Financial Assessment of Global Investment Banking Industry

Financial Assessment of Global Investment Financial Assessment of Global Investment Banking IndustryBanking Industry

Conservatism, stability and lower returns Conservatism, stability and lower returns –– the new norm for the industry?the new norm for the industry?

NC95-F1December 5, 2013

Contents

S No Section

1. Introduction

2. Key Market Statistics of the Global Investment Banking Industry

3. Ratio Analysis by Geography

4. Ratio Analysis by Revenue Range

NC95-F1 2

4. Ratio Analysis by Revenue Range

5. Top Performers in the Global Investment Banking Industry

6. Outlook and Conclusion

7. The Frost & Sullivan Story

Objectives of the Study

Key study objectives include:

To analyse companies in the Investment Banking industry based on key financial metrics

To identify key performance drivers and restraints

NC95-F1 3

To identify the best performers in the industry

To identify, compare and assess regions/countries that are current and potential hubs of investment banking activity

Source: Frost & Sullivan analysis.

Scope of the Study (Continued)

38

2025303540

No

. o

f co

mp

an

ies

Middle East and Africa –55 companies

19

8 9

6

1

0

5

10

15

20

Above 2 billion

500 million - 2

billion

200 - 500 million

50 - 200 million

Below 50 million

No

. o

f co

mp

an

ies

Average Revenue Range (2007 – 2012)

38

16

3

14

6

05

10152025303540

Above 2 billion

500 million - 2

billion

200 - 500 million

50 - 200 million

Below 50 million

No

. o

f co

mp

an

ies


4439

25

40

53

30

40

50

60

No

. o

f co

mp

an

ies

Europe – 77 companies

Asia Pacific – 201 companies

North America – 43 companies

NC95-F1 4

10

2 2 3

05

101520

Above 2 billion

500 million - 2

billion

200 - 500 million

50 - 200 million

Below 50 million

No

. o

f co

mp

an

ies


55 companies

7

15

01

2

02468

10121416

Above 2 billion

500 million - 2

billion

200 - 500 million

50 - 200 million

Below 50 million

No

. o

f co

mp

an

ies


Latin America and Caribbean – 25 companies0

10

20

30

Above 2 billion

500 million - 2

billion

200 - 500 million

50 - 200 million

Below 50 million

No

. o

f co

mp

an

ies


Total of 401 companies analyzed aftershortlisting from 2500 Investment banks.Study period – FY 2007 to H1 2013


Estim

ate

s

0.00

250.00

500.00

750.00

1,000.00

1,250.00

1,500.00

1,750.00

2,000.00

2,250.00

Rev

en

ue in

US

D b

illio

n

H2 - 1034.92

H1 – 1033.55

Investment Banking Industry: Market Size (in USD Billion) , Global, 2007 – 2014E

2068.471996.861893.64

1823.18

1612.481445.74

1700.03

Estim

ate

s

2116.66

Global Market Size

Expected growth Estimate – 2.3%

NC95-F1 5

0.002007 2008 2009 2010 2011 2012 2013 2014Year

Africa and the Middle East Latin America and the Caribbean Asia Pacific Europe North America

Source: Capital IQ, Frost & Sullivan analysis.

Region CAGR

Global 3.3%

North America 5.9%

Europe -3.4%

Asia Pacific 10.3%

Africa and the Middle East -1.3%

Latin America and the Caribbean 4.4%

Market Growth (2007 – 2012)

Region 2007 2012 2013 2014E

North America 25.7 29.2 29.8 30.0

Europe 40.3 28.9 28.9 28.7

Asia Pacific 22.6 31.4 32.0 31.8

Latin America and the Caribbean 5.8 6.1 4.8 4.9

Africa and the Middle East 5.6 4.5 4.5 4.6

Market Share by Region

Dri

vers

1–2 Years 2–5 Years 5–7 Years

Focus on core strengths

Investment Banking Industry: Key Market Drivers, Global, 2014–2020

Sustainable business model

Conservatism in risk management procedures

Market Drivers

Drivers

NC95-F1 6

Mark

et

Dri

vers

Increased integration

Focus on core strengths

Finding new pockets of growth

Increased customer focus

Impact: High Medium Low Tenure: 1-2 Years: Short Term, 2-5 Years: Medium Term, 5-7 Years: Long Term


Restr

ain

ts

1–2 Years 2–5 Years 5–7 Years

Mandatory higher capital base

Investment Banking Industry: Key Market Restraints, Global, 2014–2020

Deteriorating performance

Stagnant or flat line growth

Market Restraints

Restraints

NC95-F1 7

Mark

et

Restr

ain

ts

Investor confidence and brand image of investment

banks

Mandatory higher capital base

Regulations from multiple authorities

New technology

Impact: High Medium Low Tenure: 1-2 Years: Short Term, 2-5 Years: Medium Term, 5-7 Years: Long Term


Driv

ers

Driv

ers

Scope for inorganic growth through

business integration and consolidation to result in increased

synergies

Deleveraging and increase in capital base to make the

industry more stable

Declining costs due to increase in operating

efficiency by downsizing or improvement in process

3

2

The drivers and restraints are those that impact financial management and risk management objective in the investment banking industry. Drivers are those that would lead the industry to better financial and risk management or be a value driver. Restraints are those that would negatively impact the financial management or be a cost driver.

