BUSINESS PLAN

Investment ProfIlIng and executIon

Made by: Raza-ul-Haq (Teacher of A Levels Business Studies)
FOREWORD
Investment banks are changing fast. Forty years ago the industry was dominated by
a few small partnerships that m...
CONTENTS
SR#

TOPIC

01
02
03
04
05
06
07

Executive summary
Nature of project
Worldwide financial scenario
SWOT analysis
...
EXECUTIVE SUMMARY
Investment banks help companies and governments raise money by issuing and
selling securities in the cap...
•

Investment management is the professional management of various securities
(shares, bonds, etc.) and other assets (e.g....
MIDDLE OFFICE
•

Risk Management involves analyzing the market and credit risk that traders
are taking onto the balance sh...
NATURE OF THE PROJECT
Every project has certain targets to achieve, which are then backed by sound
strategies. My project ...
WORLDWIDE FINANCIAL SCENARIO
There’s a lot of money to be made in the coming year, say these practitioners from
different ...
SWOT ANALYSIS (limited analysis)
STRENGTHS

WEAKNESSES

1- Being a middle level executive in
Multinational Investment Bank...
COMPETITION ANALYSIS
As mentioned earlier, the investment banking market and for that case the
consumer banking market too...
FALCOM is an investment bank built with unmatched financial strengths, state of the
art technology and top tier talent. As...
UBS AG (NYSE: UBS; SWX: UBSN; TYO: 8657) is a diversified global financial services
company, with its main headquarters in...
The Corporate Finance team regularly ranks highest among the leading capital
markets league tables and recently topped the...
TARGET MARKET AND PRODUCT POSITIONING
The target market for this project is proposed to be multi-dimensional, keeping in
v...
POSITIONING MAP OF THE PREMIUM CONSUMER BANKING SERVICES
PREMIUM
Equity advice
Retirement wealth management
Inheritance we...
RATIONALE FOR SELECTION OF PROPOSED
GEOGRAPHICAL TARGET MARKETS
PAKISTAN

Pakistan’s sustained economic growth of 7% has p...
Pakistan’s financial sector is attracting heavy foreign investment and is among the
top three sectors with respect to fore...
Also, the banking sector has been doing exceedingly well on the financial front. For
example, in the quarter ended March 2...
China also obtains foreign capital through foreign loans, foreign direct investment
(FDI), and other investment by foreign...
"The UAE has a remarkably high number of banks to serve a population of around
4.5 million and an economy with an annual G...
"The January rally was not a fluke, and I expect it to continue this year because
investors are convinced of Argentina's s...
said Jay Pelosky Jr., director of research and strategy for Morgan Stanley Latin
America. "There is also a sense that the ...
During 2007-2011, net interest income of the South African banking industry is
expected to surge at a CAGR of 13.19% due t...
FINANCIAL ANALYSIS
BUDGETING
TITLE

Year 1 ($m) Year 2 ($m) Year 3 ($m)

Travelling
Boarding and Lodging
Meals
Fuel
Commun...
COLLECTIONS AND DEPOSITS
Consolidated forecast

Title

Year 1 ($m) Year 2($m) Year 3($m)

CONSUMER BANKING SECTOR
Retireme...
2- The targeted level of $30 million in collection per year has gradually been met and
exceeded in year 3

26
EXPENDITURE

Consolidated forecast

Title

Year 1 ($m) Year 2($m) Year 3($m)

Travelling
Boarding and Lodging
Meals
Fuel
C...
SELECTIVE RATIO ANALYSIS
PERCENTAGE OF COLLECTIONS TO EXPENDITURE
Formula

Year 1

Year 2

Year 3

(Collections ÷
Expendit...
BIBLIOGRAPHY
1- Investment Banking: Past, Present, and Future by Alan D. Morrison, Saïd Business School,
University of Oxf...
ANNEXURE

30
A BRIEF HISTORY OF MODERN BANKING
Modern Western economic and financial history is usually traced back to the coffee
house...
especially U.S. Foreign investments, particularly from Japan, who not only provided
the funds to corporations in the U.S.,...
QUESTIONNAIRE FOR POTENTIAL CLIENTS
FOR CONSUMER BANKING
How many family members are typically in your customers' househol...
Are there common characteristics of a certain department…marketing, IT, human
resources, finance that you can identify?

