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Financial Assessment of Global Investment Banking Industry

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This briefing will discuss financial benchmarking in the investment banking industry and provide an outlook for 2014. …

This briefing will discuss financial benchmarking in the investment banking industry and provide an outlook for 2014.

- Understand financial performances of investment banks in different regions of the globe
- Discover financial performance by revenue range/size of the banks
- Explore opportunities and identify banks that are excelling in a challenging environment
- Identify top performers and opportunities for investment
- Gain an outlook for 2014

Listen On Demand:
https://www.brighttalk.com/webcast/5562/93385

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  • 1. Financial Assessment of Global Investment Banking Industry Conservatism, stability and lower returns – the new norm for the industry? NC95-F1 December 5, 2013
  • 2. 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 5. Top Performers in the Global Investment Banking Industry 6. Outlook and Conclusion 7. The Frost & Sullivan Story NC95-F1 2
  • 3. 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 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. NC95-F1 3
  • 4. Scope of the Study (Continued) North America – 43 companies 15 9 8 10 6 5 1 40 35 30 25 20 15 10 5 0 Above 2 500 200 - 500 50 - 200 Below 50 billion million - 2 million million million billion 16 14 6 3 Average Revenue Range (2007 – 2012) No. of companies Average Revenue Range (2007 – 2012) Latin America and Caribbean – 25 companies No. of companies Europe – 77 companies Above 2 500 200 - 500 50 - 200 Below 50 billion million - 2 million million million billion 0 16 14 12 10 8 6 4 2 0 38 40 35 30 25 20 15 10 5 0 38 60 Middle East and Africa – 55 companies 10 2 2 3 No. of companies No. of companies 20 No. of companies 19 50 40 30 Asia Pacific – 201 companies 44 53 40 39 25 20 10 0 Above 2 500 200 - 500 50 - 200 Below 50 billion million - 2 million million million billion Average Revenue Range (2007 – 2012) 15 Above 2 500 200 - 500 50 - 200 Below 50 billion million - 2 million million million billion Average Revenue Range (2007 – 2012) 7 0 1 2 Above 2 500 200 - 500 50 - 200 Below 50 billion million - 2 million million million billion Total of 401 companies analyzed shortlisting from 2500 Investment banks. Study period – FY 2007 to H1 2013 after Average Revenue Range (2007 – 2012) Source: Frost & Sullivan analysis. NC95-F1 4
  • 5. Global Market Size Investment Banking Industry: Market Size (in USD Billion) , Global, 2007 – 2014E Expected growth Estimate – 2.3% 2,000.00 1,750.00 1823.18 1700.03 1,500.00 1445.74 1996.86 1893.64 2116.66 2068.47 Estimates 1612.48 H2 - 1034.92 1,250.00 1,000.00 Estimates Revenue in USD billion 2,250.00 750.00 500.00 250.00 H1 – 1033.55 0.00 2007 Africa and the Middle East 2008 2009 2010 Latin America and the Caribbean 2011 Year Asia Pacific Market Growth (2007 – 2012) Region CAGR 2012 Europe 2013 2014 North America Market Share by Region Region 2007 2012 2013 2014E Global 3.3% North America 25.7 29.2 29.8 30.0 North America 5.9% Europe 40.3 28.9 28.9 28.7 Europe -3.4% Asia Pacific 22.6 31.4 32.0 31.8 Asia Pacific 10.3% Africa and the Middle East -1.3% Latin America and the Caribbean 5.8 6.1 4.8 4.9 Latin America and the Caribbean 4.4% Africa and the Middle East 5.6 4.5 4.5 4.6 Source: Capital IQ, Frost & Sullivan analysis. NC95-F1 5
  • 6. Market Drivers Investment Banking Industry: Key Market Drivers, Global, 2014–2020 1–2 Years Drivers 2–5 Years 5–7 Years Sustainable business model Market Drivers Conservatism in risk management procedures Focus on core strengths Increased customer focus Finding new pockets of growth Increased integration Impact: High Medium Low Tenure: 1-2 Years: Short Term, 2-5 Years: Medium Term, 5-7 Years: Long Term Source: Frost & Sullivan analysis. NC95-F1 6