Market Financial Attractiveness

NC95-F1 8

Re

stra

ints

Re

stra

ints

Increasing regulatory compliance costs

Declining Return on Equity

1

3

1

2

Low industry growth

The size of the arrow denotes the impact of the parameter on a scale of 1 to 3.


Ratio Analysis by Geography

Investment Banking Industry: Relative Financial Assessment by Geography, Global, FY2012

40

60

80

Ris

k M

an

ag

em

en

t

North America

Africa and the Middle East

Latin America and the Caribbean

No growth but sustained profits

High growth with increasing competition

High returns

Low returns

Medium returns

Returns to investor

Greater Profitability with

NC95-F1 9

-20

0

20

-100 -50 0 50 100 150 200

Ris

k M

an

ag

em

en

t

Financial Management

Asia Pacific

EuropeNegative profits with no growth

Increasing profits at the cost of high risk

Profitability with less risk

The graph is indicative of relative risk and profitability across different regions. The size of the bubble is indicative of size of the market as a percentage of the global market size.


Snapshot – Ratio Analysis by Revenue Range

Revenue Range Profitability Ratios Cost Ratios Debt RatiosCapital Ratios

Leverage Ratio

Liquidity Ratio

Above $2.00 billion

Declining ROE,Increasing net margin

Decreasing cost margins

High debt ratios

Low capital ratio (Basel III requirement)

Very high Low liquidity

$500.0 million -Declining but high ROE relative to the industry, Decreasing cost Medium debt

Adequate capital ratio to suffice Basel

Adequate Low liquidity

Investment Banking Industry: Trend Analysis of Ratios by Revenue Range, Global, 2007 – H1 2013

NC95-F1 10

$500.0 million -$2.00 billion

relative to the industry, Return on Assets close to 1.0 percent.

Decreasing cost margins

Medium debt ratios

suffice Basel III requirements

Adequate leverage

Low liquidity

200.0 million –500.0 million

ROE declining at a higher pace, declining net margins

High cost margins

Low debt ratios

High capital ratio

Low leverage

High liquidity

$50.0 million -$200.0 million

High return on assets, declining ROE

High cost margins

Low debt ratios

High capital ratio

Low leverage

High liquidity

Below $50.0 million

High return on assets, declining ROE

High cost margins

Low debt ratios

High capital ratio

Low leverage

High liquidity


Investment Banking Industry: Top 100 Investment Banks (Financial vs Risk Management), Global, FY2012

Global Top Performers - Financial Management versus Risk Management

380

480

580

Sco

re

Top performers are those that areable to strike a balance betweenprofitability and risk management.Quadrant 1 – High Profit, Low RiskQuadrant 2 – High Profit , High RiskQuadrant 3 – Low Profit , High RiskQuadrant 4 – Low Profit, Low Risk

14

Top 25

NC95-F1 11

-20

80

180

280

- 100 200 300 400 500 600 700 800

Ris

k M

an

ag

em

en

t S

co

re

Financial Management Score

High profitability compensates for risk management

14

23

Bottom 25

Note: Please refer Glossary for complete list of names for the tickers used. Analysis based on FY 2012 financials. Source: Capital IQ, Frost & Sullivan analysis.

Global Top Performers - Financial Management versus Risk Management

Legend key

NC95-F1 12

Legend key

Investment Banking Industry: Financial Vs Risk Management, North America, FY2012

Regional Top Performers - Financial Management versus Risk Management

OTCPK:SFNS

NasdaqGS:FBRC

NYSE:RCAP

NasdaqGS:LPLAOTCPK:ZGCO

NYSE:JMP

NYSE:GHL

NYSE:EVR

NYSE:PJC

NasdaqGS:BGCPAMEX:ICH

380

480

580

Sco

re

Top performers are those that areable to strike a balance betweenprofitability and risk management.Quadrant 1 – Profit with Low RiskQuadrant 2 – Profit with High RiskQuadrant 3 – No Profit with High RiskQuadrant 4 – No Profit with Low Risk

14

10 out of 43 banks analyzed recorded losses in 2012. Most have a high risk profile.

