“You’ll see two or three turns on these cases,” he explains. “We allow investors to pick when they want to come in, like VC investors pick the A-round or C-round.”

Koutoulas draws on his experience helping customers of bankrupt derivatives dealer MF Global recoup $6.7 billion from bankruptcy proceedings a decade ago. Launched in March, Miami-based JurisTrade has so far listed nine cases, with drivers ranging from California wildfires to sexual assault and a nominal recovery value of $70 million. It’s a start.

Not that JurisTrade aims for a Bloomberg ticker and retail investment flows. “This is very much a big boy world,” Koutoulas says. “Every investment is very bespoke.” The exchange’s minimum stake is $500,000. In practice, he says the investors are institutions and family offices that deal in much bigger sums.

Lawsuits lack the transparency that moves stock and bond prices: financial statements, profit guidance, and ratings agencies. Early-stage investors rely heavily on the track record of the litigating firm and “descriptions of the case without the parties’ names,” Koutoulas says.

He explains that this is potentially good news for plaintiffs’ lawyers who want additional funding to pursue their other cases, but it may not be such good news for corporate defendants. “The big opponent of litigation finance is always the chamber of commerce, which claims it will generate more frivolous suits,” says Koutoulas.

Will there be enough money in the world to save the planet? The answer to this urgent question is not straightforward.

Big-picture prognosticators name staggering sums needed to finance a greener future—and equally daunting shortfalls in securing them. Investment in the energy transition must more than double to $4.5 trillion annually to reach internationally agreed 2030 emissions targets, according to European financier Allianz. The US-based Boston Consulting Group (BCG) estimates an $18 trillion net-zero “capital gap,” in a late 2023 report.

The outlook for 2025 appears even more challenging. US President Donald Trump has reclaimed the office, vowing to dismantle the generous green subsidies his predecessor, former President Joe Biden, had advanced through the Inflation Reduction Act (IRA)—and to “drill, baby, drill” for oil and gas. High energy costs and farmer protests are eroding support for Europe’s ambitious transition agenda, while Canada is poised to roll back its precedent-setting carbon tax.

In financial markets, stubbornly high interest rates are keeping the cost of capital-intensive energy infrastructure elevated for longer. Meanwhile, a surge in data center construction, driven by AI, is supercharging electricity-demand projections—prompting a return to fossil fuel dependency. “One of these data centers can take as much power as a small city,” says Richard de los Reyes, a portfolio manager at T. Rowe Price’s New Era Fund. “There’s an increasing recognition that a lot of that will have to come from natural gas.”

The view is quite different, though, in the financial trenches, among practitioners who are raising capital and structuring deals. They worry about too much capital chasing too few green investments. “I’m still a true believer that the megatrends of decarbonization and digitalization will transform the way we live,” says Alex Leung, head of infrastructure research and strategy at UBS Asset Management. “But [these sectors] are getting to be crowded trades.”

How can both be true? The renewable energy universe is increasingly divided from a financial perspective. There is no shortage of capital, but much of it is concentrated in a few mature green technologies, while more-innovative or unproven sectors struggle to attract funding.

On one side are established, cost-effective technologies that investors can back with a reasonable expectation of a steady, decades-long payout. Solar and onshore wind power have moved into this category, as economies of scale and an equipment boom in China have driven the costs of these energy sources below fossil fuels.

On the other side are technologies that show promise but not yet profit, such as carbon capture or green hydrogen; or those with uncertain risks and high costs, like offshore wind. These projects still rely on deep-pocketed corporate backers or government support to reach commercial viability.

“Everyone wants to be part of the energy transition on paper,” says Antoine Saint Olive, global head of infrastructure and energy finance at Natixis Corporate and Investment Banking in Paris. “But when you have a real deal on your desk, in many cases you are talking about new technologies.”

This mismatch—between an abundance of capital for well-established projects and an undersupply for higher-risk innovations—helps explain why trillions are still needed, even as investors complain of crowded trades.

Perhaps the most critical deals are in a border zone between proven and new technologies: in fast-developing storage systems for solar and wind power, and in adjustments to grids needed to transmit it. Renewable-generation investments will eventually hit a wall without upgraded delivery to the customer, and in some places they may have already.

As a rule of thumb, existing grids can cope until renewables reach 15% of their input, says Rebecca Fitz, a BCG partner and founding member of the firm’s Center for Energy Impact. Some parts of Europe are above 50%, creating “a bottleneck in power market design,” she says.

Europe’s patchwork of national grids and regulators poses special challenges to moving green energy from where it’s best produced—Spain and Portugal for solar, the Netherlands for wind—to where it’s needed, adds Stef Beusmans, an associate partner at Sustainable Capital Group in Amsterdam. “Different national support schemes make it harder for Europe to really fast-track deployment of clean energy,” he says.

The enormous scope and complexity of the energy transition present both challenges and opportunities to the venerable, low-profile world of infrastructure finance, which absorbs about 4% of global capital, according to UBS. Plain vanilla deals are rare in this area. Bond underwriters and traders have rating agencies to guide them and liquid markets to distribute risk, but infrastructure investors must structure transactions individually and often hold the risk for the long haul. “Structuring and closing a deal could take up to a year,” Leung says. “Many infrastructure assets require active management after that. This isn’t just clipping a coupon.”

Green investments make the game only harder, says Marta Perez, head of the Americas infrastructure debt team at Allianz Capital Partners. “Traditional project finance models, which were designed around more-predictable long-term assets like fossil fuel power plants, need to evolve for the variable, often decentralized nature of renewable energy systems,” she explains.

One threat that infrastructure pros view as possibly overrated is Trump. The sheer duration of energy investments—far exceeding a single presidential term—makes policy swings less impactful. UBS research predicts that Trump will also struggle to repeal or gut the IRA. Roughly 70% of US renewable projects under development are in “red” states, which voted for Trump, Leung and his colleagues note. Eighteen Republicans in the House of Representatives already signed a letter opposing repeal, more than enough to be decisive in the narrowly divided chamber. But the impact of this resistance is hard to accurately measure, as Trump has been routinely bypassing Congress.

Texas, firmly in the Republican camp politically, nonetheless leads the US in wind and solar power. Nationwide, more than 70% of Americans support more wind and solar energy, according to Pew Research. UBS’ base-case scenario is that Trump will tweak the IRA rather than dismantle it, allowing Republican-led states to complete near-term renewable projects while still giving the president a political victory.

The US, the world’s biggest economy, is not the leader in green investment. That distinction belongs to China, which last year sunk $818 billion into clean energy—more than the US, EU, and United Kingdom combined—according to CarbonCredits.com. Solar capacity in the People’s Republic jumped by 45.2% in 2024. China is also miles ahead in plans for nuclear power, which could be making a comeback in the US, too, if not Europe. Nuclear power emits no carbon, though it brings other well-known risks.

China’s leap forward in renewables is largely financed domestically, so global private capital looks elsewhere. Europe remains committed to a renewables surge to partly replace Russian natural gas imports, which Russian President Vladimir Putin cut off in response to Ukraine-related sanctions. The EU is also betting on more liquefied natural gas, but is still investing 10 times as much in renewables as in fossil fuels, the European Investment Bank (EIB) reports. The bloc’s total energy-transition investment jumped by one-third in 2023 to $360 billion and is expected to keep rising to meet 2030 carbon-reduction targets.

