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* Boston Consulting Group sees some banks droppingfull-service trading
* Big Wall Street banks to post returns on equity of 15-16percent-BCG
* Boutique firms will post ROE of 30 percent or more-BCG
By Lauren Tara LaCapra
NEW YORK, April 30 (Reuters) - Just a few Wall Street bankswill be able to maintain large trading operations afteradjusting to new rules and will achieve returns-on-equity ofjust 15 percent to 16 percent, according to a Boston ConsultingGroup report on Tuesday.
Banks like JPMorgan Chase & Co, Goldman Sachs GroupInc and Deutsche Bank AG will be able tomaintain large trading operations because of their market share,reputation and technology investments, according to apresentation given by the consulting firm's executives. Butsmaller competitors will have to exit businesses altogether orfocus just on particular segments of the market.
"There are too many powerhouses out there and we don'texpect more than half of them to survive," said Philippe Morel,a Boston Consulting Group senior partner and a co-author of thereport.
Banks that are not in the top seven in terms of globalmarket share for individual trading businesses will have to exittrading businesses, he added, and only about four global bankswill remain dominant players across stock, bond and derivativesmarkets.
Banks have been facing intense pressure from shareholders toincrease their returns-on-equity, a measure of how much profitthey can squeeze from their balance sheets. But their profitshave been getting hit from both sides: higher costs from newregulations and less revenue from client deals and trading.
Goldman Sachs, for instance, last year reported areturn-on-equity of 10.7 percent, just one-third of itspre-crisis high. Boston Consulting Group predicts that new ruleswill knock another 3 percentage points off returns beforebusiness model changes can get big banks up to 15 percent to 16percent returns.
Smaller advisory firms like Evercore Partners Inc and Lazard Ltd, which do not have trading operations,will be able to deliver returns above 30 percent, BostonConsulting Group predicts.
Big Wall Street banks have been cutting costs throughlayoffs and other efficiency programs. They have only recentlystarted to consider serious changes business models in responseto new rules, Boston Consulting Group executives said.
UBS AG was one of the first banks to announce amajor restructuring last year, saying it would exit fixedincome, currency and commodities (FICC) trading entirely,cutting 10,000 jobs in the process. Analysts have questionedwhether other banks including Morgan Stanley may have todo the same.
Deutsche Bank analysts last week indicated that only ahandful of banks, including JPMorgan, Citigroup Inc,Barclays PLC, Bank of America Corp and Goldmanhave the scale to stay in fixed income, currency and commoditiestrading, the areas most affected by new rules.
Boston Consulting Group predicts that six business modelswill emerge as financial firms respond to new rules.
In addition to "powerhouses" like JPMorgan and "advisoryspecialists" like Lazard, there will also be "haute couture"firms that sell sophisticated products to investors and deliverreturns on equity of 16 percent to 18 percent.
The group sees "relationship experts" with strong corporateclient relationships selling products sourced from other firmsand delivering returns of 13 percent to 14 percent. "Utilityproviders" will provide technology, operations and accountingsupport for larger firms and deliver returns of 15 percent to 17percent.
Finally, hedge funds, which will capture more of banks'proprietary investing business, will post returns of 20 percentto 25 percent, according to Boston Consulting Group.