Among Top 20 performers in North America with medium to low risk

NC95-F1 13

NYSE:JPM

NYSE:WFC

NasdaqGS:INTL

NYSE:BAC

NYSE:RJF

NYSE:AMTD

NYSE:GHL

NYSE:GS

NYSE:C

TSX:GMP

NYSE:FXCM

NYSE:KCG

TSX:RY

NYSE:USB

NYSE:SF

NYSE:MS

TSX:BNS

TSX:TDTSX:BMO

TSX:NA

NYSE:SCHW

NYSE:CMA

AMEX:ICH

NYSE:GFIG

NasdaqGS:GLCH

AMEX:LTS

NYSE:OPYNYSE:ITG

TSX:CFNYSE:SWS

OTCPK:GTAX

NasdaqGS:ETFC

-20

80

180

280

(800.00) (600.00) (400.00) (200.00) - 200.00 400.00 600.00 800.00 1,000.00

Ris

k M

an

ag

em

en

t S

co

re


14

23


Most risky banks

Most profitable banks / top performers despite high risk

High risk, no profits

NasdaqGS:LPLA

BVC:SOCBOLIVAR

SHSE:600030

TSE:8591

KOSE:A006800

NYSE:RJF

KOSE:A003540

240

280

320

360

400

440

Sco

re

Top performers are those that are ableto strike a balance between profitabilityand risk management.Quadrant 1 – High Profit with Low RiskQuadrant 2 – High Profit with High RiskQuadrant 3 – Low Profit with High RiskQuadrant 4 – Low Profit with Low Risk

Good Risk managers

Investment Banking Industry: Financial Vs Risk Management, Banks in Revenue Range of Above $2.00 billion (Top 50), FY2012

Top Performers by Revenue Range - Financial Management versus Risk Management

14

75 percent of North America banks (14 banks out of 19 in theanalysis) are in the top 50 list in this category in comparison toonly 10 percent (4 out of 38) in Europe.

Majority of the investment bankswith revenues above $2.00 billionfeature in Quadrant 3 which ischaracteristic of high risk due tohigher leverage, high debt capitaland low capital ratio.Top most performers are banks inQuadrant 2 and 4.

NC95-F1 14

NYSE:JPMNYSE:WFC

SEHK:939

NasdaqGS:INTL

SEHK:3988

NYSE:BAC

MICEX:SBER

NYSE:AMTD

BOVESPA:ITSA4

NYSE:GS

NYSE:C

LSE:HSBA

JKSE:BBRI

SASE:1120

TSEC:2881

ENXTPA:BNP

BVC:GRUPOAVAL

BOVESPA:BBDC4

JKSE:BBCA

JKSE:BMRI

SEHK:3328

TSX:RY

IBSE:HALKB

SHSE:600036

SHSE:600016

NYSE:USB

SGX:O39

JSE:FSR

IBSE:GARAN

SHSE:601166

ASX:CBA

IBSE:AKBNK SET:SCB

WSE:PKOSET:KBANK

-40

0

40

80

120

160

200

0 100 200 300 400 500 600 700 800

Ris

k M

an

ag

em

en

t S

co

re


23


Most profitable banks despite high risk

Outlook

Increase capital base Increasing costs Cost cutting measures

Ind

ustry

Ou

tloo

kIn

du

str

y O

utl

oo

k

NC95-F1 15


Adapting to technologyRestructuring business

modelsOperating efficiency

Re-pricing mechanisms De risking balance sheets Rebuilding brand image

Ind

ustry

Ou

tloo

kIn

du

str

y O

utl

oo

k

Conclusion

Investment banking revenue growth is expected to remain stagnant over the next year 2014.

Size is no longer an advantage in the investment banking industry

Investment banks would develop strategies to maintain performance levels and capture greater marketshare in a flat line growth industry.

1

2

3

Five Big Conclusions

NC95-F1 16

share in a flat line growth industry.

Asian and American investment banks

Moving towards risk – return tradeoff

3

4

5


Next Steps

Develop Your Visionary and Innovative SkillsGrowth Partnership Service Share your growth thought leadership and ideas or

join our GIL Global Community

NC95-F1 17

Join our GIL Community NewsletterKeep abreast of innovative growth opportunities

Phone: 1-877-GOFROST (463-7678) Email: [email protected]

Your Feedback is Important to Us

Growth Forecasts?

Competitive Structure?

What would you like to see from Frost & Sullivan?

NC95-F1 18

Emerging Trends?

Strategic Recommendations?

Other?

Please inform us by “Rating” this presentation.

Follow Frost & Sullivan on Facebook, LinkedIn, SlideShare, and Twitter

http://www.facebook.com/FrostandSullivan

http://www.linkedin.com/companies/4506

NC95-F1 19

http://twitter.com/frost_sullivan

http://www.linkedin.com/companies/4506

http://www.slideshare.net/FrostandSullivan

For Additional Information

Jeannette Garcia

Corporate Communications

Business Financial Services

+1-210-477-8427

[email protected]

Sheetal Kothari

Research Analyst


+91-44-6160 6666 Ext. 4045

[email protected]

NC95-F1 20

Shrikanth S

Industry Manager


+91-44-66814043

[email protected]

Lori Salazar- Strubhart

Sales Director- North America


+1- 210.247.2448

[email protected]

Economy & Finance

Financial Assessment of Global Investment Banking Industry