Other nations are also stepping up. India’s renewable capacity surged to nearly half the US level last year, with plans to triple by 2030. Six major solar developers in India have “successfully attracted investments from diverse sources, including foreign institutional investors from North America, Europe, and the Middle East,” S&P Global reports.

Brazil added a record 10.9 GW of power capacity last year, nearly 85% of it from renewables. Saudi Arabia is supporting the world’s largest and most ambitious green hydrogen project, near Neom, the kingdom’s “city of the future,” with $8.4 billion in promised investment, according to Neom. The goal is to split water molecules into their oxygen and hydrogen components using electric current produced from renewable sources, then store the hydrogen as a fuel source. Hot on their heels is the Saudis’ neighbor, the United Arab Emirates, leveraging its abundant sunshine for large-scale renewables projects.

Capital for renewable energy is not drying up either. As populations age across the developed world and pension assets grow, managers look harder for investments that can match their long-term liabilities, Leung says. Funds in Australia and Canada, whose pension pools punch above their macroeconomic weight, are shifting up to 20% of their portfolios into infrastructure, he adds.

Environmental, social, and governance (ESG) principles continue to motivate big-ticket investors globally, Natixis’ Saint Olive points out. Banks, which provide at least as much infrastructure funding as institutional investors, still want to “greenify their balance sheets.” At least, banks outside the US do. “Banks and sponsors in the rest of the world still have ESG ambitions,” Saint Olive says. “That’s not going to collapse because there is a new president in one country.”

Private equity investments in green energy are also growing, from next to nothing before the pandemic to $26 billion globally by 2023, according to the EIB. Given the private equity model of leveraging up equity holdings, the money at work could be several times that figure.

Private equity players in the US are particularly focused on onshore wind generation, as solar becomes trendier and Texas officials push legislation that advantages fossil fuels, says BCG’s Fitz. “Private equity is paying a premium for wind assets,” she explains. “They view wind as a critical part of the energy picture going forward.”

Funding the global energy transition remains a monumental challenge. The US interstate highway system—one of the great infrastructure projects of the 20th century—cost $129 billion ($389 billion adjusted for inflation) when completed in 1991, according to the US Department of Transportation. That is a small slice of just one year’s capital needs for green power. The US highway system used proven technology and relied on the federal budget.

“Renewables require not just infrastructure, but also a complete rethinking of how energy is produced, stored, and distributed,” as Allianz’s Perez puts it. Governments, strained by 21st century social commitments, want to offload as much cost as possible to the private sector, China partially excepted.

Most renewable-transition estimates exclude the enormous investment required in mining the metals that will build batteries, grids, and turbines, Saint Olive notes. Mining is a “fully merchant business” too dependent on fluctuating prices to offer fixed, infrastructure-style returns; and it earns investors no green points for regulatory or public relations purposes, he adds. “Many banks don’t see the mining business positively from an ESG perspective,” he says. “They would rather let others finance it.”

All the same, the global energy transition is not only continuing but accelerating, whatever the rhetoric coming from the White House. Infrastructure investors need to be part of the “complete rethinking” of a lower-carbon future. “The good-ol’ fully contracted project is getting harder to find,” Saint Olive observes.

But infrastructure investors are also used to designing bespoke solutions for a changing project landscape. “The beautiful part of our profession is that for the same asset you can have 20 different finance structures,” Saint Olive says. “In the US, you may have bank loans for construction, then turn to capital markets. European plants could rely on a 10-year power-purchase agreement. In the Middle East, you can get very long-term financing: construction plus 25 years.”

The critical question isn’t whether the transition will happen—but whether it will happen fast enough to avert ecological catastrophe. Private finance looks set to do its part, if engineers and governments can combine to deliver viable investments. “If projects are generating 20% returns, more capital will come in,” UBS’ Leung states. “Economic viability is a big part of the equation, but not always part of the discussion.”

Raouf, 49, cuts a lonely figure as the only Bashar al-Assad appointee retaining a top cabinet post after the dictator’s shocking ouster by Islamist rebels. With a doctorate in accounting and auditing from France’s Universite Paul Verlaine, trilingual in Arabic, French and English, Raouf returned home to teach at Damascus University. He chaired the board of the Commercial Bank of Syria for a few years and authored scholarly papers on corporate governance before President Bashar Hafez al-Assad tapped him for the ministry in a last-gasp government reshuffle this September.

After Assad fled on December 8, Raouf scored two quick successes: reopening a vital border crossing that neighboring Jordan had closed during the fighting and calming panic selling of the Syrian pound. The pound returned to its former value of 13,000 to the dollar.

Raouf’s longer-term challenges are more than daunting. According to the World Bank, Syria’s economy has shrunk by 85% since its civil war broke out in 2011. Currency reserves could be as low as $200 million. Debt to Iran, Assad’s primary foreign sponsor, totals $30–$50 billion by various estimates.

The now-ruling Hay’at Tahrir al-Sham is still designated as a terrorist organization by the US and the UN. Pervasive sanctions will hobble any Syrian revival until the situation changes. Syria is the third-most sanctioned country in the world after Russia and Iran, according to data provider Castellum.AI. The Syrian government last met with the International Monetary Fund in 2009.

The outside world has plenty of reasons to help, though. Turkey and Europe want to send some of their approximately 4.5 million Syrian refugees home. The US and Arab Gulf States want to cement a strategic debacle for Iran and Russia. The IMF “stands ready to support the international community’s efforts to assist Syria’s reconstruction as needed, and when conditions allow,” a spokeswoman says. If Raouf can bring that moment closer, it would indeed be great.    

Donald Trump hates government regulation of private business. In his successful campaign for re-election, he promised to repeal 10 US federal regulations for every new one imposed, adding, “We’ll be able to do that quite easily.” He has recruited billionaire backers Elon Musk and Vivek Ramaswamy to head a new Department of Government Efficiency (DOGE).

Banks and the broader financial industry hope to be prime beneficiaries. “A lot of bankers are dancing in the streets” at the promise of deregulation, Jamie Dimon, CEO of industry giant JPMorgan Chase, commented days after the election.

US banking laws tend to be written in broad terms, leaving an array of regulators ample scope to interpret and enforce the specifics. So, it might look easy for an incoming president like Trump to overhaul the rules of the game.

“A lot can happen on Day One,” says Max Bonici, a partner advising financial institutions at law firm Davis Wright Tremaine. “They can make a very fast start reversing the regulatory ecosystem that the Biden Administration built.”

But as the clock ticks toward Trump’s January 20 inauguration, specifics remain elusive.

“Is anything clear yet?” Christopher Wolfe, who oversees US banks for Fitch Ratings, asks rhetorically. “No is the short answer.”

And the existing ecosystem may not be so easy to get rid of.

President Joe Biden did accelerate the “regulatory supercycle” that started with the 2008 financial crisis and subsequent passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act. Offering an example is Gene Ludwig, who served as comptroller of the currency, a top Treasury Department regulatory post, in the 1990s, and now consults with the industry.

