shifting their focus towards larger and more long-term transformation.
“They're trying to look and redesign their operating model to see how they could apply innovation across multiple places,” Roberts explained.
This does, however, run them into a major barrier that many leaders have acknowledged: the siloed nature of many wholesale banking institutions. Firms can no longer deliver change individually in a federated manner, and instead must look to work across different functions and groups. This is how they will unlock the full benefits of AI and automation.
But these groups are not used to working together in this way. “They need to coalesce and come together to make the case for the investment,” Roberts said. “Then they have to prove that they can actually deliver across the group, even when some of the solutions might be being delivered in one division and being funded by [another].”
AI buy-versus-build
Roberts explained that Oliver Wyman also had conversations with vendors to build a comprehensive picture of the AI innovation landscape. There’s an open question, she said, “around how much of the AI driven potential will be delivered through the banks themselves, and how much will come through vendors.”
Importantly, many firms expect embedded AI solutions to become ‘table stakes’ among the larger software vendors such as Microsoft. In the future, even your basic software will include AI functionality, on top of the more advanced solutions offered by vendors such as Duco to tackle specific operational challenges.
“There's an open question there between how much has been developed in-house and how much will the banks lean on the vendors to provide additional capability of specialised, AI solutions within the different verticals that they're working in?” Roberts said.
Ultimately, whatever the operating model ends up looking like, it relies upon a resilient digital ecosystem. This foundation will allow vendors to work harmoniously with you. “[It’s] the critical enabler that everybody is obviously trying to work towards.”
Consolidation could drive additional Operations workload
There is another way that firms could invest the excess capital that is predicted for them - one that may not be so favourable for Ops teams. Having spent the last couple of years focussed on stock buybacks, their attention could now turn to consolidation.
A caveat here is that there are big questions in Europe around the efficacy of consolidation, particularly cross-border consolidation as it brings about a number of extra jurisdictional challenges.
But if firms do decide to consolidate, that will add to the workload for Operations teams. “If you're going through M&A, you're going to be dealing with integrations at the same time, and you're also potentially going to be taking on new business that will either massively grow the volumes that you're already dealing with, or bring you new lines of business that you may not have the systems to be able to cope with,” Roberts explained.
So, while on the one hand the outlook could be positive for Operations - a push for greater efficiency - on the other there could be a lot more work coming their way. The solution is building resilient and scalable platforms.
Summary
As was predicted, 2025 was a solid year for the industry. This has given firms some breathing space to invest in the greater efficiency that is expected of them. Leading industry participants are already doing this, meaning firms across the globe need to follow suit in order to stay competitive.
Artificial intelligence will, of course, play a role here, but as Roberts and other speakers at Innovation Day noted, it is solving foundational problems that have persisted for years or even decades that will enable the kind of transformations firms need.
New technology presents an opportunity to rethink the operating model and ways of working to unleash a new wave of efficiency and capability for the industry. Thanks to strong performance last year, firms are also in a position financially to support such a drive.
It’s time to seize the moment.