  • 7. Market Restraints Investment Banking Industry: Key Market Restraints, Global, 2014–2020 1–2 Years Restraints 2–5 Years 5–7 Years Deteriorating performance Market Restraints Stagnant or flat line growth Mandatory higher capital base New technology Regulations from multiple authorities Investor confidence banks Impact: High and brand image of investment Medium Low Tenure: 1-2 Years: Short Term, 2-5 Years: Medium Term, 5-7 Years: Long Term Source: Frost & Sullivan analysis. NC95-F1 7
  • 8. Market Financial Attractiveness 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. Deleveraging and increase in capital base to make the industry more stable Scope for inorganic growth through business integration and consolidation to result in increased synergies 3 Drivers Drivers Declining costs due to increase in operating efficiency by downsizing or improvement in process 2 1 1 Restraints Restraints Increasing regulatory compliance costs Declining Return on Equity The size of the arrow denotes the impact of the parameter on a scale of 1 to 3. 2 Low industry growth 3 Source: Frost & Sullivan analysis. NC95-F1 8
  • 9. Ratio Analysis by Geography Investment Banking Industry: Relative Financial Assessment by Geography, Global, FY2012 80 North America Returns to investor High returns Low returns Medium returns Negative profits with no growth Europe Risk Management No growth but sustained profits Africa and the Middle East 60 High growth with increasing competition Latin America and the Caribbean 40 Greater Profitability with less risk Asia Pacific 20 Increasing profits at the cost of high risk 0 -100 -50 0 -20 50 100 150 200 Financial Management 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. Source: Frost & Sullivan analysis. NC95-F1 9
  • 10. Snapshot – Ratio Analysis by Revenue Range Investment Banking Industry: Trend Analysis of Ratios by Revenue Range, Global, 2007 – H1 2013 Revenue Range Profitability Ratios Cost Ratios Debt Ratios Capital 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 $2.00 billion Declining but high ROE relative to the industry, Return on Assets close to 1.0 percent. Decreasing cost margins Medium debt ratios Adequate capital ratio to 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 Source: Frost & Sullivan analysis. NC95-F1 10
  • 11. Global Top Performers - Financial Management versus Risk Management Investment Banking Industry: Top 100 Investment Banks (Financial vs Risk Management), Global, FY2012 580 Top performers are those that are able to strike a balance between profitability and risk management. Quadrant 1 – High Profit, Low Risk Quadrant 2 – High Profit , High Risk Quadrant 3 – Low Profit , High Risk Quadrant 4 – Low Profit, Low Risk 480 Top 25 Risk Management Score 380 4 1 3 2 280 180 High profitability compensates for risk management 80 Bottom 25 -20 - 100 200 300 400 500 600 700 800 Financial Management Score 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. NC95-F1 11
  • 12. Global Top Performers - Financial Management versus Risk Management Legend key NC95-F1 12
  • 13. Regional Top Performers - Financial Management versus Risk Management Investment Banking Industry: Financial Vs Risk Management, North America, FY2012 580 Top performers are those that are able to strike a balance between profitability and risk management. Quadrant 1 – Profit with Low Risk Quadrant 2 – Profit with High Risk Quadrant 3 – No Profit with High Risk Quadrant 4 – No Profit with Low Risk NasdaqGS:FBRC 480 OTCPK:SFNS 10 out of 43 banks analyzed recorded losses in 2012. Most have a high risk profile. NYSE:JMP Among Top 20 performers in North America with medium to low risk NYSE:PJC NYSE:RCAP NYSE:EVR OTCPK:ZGCO NasdaqGS:LPLA NasdaqGS:BGCP NYSE:GHL Risk Management Score 380 4 AMEX:ICH NYSE:GFIG 280 3 TSX:CF 1 NYSE:RJF TSX:GMP NYSE:FXCM NasdaqGS:GLCH NYSE:ITG NYSE:KCG Most profitable banks / top performers despite high risk NYSE:AMTD NYSE:OPY AMEX:LTS NYSE:SWS 180 NYSE:SF NYSE:MS NYSE:GS NasdaqGS:ETFC 2 Most risky banks NasdaqGS:INTL NYSE:C 80 High risk, no profits (800.00) NYSE:CMA OTCPK:GTAX (600.00) (400.00) (200.00) -20 - NYSE:JPM NYSE:SCHW NYSE:BAC TSX:RY TSX:BNS NYSE:USB TSX:BMO TSX:NA TSX:TD 200.00 400.00 NYSE:WFC 600.00 800.00 1,000.00 Financial Management Score 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. NC95-F1 13