For President Bill Clinton, Ludwig wrote an 11-page regulation for a fair-lending statute, the Community Reinvestment Act. The Biden Administration added an “extension” that ran to 115 pages. “Regulations grow up like barnacles on a ship,” Ludwig observes. “Periodically, you need to scrape them so the ship doesn’t sink.”

Trump officials won’t be able to scrape away at will, however.

Another little-known law, the Congressional Review Act, permits outright nullification only of very recent regulations, notes Steven Balla, co-director of the Regulatory Studies Center at George Washington University. The effective date for the Trump Administration will be around August 1, 2024.

With that deadline in mind, Biden’s people made last April and May “the most active month or two in 40 years” for rules writing, Balla says. “A massive wipeout of regulations by Trump is just not realistic,” he added.

Getting the regulatory balance right is no simple task, either. “Effective deregulation needs to be done with a scalpel, not a meat ax,” Ludwig argues.

Given these constraints, short-term relief for banks is likely to favor regulation that was in the pipeline but not yet on the books.

“Our take is that existing regulation will not see a significant rollback,” says Stuart Plesser, a senior director monitoring US banks at S&P Global.

Basel III: “partially or fully gutted”

Rollbacks of pending regulation could be significant, however, especially for the larger banks affected by the so-called Basel III Endgame.

Even more than acts of Congress, the global Basel III accords on financial governance, which have crept forward since their 2010 introduction, are general guideposts that leave national regulators to fill in the details. The latest stage calls for a “fundamental review of the trading book,” to assure that trading losses do not impact the “banking book,” which includes government-insured deposits, and that trading operations are sufficiently bolstered against their various risks.

In 2023, Federal Reserve Board supervision chief Michael Barr issued a draft rule that, bankers estimated, would have pushed up capital requirements for the biggest institutions by 19%. After vocal protest from the industry and many legislators, he scaled that back to an estimated 9% last September.

While Barr and his boss, Fed chair Jerome Powell, have promised to serve out their terms until mid-2026, bank watchers think Trump could force him to moderate Basel III requirements still further, if not abandon them entirely.

“Basel III will be partially or fully gutted,” predicts Jeb Beckwith, managing director at industry consultant GreenPoint Global.

Second-tier banks, which in the US means those holding between $100 billion and $250 billion in assets, may dodge a raft of new regulation that has been brewing since three of their peers, Silicon Valley Bank, Signature Bank, and First Republic Bank, collapsed in spring 2023.

The initiatives have faltered amid industry pushback and differences as to what really caused the regional bank implosions. The incoming administration will shelve most of them altogether, Bonici expects.

“After the 2023 failures, regulators were pushing oversight with a fine-tooth comb rather than on a risk basis,” he says. “All that is going to be reviewed, then most of it unwound.”

Banks are also expecting a more friendly government stance toward mergers and acquisitions in their industry under Trump 2.0, says Rodney Lake, who teaches finance at The George Washington University School of Business. “The Trump trade we are looking at is more M&A in the banking sector.”

The key US government gatekeepers are the Federal Trade Commission and the Justice Department’s Antitrust Division, where Biden appointees have increased scrutiny of proposed mergers. The whole financial industry took note when these watchdogs forced credit card giant Visa to abandon a $5.3 billion acquisition of fintech Plaid in 2021, Lake notes.

The Justice Dept. issued stricter guidelines on banking mergers in 2023, superseding a regime that had been in place since the 1990s. The hostile attitude from Washington may have nipped many would-be deals in the bud, says S&P’s Plesser: “There has definitely been a muted aspect to M&A. Managements considered whether it was worth starting if the acquisition could be denied in the end.”

More correction than revolution?

The most contentious changes in financial regulation under a second Trump administration will likely concern cryptocurrency.

Crypto-related firms peddling tokens like Dogecoin—namesake of Musk and Ramaswamy’s government efficiency department—spent more than any other industry on the 2024 election campaign, at least $130 million, and backed winners in 54 out of 58 races, according to Stephen Gannon, Bonici’s colleague at Davis Wright Tremaine. Trump himself, once a crypto skeptic, is now backing his own TrumpCoin and pledges to transform the US into the “crypto capital of the planet.” His pick to head the Securities and Exchange Commission, Paul Atkins, has supported “the SEC being more accommodative and dealing straightforwardly” with crypto operators.

That promises an about-face from outgoing SEC chair Gary Gensler, who largely denied US domicile to digital asset providers. Not everybody outside the regulatory sphere is pleased with Trump’s embrace of crypto, either. “The last thing we need is to inject a whole new risk into the system whose main use is untraceable illegal activity,” says Sanjay Sharma, GreenPoint Global’s chairman.

Aside from crypto, however, upcoming changes to financial regulation will likely be more correction than revolution. Trump and Congress’s new Republican leadership may well stem the tide of regulation that started in 2008, but reversing it, by major amendments to Dodd-Frank, for instance, is less likely.

Nor will Trump alleviate US banks’ essential structural challenge, says Ludwig: A steady loss of market share to private credit providers, mortgage “originators,” and other unregulated entities. “The nub of the problem for banks is that it’s very hard to compete with non-banks,” he observes. So while bankers may enter 2025 with a new spring in their step, they have probably stopped dancing in the streets by now. That is just fine from the point of view of banking safety, says Fitch’s Wolfe: “Creditors have benefited from good and robust legislation. We view the deregulatory agenda with some caution.”

The post-pandemic inflation that tormented consumers and politicians in many economies was an enormous gift to banks. Rapid rate hikes by the US Federal Reserve (the Fed), European Central Bank (ECB), and other authorities enabled banks to raise their own interest rates faster than their deposit rates, leading to an avalanche of net interest income and record profits.

Now the party is winding down as inflation recedes and central banks ease up, but not too fast. The Fed’s key interest rate is now at 5%, compared to 0.25% in early 2022. The ECB’s rate is now at 3.4%, after having reached 4.5% in September 2023 and stayed there until a series of cuts began in June of this year. “The general mood is cautiously optimistic,” says Jens Baumgarten, Frankfurt-based global head of financial services at consultancy Simon-Kucher & Partners. “We’re not going back to the horror scenario when bankers were asked to make bread without flour.”

Rumors of recession have meanwhile proved exaggerated across major economies, leaving banks’ asset quality in good shape. “The important question is why interest rates are dropping, and right now they are dropping because the economy has proved resilient,” remarks Sandeep Vishnu, a San Francisco–based partner at consultant Capco.

One conspicuous vulnerability for US and European banks is the area of commercial real estate loans, which seems to be easing—or at least not deteriorating. “It looks like some light is showing at the end of the commercial real estate tunnel,” says Johann Scholtz, who follows European banks for market analyst Morningstar. “Offers to buy assets are falling into line. The market is rightsizing.”

Fears of a crisis in midsize US banks exploded in March 2023 with the sudden collapse of Silicon Valley Bank (SVB) and two others. That seems a distant memory now. The Fed deftly managed acquisitions by stronger partners, and competitors have quietly hedged the bond portfolio mismatches that started the trouble at SVB. “There were factors very specific to these institutions,” says Christopher Wolfe, head of North American banks at Fitch Ratings. “Other banks learned some lessons and are in better position to manage the downward rate trajectory.”

