Downbeat expectations that banks will fail to meet ambitious return on equity targets underestimate fundamental changes underway in the industry, an influential report has claimed. If managed correctly, targets of 13% to 15% are eminently achievable for the largest banks, with some able to do even better, it said.

The bullish assessment comes from Morgan Stanley and consultancy Oliver Wyman, which have co-authored an in-depth blue paper on the investment banking sector, which concludes that despite the effect of new regulations that will cause depressions of 4% to 5% in ROE, many banks' business lines are already fit for this new environment. Those not yet fit for the new environment are being re-engineered.