  • 14. Top Performers by Revenue Range - Financial Management versus Risk Management Investment Banking Industry: Financial Vs Risk Management, Banks in Revenue Range of Above $2.00 billion (Top 50), FY2012 440 Majority of the investment banks with revenues above $2.00 billion feature in Quadrant 3 which is characteristic of high risk due to higher leverage, high debt capital and low capital ratio. Top most performers are banks in Quadrant 2 and 4. KOSE:A006800 400 SHSE:600030 360 TSE:8591 NYSE:RJF 280 Risk Management Score NasdaqGS:LPLA KOSE:A003540 320 BVC:SOCBOLIVAR 4 240 200 Good Risk managers NYSE:AMTD 3 BVC:GRUPOAVAL 160 Top performers are those that are able to strike a balance between profitability and risk management. Quadrant 1 – High Profit with Low Risk Quadrant 2 – High Profit with High Risk Quadrant 3 – Low Profit with High Risk Quadrant 4 – Low Profit with Low Risk 75 percent of North America banks (14 banks out of 19 in the analysis) are in the top 50 list in this category in comparison to only 10 percent (4 out of 38) in Europe. 1 2 Most profitable banks despite high risk NYSE:GS TSEC:2881 120 SASE:1120 NasdaqGS:INTL NYSE:C BOVESPA:ITSA4 JKSE:BBCA JKSE:BBRI JKSE:BMRI BOVESPA:BBDC4 SGX:O39 NYSE:BAC WSE:PKO LSE:HSBA IBSE:GARAN SET:KBANK TSX:RY ENXTPA:BNP MICEX:SBER SET:SCB IBSE:AKBNK IBSE:HALKB NYSE:USB JSE:FSR SEHK:3328 SHSE:601166 SHSE:600016 80 40 0 0 100 200 300 SHSE:600036 400 500 600 SEHK:3988 NYSE:JPM NYSE:WFC SEHK:939 700 800 -40 ASX:CBA Financial Management Score 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. NC95-F1 14
  • 15. Outlook Cost cutting measures Adapting to technology Restructuring business models Operating efficiency Re-pricing mechanisms Industry Outlook Increasing costs De risking balance sheets Rebuilding brand image Industry Outlook Increase capital base Source: Frost & Sullivan analysis. NC95-F1 15
  • 16. Conclusion Five Big Conclusions 1 Investment banking revenue growth is expected to remain stagnant over the next year 2014. 2 Size is no longer an advantage in the investment banking industry 3 Investment banks would develop strategies to maintain performance levels and capture greater market share in a flat line growth industry. 4 Asian and American investment banks 5 Moving towards risk – return tradeoff Source: Frost & Sullivan analysis. NC95-F1 16
  • 17. Next Steps Develop Your Visionary and Innovative Skills Growth Partnership Service Share your growth thought leadership and ideas or join our GIL Global Community Join our GIL Community Newsletter Keep abreast of innovative growth opportunities Phone: 1-877-GOFROST (463-7678) NC95-F1 Email: myfrost@frost.com 17
  • 18. Your Feedback is Important to Us What would you like to see from Frost & Sullivan? Growth Forecasts? Competitive Structure? Emerging Trends? Strategic Recommendations? Other? Please inform us by “Rating” this presentation. NC95-F1 18
  • 19. Follow Frost & Sullivan on Facebook, LinkedIn, SlideShare, and Twitter http://www.facebook.com/FrostandSullivan http://www.linkedin.com/companies/4506 http://www.slideshare.net/FrostandSullivan http://twitter.com/frost_sullivan NC95-F1 19
  • 20. For Additional Information Jeannette Garcia Corporate Communications Business Financial Services +1-210-477-8427 jeannette.garcia@frost.com Sheetal Kothari Research Analyst Business Financial Services +91-44-6160 6666 Ext. 4045 sheetalk@frost.com Shrikanth S Industry Manager Business Financial Services +91-44-66814043 shrikanths@frost.com Lori Salazar- Strubhart Sales Director- North America Business Financial Services +1- 210.247.2448 lsalazar@frost.com NC95-F1 20