News from the rest of the world is also broadly positive. Big Japanese banks are growing their loan books at a 6% annual pace, the fastest in decades, as interest rates nudge above zero and animal spirits spread among their corporate customers, says Nana Otsuki, a senior fellow at Pictet Asset Management in Tokyo. “Corporates have become more aggressive, wanting to borrow more now rather than waiting,” she says.

Indian banks’ loan growth is roaring at double digits as state banks fund Prime Minister Narendra Modi’s infrastructure drive and private ones ride a consumer credit wave, according to Aditya Gupta, who manages the Simplify Tara India Opportunities ETF out of Mumbai. The bank scandals and busts of the 2010s are all but forgotten.

Even in China, banks are getting some respite from the intertwined crises of real estate and local government debt, as the central bank cuts interest rates and lowers reserve requirements, among other measures. “The central bank has become more active in injecting liquidity, and banks are seeing less immediate pressure on their liabilities,” says Logan Wright, who leads China markets research at New York–based Rhodium Group.

Not that bankers are ending 2024 worry free. The macroeconomic soft landing is still far from certain, particularly in the euro area, which has been sputtering at the edge of recession for the past year. The razor’s-edge US election could take the world’s biggest economy in unpredictable directions. China looks increasingly unreliable as an alternative global growth driver. Tensions in the Middle East oil bucket are unabating. “We are not out of the woods with respect to the prevailing operating environment,” notes Amit Vora, global head of credit and lending solutions at Mumbai-based global analytics company CRISIL, a subsidiary of S&P Global.

Localized risks lurk within robust national systems. Japanese regional banks are struggling even as the big banks are thriving, Otsuki says. Customer bases are literally shrinking in many provincial areas.

The main growth driver for Indian private sector banks is unsecured personal loans, often to novice borrowers with short credit histories, Gupta notes. The mortgage market, though also expanding, is too competitive for banks to make much margin. The Reserve Bank of India “began sounding the alarms” a year ago about unsecured lending, which was growing at more than 20% a year, says Gupta. Since then, “banks have started to sound a little cautious on asset-quality issues.”

US consumers have been releveraging, too, despite elevated borrowing costs, creating a potential trouble spot if the economy dips, Wolfe says. “Loss rates on credit cards and auto loans look unsustainably low,” he comments. “Card defaults are right at prepandemic levels but continuing to deteriorate.”

China has slapped some Band-Aids on its multifarious financial mess but lacks the transparency for a comprehensive cleanup, according to Wright. “Local governments don’t want the [central government] to know how much debt they have, and the [central government] wants to keep it ambiguous how much support it will give,” he says.

Global banking’s biggest challenge, though, remains losing market share to nonbank financial institutions (NBFIs) in two core competencies: lending and payments. Lending at the top-15 US banks increased by an anemic 0.9% year-on-year in the most recent measured quarter, according to S&P—a natural consequence of tighter money. Private credit AUM continued to surge by double digits to nearly $2.5 trillion, according to BNY Mellon data. “The growth of private credit is one of the big themes now,” CRISIL’s Vora says. “Banks have not been best placed to meet many borrowers’ needs.”

Incursions by nonbank payment systems are still more dramatic. “Adoption of payment apps—including Venmo, Apple Pay, Google Pay, or Cash App—now rivals adoption of credit cards,” a core business for banks, Undersecretary for Domestic Finance Nellie Liang recently told a symposium hosted by the Federal Reserve Bank of Chicago. Experience beyond the US is the same or worse, from the banks’ point of view, with services from Kenya’s M-PESA to China’s Alipay becoming the standard.

That leaves banks wondering how to grow—particularly incumbent brick-and-mortar banks, which are also under attack from newborn online-only rivals like Nubank in Latin America, Revolut in Europe, and Rakuten in Japan. “Banks’ next challenge will be avoiding a postgrowth scenario,” Morningstar’s Scholtz predicts.

With top-line expansion hard to come by, and no immediate crisis to combat, bankers are renewing their focus on technology to squeeze costs and enhance customer interaction, Vora says. “Clients are telling us now is the right time to reflect on how they are set up, to undertake transformation across the board,” he adds.

Generative artificial intelligence (GenAI), the tech that has the world abuzz, could turbocharge that effort, Capco’s Vishnu suggests. “A GenAI bot could produce the first draft of a credit narrative in 60 seconds,” he explains. “Add review by the loan officer, and the whole process is down to 30 minutes from half a day now.”

Simon-Kucher’s Baumgarten states the case more starkly: “Bankers need to be replaced, but not by humans.”

Better technology could also help banks individualize customer relationships—tailoring rates and product offerings to specific needs—and win back some of the turf grabbed by nonbank “originators,” Baumgarten adds. “Banks are sitting on a huge treasure chest of customer data,” he says. “A lot of them are using surprisingly outdated tools to work with it.”

Given the warp speed of GenAI development, though, today’s expensive, cutting-edge IT investment could be tomorrow’s surprisingly outdated one. “Banks are not in a hurry” to transform, Vora says. “They want to develop something bespoke, not grab a third-party solution.”

Another avenue to growth is joining forces with nonbank competitors, funneling banks’ cheaper, deposit-driven capital into lending structures that may be more dynamic. That’s not a new phenomenon. US bank lending to NBFIs has tripled over the past decade to $300 billion and now accounts for a quarter of the banks’ term loans, the New York Fed reports.

New tie-ups between big banks and private credit are making headlines, though. Citigroup announced in September that it will partner with private equity giant Apollo Global Management on a $25 billion fund. JPMorgan reportedly followed with its own $10 billion private credit vehicle.

Regulators are starting to express concern about these bets by deposit-insured banks. “A key observation is that nonbank financial intermediation involves significant liquidity and funding risk,” the New York Fed’s economists write in its Liberty Street Economics blog.

Fitch Ratings is watching that space, too. “Understanding what’s going on with banks’ increasing participation in private credit is important to us,” Fitch’s Wolfe says.

But the rush into private credit has not stopped yet.

Strong balance sheets and constrained organic growth will also push banks toward growing by merger and acquisition, where politics allow it. Major banking deals have gone quiet in the US since a flurry of post-SVB acquisitions. But the enormous herd of smaller institutions continues to consolidate, down by 138 last year to 4,577 (including credit unions).

Japanese banks are keen to deploy capital into faster-growing Asian economies. Notable recent deals include Mitsubishi UFJ Financial Group buying into India’s DMI Finance, while competitor Sumitomo Mitsui Financial Group took a stake in Vietnam Prosperity Bank. More may well be on the way, Otsuki says. “Return on equity in Japan remains extremely low,” she notes. “The banks will be looking for M&A opportunities in the region.”

The unlikely hub of banking consolidation, however, could be Europe. Despite the European Union’s unified trade in goods, banks have remained locked within national borders, unable to match the scale of US peers. “Most European players are tiny dwarves compared to the US top five,” Baumgarten observes.

