After years of lackluster growth and lowflation, Europe is finally showing signs of a sustainable turnaround, one that may have far-reaching impact. Asset Managers Must Adapt to Low-Fee World The shift to passive investing tools, namely ETFs, means investors pay less for performance—good for pensioners, not so much for asset managers. Credit Conditions in Europe Are About to Change Banking sector could start to see a shift away from the tight regulatory environment of past few years. European Banks Look for Regulatory Relief Clarity on the direction of existing and new rules could provide a positive catalyst for the financial sector. Institutional clients can ask their Morgan Stanley representative for the full report, or access it directly. Wealth Management clients can ask their Morgan Stanley Financial Advisor for a copy, or access the report by logging into their Morgan Stanley Online account.

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This copy is for your personal, non-commercial use only. She weighed in on a number of topics, from her downgrade of the large-cap banks in early July to why she believes JPMorgan Chase ticker: JPM is pursuing a smart long-term strategy. How have the banks been doing in that department? That includes capital markets, which have been weak year to date, because we had the government shutdown late last year into this year and the IPO market was impacted as well. There have been pressures on fees related to lower rates as well.

The banks are a lot stronger than they were pre-crisis because of higher capital levels and significantly higher liquidity levels. But earnings do go down in a recession, and they do have recession risk. You want the banks you hold to be investing in their digital capabilities. Looking out over the next five years, being a leader in digital interface with your clients—be it either the retail customer via the cell phone or the corporate customer via the iPad—is crucial.

You need to be investing in your technology to enable seamless customer service, real-time access to your funds and to think about what your client wants and needs. Those are critical. Write to Lawrence C. Strauss at lawrence. Distribution and use of this material are governed by our Subscriber Agreement and by copyright law. For non-personal use or to order multiple copies, please contact Dow Jones Reprints at or visit www.

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3 Questions for Morgan Stanley Bank Analyst Betsy Graseck

As begins, asset managers and banks face a once-in-a-generation call to reinvent their businesses. For asset managers, the growth in low-cost passive investing has further commoditized market investment returns, forcing managers to find less costly ways to serve their clients and seek growth. For banks, headwinds from political gridlock and a weaker outlook for global trading and advisory revenues are demanding a bold pivot to new growth areas and a hard look at which business lines they should defend from disruptors—or skillfully exit. However, neither of these industries lack for fresh opportunities.


Financials Search for Growth in an Age of Disruption


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