A...
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A business plan_on_investment_profiling_and_execution_-_final

  1. 1. BUSINESS PLAN Investment ProfIlIng and executIon Made by: Raza-ul-Haq (Teacher of A Levels Business Studies)
  2. 2. FOREWORD Investment banks are changing fast. Forty years ago the industry was dominated by a few small partnerships that made the bulk of their income from the commissions they earned floating securities on behalf of their clients. Today’s investment banks are huge full-service firms that make a substantial proportion of their revenues in technical trading businesses that started to attain their current prominence only in the 1980s. The CPI-adjusted capitalization of the top ten investment banks soared from $1 billion in 1960 to $194 billion in 2000. Between 1979 and 2000, the number of professionals employed by the top five investment banks (ranked by capitalization) rose from 56,000 to 205,000. We argue that investment banks have traditionally added value in transactions involving assets over which it is extremely hard to establish property rights. Since their inception, investment banks have facilitated complex deals by creating a marketplace in which informal property rights over these assets could be created and enforced. Over the past 200 years a series of technological advances has altered the economic situations that require informal property rights, and investment banks have changed their focus accordingly. The rationale behind choosing this domain for my business plan rests on the assumption, turning out to become a fact presently, that the scope of advancement in the technological-cum-relationship based world of investment banking (call it venture capitalism if you please) has a lucrative future in the political-economic world of today and tomorrow. Raza 2
  3. 3. CONTENTS SR# TOPIC 01 02 03 04 05 06 07 Executive summary Nature of project Worldwide financial scenario SWOT analysis Competition analysis Target market and Product positioning Rationale for selection of proposed geographical target markets Financial analysis a) Budgeting b) Collections and Deposits c) Expenditure 08 09 10 PAGE 6-8 9 10 11 12 - 15 16 - 17 18 - 25 26 27 28 Ratio Analysis a) Percentage of collections to expenditure b) Expenditure variance 29 29 Bibliography 30 Annexure (i) A Brief history of venture capital (ii) Research questionnaire for screening potential clients 32 - 33 34 - 35 3
  4. 4. EXECUTIVE SUMMARY Investment banks help companies and governments raise money by issuing and selling securities in the capital markets (both equity and debt), as well as providing advice on transactions such as mergers and acquisitions. Until the late 1980s, the United States and Canada maintained a separation between investment banking and commercial banks. A majority of investment banks offer strategic advisory services for mergers, acquisitions, divestiture or other financial services for clients, such as the trading of derivatives, fixed income, foreign exchange, commodity, and equity securities. Trading securities for cash or securities (i.e., facilitating transactions, market-making), or the promotion of securities (i.e., underwriting, research, etc.) is referred to as the "sell side." Dealing with the pension funds, mutual funds, hedge funds, and the investing public who consume the products and services of the sell-side in order to maximize their return on investment constitutes the "buy side". Many firms have buy and sell side components. The main activities and units On behalf of the bank and its clients, the primary function of the bank is buying and selling products. Banks undertake risk through proprietary trading, done by a special set of traders who do not interface with clients and through Principal Risk, risk undertaken by a trader after he buys or sells a product to a client and does not hedge his total exposure. Banks seek to maximize profitability for a given amount of risk on their balance sheet. An investment bank is split into the so-called Front Office, Middle Office, and Back Office. FRONT OFFICE • Investment banking is the traditional aspect of investment banks which involves helping customers raise funds in the Capital Markets and advising on mergers and acquisitions. These jobs tend to be extremely competitive and difficult to land. Investment banking may involve subscribing investors to a security issuance, coordinating with bidders, or negotiating with a merger target. Other terms for the investment banking division include mergers and acquisitions (M&A) and corporate finance. The investment banking division (IBD) is generally divided into industry coverage and product coverage groups. Industry coverage groups focus on a specific industry such as healthcare, industrials, or technology, and maintain relationships with corporations within the industry to bring in business for a bank. Product coverage groups focus on financial products, such as mergers and acquisitions, leveraged finance, equity, and high-grade debt. 4
  5. 5. • Investment management is the professional management of various securities (shares, bonds, etc.) and other assets (e.g. real estate), to meet specified investment goals for the benefit of the investors. Investors may be institutions (insurance companies, pension funds, corporations etc.) or private investors (both directly via investment contracts and more commonly via collective investment schemes eg. mutual funds). The Investment management division of an investment bank is generally divided into separate groups, often known as Private Wealth Management and Private Client Services. Asset Management deals with institutional investors, while Private Wealth Management manages the funds of high net-worth individuals. • Sales & Trading In the process of market making, traders will buy and sell financial products with the goal of making an incremental amount of money on each trade. Sales is