Italy’s UniCredit is looking to shake this status quo with a hostile bid for Commerzbank, one of Germany’s biggest. It’s bought nearly 10% of the target’s stock and asked German regulators’ permission to hike that to 30%. Success in this deal could open the door for a raft of cross-border mergers, in theory.

The Berlin government is less than enthusiastic about the takeover. But ultimate authority lies with the ECB, whose head, Christine Lagarde, is a vocal consolidation advocate. Morningstar’s Scholtz thinks Germany will have to back down. “The probability of the deal going through has increased,” he says. “It will come down to price.”

The spotlight for banking regulation has meanwhile shifted to the US federal prosecutors who rocked the financial world in October, forcing Canada-based TD Bank to pay $3 billion to settle charges of laundering money through its US network. The plea agreement also capped TD’s US assets, constraining its growth in the much bigger market.

A month earlier, Washington regulators found “deficiencies” in money laundering controls at Wells Fargo, one of the US giants. Wells Fargo has been under an asset cap of its own, imposed last decade for opening accounts without customers’ knowledge.

More systemic drama surrounds Washington’s implementation of the global Basel III accords on bank safety. In July of last year, the Fed floated a plan that would increase the biggest US banks’ capital requirements by a whopping 19%, provoking a firestorm of protest from financiers and their political allies. In September, Vice Chair for Supervision Michael Barr revised that down to 9% and exempted midsize banks, between $100 billion and $250 billion in capital, from any increase.

Barr’s proposed compromise satisfied no one. Democratic Sen. Elizabeth Warren condemned it as a “Wall Street giveaway,” while Bank of America CEO Brian Moynihan waxed ironic. “Show them death and they’ll take despair,” he remarked.

The battle continues. “An overwhelming concern among US bankers is whether they will be faced with new regulatory burdens,” Capco’s Vishnu comments. “And fines have gotten so big, they can wipe out all sorts of efficiency gains.”

Big banks turned to governments for rescue during the 2008 global financial crisis and have been living with the consequences ever since. Stiffer postcrisis regulation opened broad swathes of the lending market to less-encumbered nonbank competitors. The lower-for-longer interest rates deployed for postcrisis recovery bit into bankers’ margins. The global profusion of mobile internet access meanwhile enabled a new universe of digital-native rivals and challenged banks themselves to overhaul business models.

Resurgent inflation since 2021 has returned rates to something like historical norms, giving bankers back the flour they need for the bread of profitable lending. The other challenges remain very much in force. Private credit funds and other nonbank entities continue to mushroom. Regulators are far from asleep. Banks, and the broader societies around them, continue searching for the optimal tradeoff between safety and economic dynamism. AI promises a technological challenge, which can also spell opportunity. Bankers have plenty of work to do.

As a group, special purpose acquisition companies have crashed and burned spectacularly. Some 860 SPACs raised money from investors in the frenzied years 2020–2021, according to corporate advisor Kroll.  Less than 100 survived.

Most SPACs simply folded and returned cash to investors without ever making an acquisition. Those that closed a deal often paid way too much, or at least passed the companies along to public markets at inflated valuations.  Shares in electric vehicle maker Lucid Motors, whose $4.4 billion “merger” with Churchill Capital Corp. was one of the biggest deals of the go-go period, have declined 85% since debuting on Nasdaq in 2021.    

Yet Churchill—captained by ex-Citigroup banker Michael Klein—is back in the game, raising $288 million for its ninth SPAC in May.  Some SPAC deals have paid off. Fantasy sports network DraftKings—which floated on Nasdaq through a merger with Diamond Eagle Acquisitions in 2020—has doubled in value.

There’s reason to hope for more DraftKings and fewer Lucid Motors going forward, says Joe Voboril, chief financial officer of Colombier Acquisition Corp., which lately raised $170 million for its second SPAC.  The legions of rock musicians, athletes and other amateurs who jumped into SPACs four years ago are gone. “You saw a lot of money and a lot of investors who didn’t know what they were doing,” he notes, understatedly.

The surviving pros, like Churchill, have reined in their ambitions and will watch their investors’ dollars more carefully. Higher interest rates have cut the global total of initial public offerings nearly in half since 2021, reducing targets’ leverage on valuation. “Private companies are being told they’re worth $700 million, not $5 billion,” Voboril says.

For companies still looking to go public, a SPAC can offer some advantages over an IPO, says Don Duffy, president of ICR, a New York-based company that advises on both types of transactions. SPAC sponsors raise their own money on markets, promising to invest it in one or more targets within a fixed term.  The target agrees to “merge” with the SPAC, taking its cash in exchange for an agreed slice of equity, generally a minority stake that keeps incumbent management in place. Once the merger is complete, the company is “de-SPACed,” launched on a stock market under its own ticker.

A big plus for the target in this process is knowing exactly how much money it will raise, rather than the range of outcomes that can result from an IPO, Duffy says.

SPAC targets can float shares on their own schedule, not an investment bank’s.  Companies defining a new category, like DraftKings, may struggle to interest traditional underwriters. “IPOs tend to work well where there is a very obvious peer group, and companies have patience to work through the investment banking cycle,” he says.

While SPACs are concentrated in North America, they have caught on in one emerging market: South Korea. Sponsors there listed 36 new SPACs last year, compared to 58 in the US and Canada, according to Kroll. The next runner-up, the UK, had four.

Korean SPACs perform better as “aligned” sponsors are less likely to pump and dump the target’s stock, according to academic research led by Woojin Kim of Seoul National University. “We find a relatively low redemption rate and positive average buy-and-hold returns in Korean post-merger SPAC targets,” Kim and colleagues write.

Back in their North American homeland, SPACs are right-sizing after a period of wild excess. Duffy says markets can productively absorb 50-80 new funds a year, targeting companies with market caps below $1 billion.

Still, sponsors have some work to do convincing investors this time is different. “Institutions are not stumbling over themselves to buy SPAC deals,” Duffy says. “The jury is still out.”

Once upon a time, banking was simple: Take deposits, use depositors’ money to make loans, and transfer payments between clients and earn a commission.

All three pillars are now under assault.

Longer-term savings have migrated to wealth managers who promise much better returns over time. An array of innovative fintechs offer alternatives for payments. Home or car buyers are ever more likely to borrow from nonbank originators. Some 70% of residential mortgages in the US, the world’s largest banking market, are processed by nonbanks, according to Brian Graham, partner at the Klaros Group, which advises and invests in financial firms.

Corporate borrowers have been shifting to nonbank lending since the 2008 global financial crisis, the latest hot alternatives being collateralized loan obligations and private credit. The latter has mushroomed to $2.1 trillion globally and is still growing fast. Nonbank financial institutions, or NBFIs, hold two-thirds of financial assets in the most advanced economies, according to the Financial Stability Board (FSB).

In order for the banking sector to regain market share from nonbanks, banks will need to change how they compete for customers. Long-established banks will need to become less cautious and more agile in navigating regulations. One avenue for the banking sector is to start from scratch, as KakaoBank did in South Korea and Nubank in Brazil.

Higher interest rates have given banks some relief over the past few years, increasing their net interest income while hampering competitors—particularly fintech startups dependent on equity financing. The FSB reported that global NBFI assets shrank 5.5% in 2022, the first notable decrease since 2009, while banks’ balance sheets grew by 6.9%.

