Investment banks must take tough decisions to quit ailing business areas and should reduce their balance sheets by $1 trillion - or almost a tenth - to lift profitability, an industry report said. European banks face a particularly challenging outlook and are likely to continue losing market share to big U.S. rivals, according to the 2014 Wholesale & Investment banking Outlook by Morgan Stanley and Oliver Wyman, released on Thursday. The report said investment banks needed to cut their balance sheets by about 8 percent, even after cutting them by a fifth in the last four years, and to redeploy another 5-7 percent to business areas that were more profitable. Return on equity (RoE) across the industry should recover to 12-14 percent by 2016 if banks implement changes across fixed income, equities and advisory and cut costs by greater efficiency in areas like technology, Morgan Stanley/Oliver Wyman predicted. Banks have struggled since the financial crisis to lift profitability
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