the term for the investment banks sales force, whose primary job is to call on institutional and high-net-worth investors to suggest trading ideas (on caveat emptor basis) and take orders. Sales desks then communicate their clients' orders to the appropriate trading desks, which can price and execute trades, or structure new products that fit a specific need. • Structuring has been a relatively recent division as derivatives have come into play, with highly technical and numerate employees working on creating complex structured products which typically offer much greater margins and returns than underlying cash securities. The necessity for numerical ability has created jobs for physics and math Ph.D.s who act as quants. • Merchant banking is a private equity activity of investment banks. Examples include Goldman Sachs Capital Partners and JPMorgan One Equity Partners. • Research is the division which reviews companies and writes reports about their prospects, often with "buy" or "sell" ratings. While the research division generates no revenue, its resources are used to assist traders in trading, the sales force in suggesting ideas to customers, and investment bankers by covering their clients. There is a potential conflict of interest between the investment bank and its analysis in that published analysis can affect the profits of the bank. Therefore in recent years the relationship between investment banking and research has become highly regulated requiring a Chinese wall between public and private functions. • Strategy is the division which advises external as well as internal clients on the strategies that can be adopted in various markets. Ranging from derivatives to specific industries, strategists place companies and industries in a quantitative framework with full consideration of the macroeconomic scene. This strategy often affects the way the firm will operate in the market, the direction it would like to take in terms of its proprietary and flow positions, the suggestions salespersons give to clients, as well as the way structures create new products. 5
  6. 6. MIDDLE OFFICE • Risk Management involves analyzing the market and credit risk that traders are taking onto the balance sheet in conducting their daily trades, and setting limits on the amount of capital that they are able to trade in order to prevent 'bad' trades having a detrimental effect to a desk overall. Another key Middle Office role is to ensure that the above mentioned economic risks are captured accurately (as per agreement of commercial terms with the counterparty), correctly (as per standardized booking models in the most appropriate systems) and on time (typically within 30 minutes of trade execution). In recent years the risk of errors has become known as "operational risk" and the assurance Middle Offices provide now includes measures to address this risk. When this assurance is not in place, market and credit risk analysis can be unreliable and open to deliberate manipulation. • Finance areas are responsible for an investment bank's capital management and risk monitoring. By tracking and analyzing the capital flows of the firm, the Finance division is the principal adviser to senior management on essential areas such as controlling the firm's global risk exposure and the profitability and structure of the firm's various businesses. In the United States and United Kingdom, a Financial Controller is a senior position, often reporting to the Chief Financial Officer. • Compliance areas are responsible for an investment bank's daily operations' compliance with FSA regulations and internal regulations. Often also considered a back-office division. BACK OFFICE • Operations involve data-checking trades that have been conducted, ensuring that they are not erroneous, and transacting the required transfers. While some believe that operations provide the greatest job security and the bleakest career prospects of any division within an investment bank, many banks have outsourced operations. It is, however, a critical part of the bank. Due to increased competition in finance related careers, college degrees are now mandatory at most Tier 1 investment banks. A finance degree has proved significant in understanding the depth of the deals and transactions that occur across all the divisions of the bank. • Technology refers to the IT department. Every major investment bank has considerable amounts of in-house software, created by the Technology team, who are also responsible for Computer and Telecommunications-based support. Technology has changed considerably in the last few years as more sales and trading desks are using electronic trading platforms. These platforms can serve as auto-executed hedging to complex model driven algorithms. 6
  7. 7. NATURE OF THE PROJECT Every project has certain targets to achieve, which are then backed by sound strategies. My project target is to raise $30 million each year for 3 consecutive years, through investment banking and venture capital. Being a senior investment officer in one of the renowned investment banks of the world, my job description states that I must improve upon not only the investment side, but also partially on the consumer banking side by attracting deposits with an account opening balance of no less that $1 million. Based in the Middle East, the bank has its operation in many parts of the world. During the course of my project, I will be targeting various geographical areas, including the Middle East and certain other emerging economies like China, India, Pakistan, Brazil, Argentina and South Africa. Hindered by lack of professional experience of working in a diverse multi-cultured environments and operating under the constraint of limited time and resources, I have selected the areas mentioned above with pragmatism, otherwise the entire world is a stage. Finally, the implementation phase of my project is continuous, where cushion for short-falls in achieving targets will be catered by contingency plans. I do not believe in devising an outright exit strategy at this stage before embarking on a lucrative plan, however, planning for continuous iteration and improvement will not be ignored. Raza 7