Long-term trends remain adverse, though. “Banks are losing market share to nonbanks, and the situation is much worse than what the statistics show,” says Miklós Gábor Dietz, lead of McKinsey’s Global Banking Strategy and Innovation team, the global Ecosystems Hub and is the managing partner of Vancouver Office.

Banks are competing with the equivalent of weights tied to their ankles. These, of course, are the extra regulations and capital requirements most countries have piled on since the 2008 crisis. Any new loan needs to be risk-weighted and have capital set aside to offset it, restraints that nonbank lenders can often ignore.

Even as earnings seem to be healthy, banks struggle to earn a return on all that capital, Dietz points out—particularly on corporate lending. “On paper, this is the most profitable business in the world,” he says. “But on average globally, corporate banking is adding no value.”

Banks’ long histories and diverse business lines leave them lagging behind newer, more-focused rivals, as competition increasingly revolves around technology, adds Steven Breeden, American financial services technology lead at Bain & Company. “Banks are struggling with historical complexity traps and breaking through silos,” he says. “There’s a cohort of 10 or so banks globally that really get it on tech transformation.”

Yet banks get one large advantage in exchange for the regulators’ heavy hand: state-guaranteed deposits, a cheaper and (usually) more stable source of funding than nonbank rivals can tap.

History and the capacity for a wide range of transactions also have their pluses. “Banks inject trust into the financial system,” says Sandeep Vishnu, a partner at industry consultant Capco. “They are continuing to lose market share, but any complex transaction requires banks to play a role.”

Increasingly, that role is to “run in the background,” and have deep pockets on call, while more-dynamic actors close the deal directly with borrowers or merchants. Rocket Mortgage or another US originator may find the home-buying customer; the loan will likely be packaged into a mortgage-backed security and bought by a bank. At the corporate level, a private credit or leveraged-loan syndicate will likely secure bank credit lines as an anchor.

That’s risky for the financial system, says Viral Acharya, a professor at New York University’s Stern School of Business who specializes in financial regulation. “The growth of nonbanks is really coming on the back of liquidity from the largest banks,” he explains. “The cynical view is that everyone wants to have a put from the banking system in an emergency.”

Running in the background is not a great strategic position for banks either, McKinsey’s Dietz adds. The customer-facing entity gets a free ride, so to speak, on the bank’s capital base, and reaps consumer data that may be more valuable than the transaction itself.

The classic example in developed markets is the relationship between credit card provider Visa and the numerous banks that underwrite its plastic. Equity investors value Visa at 29 times earnings and 13 times book value, according to Bloomberg. The equivalent numbers for JPMorgan Chase, the world’s most profitable bank, are 12 and 2.3. “Banks haven’t solved their fundamental problem, which is losing customer ownership,” Dietz concludes.

The outlook for traditional banks is not all so bleak, particularly in emerging markets. Nonbank competitors are less developed there, leaving banks in control of 57.9% of financial assets, the FSB reports.

The megatrend of unbanked populations joining the financial system via cellular connection may enhance, not threaten, banks’ dominance. India is the prime example. Narendra Modi’s government requires the mobile payments systems that have mushroomed over the past decade are overwhelmingly linked to banks, Vishnu says. The result: 400 million new bank accounts.

Banking systems in middle-income emerging markets tend to be younger, with less “sticky” customer loyalty than in North America or Western Europe, leading to hotter competition and more innovation that crowds out nonbank startups. “The most innovative banks in the world, aside from India, are in Turkey or Poland,” Dietz asserts. “They are leapfrogging with more digital, more automated services.”

Elsewhere, online-only “digital-attacker banks” are shaking up the landscape, Bain’s Breeden says. The biggest player in this category is probably Nubank, based in Brazil and expanding aggressively into Mexico and Colombia. Founded in 2013, it exploded from 25 million customers in 2020 to more than 100 million earlier this year, focusing on credit cards and personal loans for retail customers.

In South Korea, online-only KakaoBank has grown from a standing start in 2016 to more than 23 million customers in a nation of just under 52 million. Attacking a highly mature banking market, the bank found a niche as the go-to institution for refinancing mortgages. It’s now eyeing expansion into Thailand in partnership with brick-and-mortar incumbent Siam Commercial Bank.

Unlike many fintechs around the world, Nubank and KakaoBank are also making money. Nubank’s net profit hit $1 billion for 2023, and KakaoBank earned about $267 million.

One more innovative champion hails from the unlikely location of Kazakhstan. Kaspi, one of the biggest e-commerce platforms in the oil-rich ex-Soviet nation of nearly 20 million, used its customer reach to start Kaspi Bank, with dramatic results. “Their return on equity is 90% instead of the 10% that’s standard,” Dietz notes.

Regulation has stymied similar vertical integration in bigger markets. Chinese authorities famously curtailed Ant Financial, sister organization to e-commerce power Alibaba, a few years ago. That has left most lending in the world’s No. 2 economy to very traditional state-owned banks.

Globally, much-anticipated financial services competition from online giants like Amazon, Meta, and Google has largely failed to materialize—largely because they would have to obtain banking licenses in the process. “Big tech has been making some surgical moves, mostly in the realm of payments and digital wallets,” Breeden says. “They are reluctant to set up fully fledged banks from a risk-compliance perspective.”

In the developed world, the banking establishment also has tools to fight back against nonbank competitors, if it can shake off some rust and unleash those tools. The spread of digital payments systems actually represents an opportunity for banks, Capco’s Vishnu says. They can negotiate better fee splits with these new entrants than with incumbent credit card providers like Visa. This would bolster a key income source for banks in the US and Western Europe. “Digital is now disintermediating the credit cards,” he notes.

Banks still retain considerable “customer ownership,” and of course trust, as the holders of deposit guarantees. The banks can possibly build on these factors to expand services instead of retreating.

One obvious area would be shifting more depositors into asset management, selling the convenience of keeping various forms of wealth under one roof. While larger banks are already doing this, they could do it more effectively. “Banks are seeing a lot of stress on net interest and fee income,” Vishnu says. “Capturing some of the wealth management that’s going outside banking could counteract that.”

Though banks in the US have access to the huge money pool, only two of the top-10 US asset managers are banks: JPMorgan Chase and BNY. And they are dwarfed by nonbank giants like BlackRock, Vanguard Group, and Fidelity Investments. European banks are more competitive in this area, accounting for three of the top-five asset managers on the Continent: Credit Agricole, UBS Group, and Deutsche Bank.

Dietz, at McKinsey, sees much broader possibilities for banks that can “organize themselves around customer needs,” creating and dominating new financial services verticals. For instance, one-stop shopping for home acquisition and ownership: combining brokerage, mortgage, and insurance in a single app. Or offering, as financial services firms do, “an adviser who knows everything about you”: wealth management, estate planning, tax and legal services bound together—a service like a private bank for the nonrich.

Breaking out these core functions into separate units would also bring universal banks some of the focus and maneuverability of “pure play” disrupters, while maintaining the strength and breadth of a larger organization, suggests Dietz.

“Unbundling the business and expanding into some nonbank areas are the two things that banks can do to escape the value trap they are in,” he says. “If they do, the opportunity is tremendous.”

One big obstacle to this transformation is psychological. Since 2008, many developed-world banks have hunkered down in a defensive crouch, focused on building buffers to avoid the near-death experiences of that time and complying with the onslaught of new regulation. Going on the offensive into new business lines has seeped out of their DNA. “Banks need to start erring on the side of maximizing their reach [and] not worry so much about losses,” Capco’s Vishnu says.

Another hurdle is technological. To leap to the kind of one-stop shopping Dietz envisions, banks will need software that works as simply and intuitively as that of digital-native pioneers like Uber or Airbnb. “Banks need to step up their game on human-centered design,” says Bain’s Breeden.

Among banks in the developed world, big US institutions look the best prepared for ongoing shifts in the financial landscape. They are ahead of the pack technologically, Breeden observes. “A handful of banks in the US Tier 1 rise above all others in being tech forward,” he affirms.

The top US players can also take advantage of weakness further down in the country’s archipelago of over 4,500 licensed banks, Klaros’ Graham says. Washington regulators contained the fallout when three second-tier banks—Silicon Valley Bank, Signature Bank, and First Republic Bank—abruptly failed last year. But many others continue to struggle with their key weakness: unrecorded losses on bonds bought when interest rates were much lower. Mounting liabilities from commercial real estate loans are compounding the problem.

A large amount of the US banking system’s reserve capital is “impaired,” Graham states. The concealed weakness is not dire enough to trigger a 2008-style wave of insolvencies, adds Graham, but it is enough to spawn an army of “zombie banks” that have reined in lending to conserve capital. Either they will yield clients or they’ll have to be acquired by stronger rivals. “This is an incredibly target-rich environment for banks that can afford to play offense,” Graham says. “They can acquire teams or grow loans.”

Like death and taxes, highly regulated banks holding state-guaranteed deposits are embedded as a fact of life in complex economies. “There is no alternative to banking as an ecosystem,” says Vishnu.

Also, like death and taxes, potential clients and customers increasingly avoid banks to the extent they can. For banks, there is no time to lose in reversing that trend.

So why is Southeast Asia’s startup engine stalling?  

Venture capital and private equity (VC/PE) flows in most regions have slowed as central banks raised interest rates to combat inflation. In Southeast Asia the flow has turned into a drought. VC/PE and infrastructure investment in the 10-nation region has plunged by two-thirds from a 2021 peak, according to the Global Private Capital Association (GPCA). That compares to investments in India dropping by half.  

The biggest reason is that Southeast Asia is in fact a notional construct made up of 10 very different actual nations at very different levels of development, says Prantik Mazumdar, head of Singapore-based entrepreneurs’ association TiE. In the irrationally exuberant 2020–2021 period, investors bought into the idea that e-commerce startups like Grab or Tokopedia could easily span a regional market of 650 million people. Not anymore.  

“It’s become clear that this is 10 countries with 10 languages.” Mazumdar says. “The only way for companies there to scale up is to venture into the US or Europe, and that will take another five to ten years.” 

Local institutional capital is scarce across the region, leaving young growth companies vulnerable to the shifting moods of far-off global deep pockets. “Most of the money coming in was from investors without a local presence,” says Carlos Ramos de la Vega, director of venture capital at GPCA. “They may have pulled back to focus on core positions in the US or elsewhere.” 

Those global moods have also shifted away from e-commerce, where Southeast Asia’s large consumer base was enticing, to artificial intelligence and green technologies, where the region is less competitive with established technology centers, De la Vega says.  

Southeast Asia lacks a vibrant stock market for startup investors to exit via a public offering, Mazumdar adds. “Singapore is pretty dead as a public stock market,” he says.  

India compares well on all these parameters. It offers a huge domestic market, which Prime Minister Narendra Modi’s reforms have made more cohesive; a rising class of native oligarchs keen to fund industries of the future; world-class, English-speaking brain trusts in Bangaluru and elsewhere; and a lively bourse with more than 5,000 public companies and a growing domestic investor base. “I’m very bullish on India,” Mazumdar says. “You have a lot of great exits coming out there.” 

Not all the Southeast Asia news is bad. As venture capitalists pull back from the region, the giants of global tech are moving in to build data centers, anticipating an AI wave. In early May, Amazon Web Services pledged to pour $9 billion into Singapore alone for this purpose.  

A few regional startups are still generating enthusiasm with ahead-of-the-curve ideas, De la Vega adds. Silicon Box, a Singapore-based microchip packaging innovator, raised $200 million in January to reach unicorn status with a $1 billion valuation. Atlan, which built India’s “national data platform” before migrating to Singapore, pulled in $105 million in May.  

Southeast Asia is not exactly swimming naked now that the tide of ultra-cheap capital has gone out. But its shortcomings as an innovation nexus and investment destination are more visible.  

In February, President Nicolas Maduro’s ravaged economy saw its first month of deflation since 2007, according to opposition think tank Finance Observatory. Annual inflation clocked in at 85%—not great, except compared to more than 400% a year ago—and the cost of food dropped more than 3%.

  “From a terribly low base, life is getting a very little better in Venezuela,” says Alejo Czerwonko, CIO for Emerging Markets Americas at UBS Global Wealth Management.

That improvement rests on two shaky pillars. The US poked a hole in its sanctions regime in late 2022, allowing oil major Chevron to resume some drilling in Venezuela and supply some desperately needed dollars. Caracas has used the greenbacks to mop up bolivars, bolstering the local currency.

Maduro, after an extended bout of hyperinflation, has also tightened domestic spending. Minimum wages have remained unchanged for the past two years, allowing price rises to eat up purchasing power, notes Ryan Berg, director of the Americas program at the Center for Strategic and International Studies.

Both achievements are at risk, however, as Venezuela heads toward elections scheduled for July. Washington could close the Chevron loophole if Maduro strongarms his way to a fresh six-year term as president. Venezuela’s Supreme Justice Tribunal has already disqualified the opposition’s chosen candidate, Maria Machado, on charges of corruption and supporting US sanctions. 

With the opposition hobbled, Maduro will still be tempted to relax fiscal austerity to win votes. “Maintaining orthodox policy requires that he not spend any money on his base,” Berg says. Street protests are already on the rise among state and unionized employees who traditionally support the regime, he notes.

Despite the glimmer of good inflation news, to say that Venezuela faces a long road back is a massive understatement. The economy shrank by one third from 2014 to 2021, Czerwonko notes. One fourth of the population—more than seven million people—have fled the country and oil production has cratered by 70% in the past decade, even with the Chevron bounce last year. Still, a very little better is better than worse and worse.  

Two notable statistics keep private bankers awake at night: $72 trillion and 70% to 80%. The first is the estimated wealth that high-net-worth individuals in the US alone will leave to their heirs over the next two decades. The second is the percentage of those heirs who might take their business from their parents’ trusted advisor to a new wealth manager. The figures, accepted as industry standard, come from Boston-based Cerulli Associates, and include liquid assets and the value of businesses that will be passed down.

Cerulli predicts blood will prove thicker than good works for rich baby boomers when doling out that $72 trillion total worth of expected bequests. They will leave a mere $12 trillion to charity, the bulk to family.

So far, this “great wealth transfer” is a relative trickle—about $2 trillion a year, says Chayce Horton, a senior wealth management analyst at Cerulli. However, “transfers are definitely increasing beyond our expectations,” he adds.

Wealth managers who are unprepared for the gathering flood may be swept away by it.

To compete for clients—and the fees these mind-boggling sums of wealth transference will generate, private banks might have to nudge their investment focus away from meat-and-potatoes stocks and bonds toward private equity and other alternative instruments, which are more popular with the younger set. And they will have to continually raise their technology game to keep up with “digital native” and globally mobile clients.

However, the biggest challenge for banks will be expanding their traditional financial and legal planning skill sets to a broader semi-therapeutic role in holding far-flung 21st-century rich families together as they grapple with dividing money and business responsibilities.

“Our most critical task is uniting the generations and helping them find a common purpose,” says Benjamin Cavalli, head of Strategic Clients at UBS based in Zurich and Singapore. “Strategic clients” for the world’s biggest wealth manager means “the top few percent of clients” —aka, the superrich. “It is never easy,” he adds.

The great wealth transfer will bring with it a profound shift of perspective. The client base of most private banks is dominated by wealth creators who built successful businesses. Most of the next generation will be heirs. “For the first time, we are seeing more wealth that has been inherited than created,” Cavalli notes.

If banks are unprepared for this transformation, so are many of their clients. The right way to structure succession in a high-net-worth family is to start early, hammering out an acceptable greement with the key players and institutionalizing it through financial and legal structures. The wrong way is to keep everyone in suspense until the patriarch’s or matriarch’s will is cracked open.

How many rich families get it right depends on who you talk to, Cerulli’s Horton says. Three-quarters of aging parents say they have an inheritance plan in advance. Half of all children report that they only learn the details of their inheritance after the parent passes.

In any case, banks should be helping their clients do better. About half of all inheritors still wait by the deathbed to learn their inheritance, Cerulli’s Horton estimates. “The ideal way to transfer wealth is through trusts for the children or spouse,” he says. “Most of the time, it’s passed down in a less-than-ideal way.”

Dialogue between parents and successors may be particularly difficult in Asia, says Zita Verbenyi, founder of The Legacy Atelier in London. Contradicting the head of the family often is taboo. Heirs are often educated and live in the West, absorbing very different cultural values and financial reasoning than their elders. “In the Middle East or India, the younger generation may not say anything about how the business is run,” Verbenyi says. “That’s not real engagement.”

The connecting trait of next-generation inheritors across the globe is their passion for independence—personal and financial. As a first consequence, many want to leave the family enterprise that their parents or grandparents built. “We see many examples where the younger generation may not want to inherit the business,” Cavalli notes. “They have their own views, preferences and ambitions.”

In these circumstances, challenge No. 1 for families and their advisers is selling the business or arranging a passive dividend stream for the uninterested heir­—without sacrificing that precious unity and common purpose. “Families that are centered around a business or set of assets tend to stick together,” Horton observes. For families who lose that, togetherness can get more difficult.

Younger generations’ independent streak extends to investment attitudes. Simply buying and holding public securities is out. Three-quarters of wealthy investors under age 43 believe “it’s not possible to achieve above-average returns solely on traditional stocks and bonds,” a recent survey by Bank of America’s private bank found. Just a third of their elders agreed.

Next-gens gravitate instead toward private equity and other vehicles they see as more hands-on.

“They are more confident in their ability to direct their own investment,” says Lauren Sanfilippo, a senior investment strategist at BofA—at least for now. And they are demanding the technology to do it, 24/7 and globally. “They want to have everything instantly at their fingertips,” UBS’ Cavalli adds.

Those under the age of 43 were also disproportionately interested in sustainable investments, BofA found, with three-quarters of them marking that as a priority, compared to one-quarter of all survey respondents. 

A more awkward consideration is that the heirs may fall out of “strategic client” status as fortunes divide with succession, entitling them to less lavish private banking treatment than their parents. “Different wealth tiers require different services,” Cerulli’s Horton says. “You can’t service four $12 million accounts for the children the same as one $50 million account held by the parents.”

Adjusting investment portfolios or service levels falls within private banks’ established capabilities, however. The essential mission of uniting generations around a common purpose in a modern world of personal autonomy and perceived endless possibility will stretch wealth managers. They may have to dip into skills more associated with historians and curators, not to mention therapists.

Verbenyi at The Legacy Atelier brings extended families together to explore their heritage, achievements and “family culture”—a sort of Ancestry.com on steroids that also looks to determine “what each family member brings to the table.”

One example: When a Middle Eastern clan gathered to celebrate a milestone, Verbenyi used the occasion to start work on a family museum, recording memories and cataloging artifacts. A similar project with a Western Hemisphere family focused on grandparents forced to flee Europe, exploring how they rebuilt their lives and the family fortune in the New World. “Bankers only talk about governance from a financial point of view,” Verbenyi argues. “But if the family is not in harmony, the wealth will disappear.”

Private banks are aware of the wealth transfer challenge. “The proportion of wealth management relationships where the children are engaged has shifted from well below 50% to well above,” Horton says.

The global spread of family offices and their collaboration with private banks could be a big help. The family office revolution first took hold in the us, but has spread globally in recent decades. “When I first came to Asia in the 1990s and 2000s, family offices were the exception,” UBS’ Cavalli says. “Now they are more the rule.”

Family offices can create an institutional framework for intergenerational wealth management: boards, investment councils and other decision-making bodies with a mix of family members and outside professionals. Such structures can reduce the competitive, winner-takes-all aspect of inheritance, whereby one sibling or cousin assumes control of the family assets and the rest are cashed out, according to Verbenyi.

“These days, there can be many heirs,” she says. “You may not be engaged in the business but may want to sit on the family council. Everyone can try to find what they are good at.”

Big, global private banks may find a competitive advantage as rich families become progressively more dispersed and diversified, both geographically and philosophically. At least, that’s what the biggest of them all, UBS, is hoping. “Wealth transfer is a tremendous opportunity for a bank like ours,” Cavalli says. “Our global expertise is there to support and guide our clients.”

Horton agrees that the established banking names have a potential edge in holding onto the next generation. They can segment services as fortunes divide – that one theoretical $50 million account morphing into four $12 million accounts. “the private banks are well positioned because they can provide a range of services without giving up profitability,” he says.

The bigger houses, particularly those with a retail banking or brokerage affiliate, also have a wider pipeline of younger relationship managers, who might relate better to next-gen clients. “it’s tough to bring entry-level talent into a private bank or family office,” Horton says. “the retail branch is an excellent training ground.”

Stereotypes in the TV series “Succession” and other popular entertainment frame high-net-worth families as fractious, conniving and destructive of what their forbears have built. The best news on the Great Wealth Transfer is that not all clans are like that.

“Families do face an identity crisis after a liquidity event,” Verbenyi says. “But they still have a great opportunity, if they make it work: wealth, networks, intelligence. I’ve seen hundreds of cases where they want to make it work.”