  8. 8. WORLDWIDE FINANCIAL SCENARIO There’s a lot of money to be made in the coming year, say these practitioners from different areas of finance, offering just a few notes of caution. Many see the baby boomer generation accumulating capital, lugging around hefty pension plans and generally looking for good homes for their money. The greatest way to not make money is to go in the market and get out.... The truth is that the best thing is to stay in. Investors need to be cautious about when the top is the top. The economy seems healthy in general as our standard of living keeps going up. However there seems to be less “unbridled optimism, like the 1999 environment,” where everyone jumped into investing. That was good, because it meant “a broader and healthier market.” Contrarily, a year or two of economic slowdown is good too as it results not only in the elimination of elements that are too bulky, but also serves the purpose of bringing about the right time for investment with the interest rates at the rock bottom. There are difficulties with actively managing a portfolio as the dynamic in marketplaces does not change with active stock picking become easier until the central bank gives a clearer idea which way it is going. Furthermore, average citizens face lots of challenges, including a slowing housing market and slow wage growth. The bottom line is that the party continues, and it looks good on most fronts. However, index funds are outperforming smart money managers across all metrics. The real challenge comes from the fact that consumers are pushing credit cards above historical levels and that competition from certain emerging economies will continue to accelerate. Most financial analysts believe that the monumental changes in how content is produced and consumed would offer at least another five to ten years of investment opportunity, perceived alongside of a strong entrepreneurial surge coming from India and China. 8
  9. 9. SWOT ANALYSIS (limited analysis) STRENGTHS WEAKNESSES 1- Being a middle level executive in Multinational Investment Bank, the allocated budget is high. 1-Limited expertise in large-scale, across- 2- A diverse range of experience in visiting various countries which are a part of the target market. the-globe, investment banking. 2- Lack of financial budget and HR in the early years of the project. 3- Language and culture affinity with the countries falling under the domain of the target market. 4- Personal links with a fair amount of both corporate and consumer banking prospect clients. OPPORTUNITIES THREATS 1- Lucrative investment opportunities both at private enterprise and public private partnership projects. 1- Ominous worldwide recession may cause a shortfall in the yearly targets. 2- A high rate of retirees from executive positions who are willing to invest safely in fixed income accounts 3- High rate of leasing (hire purchase) prospects as the standard of living rises among consumer banking clients. 4- High rate of prospect corporate customers willing to avail venture capital, with a boom in the economic activity of the target market of emerging markets, with increasingly lax government regulations. 2- Most of the countries falling in the target market have an inadequate pro democratic and free market oriented track record, which may cause in abrupt policy changes detrimental for investment. 3- One of the most competitive and volatile markets, which could cause problems to gain a foothold in the targeted markets. 4- A highly conscious brand of consumers who cannot easily be convinced about the USP of a service on offer. 9
  10. 10. COMPETITION ANALYSIS As mentioned earlier, the investment banking market and for that case the consumer banking market too is extremely volatile and the competition is cut-throat to say the least. It would take a gradual move towards meeting and then exceeding the targeted deposits and returns of $30 million per year. In addition, a multi-pronged service portfolio, designed to diversify risk yet make reasonable and realistic returns within the budget parameters would be required. This would become more evident by skimming through some of the major players in operational completion of my target market. GOLDMAN SACHS The Goldman Sachs Group, Inc., or simply Goldman Sachs (NYSE: GS), is the leading global investment banking, securities and investment management firm. Goldman Sachs was founded in 1869, and is headquartered in the Lower Manhattan area of New York City at 85 Broad Street. Goldman Sachs has offices in financial centers such as New York City, Philadelphia, London, Boston, Chicago, Miami, Houston, Dallas, Los Angeles, San Francisco, Frankfurt, Zürich, Paris, São Paulo, Bangalore, Mumbai, Hong Kong, Beijing, Mexico City, Singapore, Salt Lake City, Sydney, Dubai, Madrid, Milan, Calgary, Melbourne, Auckland, Seoul, Tokyo, Taipei, Moscow, Tel-Aviv, Toronto, and Monaco. The firm acts as a financial advisor and money manager for corporations, governments, and wealthy families around the world. Goldman offers its clients mergers & acquisitions advice, underwriting services, asset management, and engages in proprietary trading, and private equity deals. It is a primary dealer in the U.S. Treasury securities market. MERRILL LYNCH Merrill Lynch & Co., Inc. (NYSE: MER TYO: 8675) is a global financial services firm. Through its subsidiaries and affiliates, the company provides capital markets services, investment banking and advisory services, wealth management, asset management, insurance, banking and related financial services worldwide. Merrill Lynch is headquartered in New York City, and occupies the entire 34 stories of the Four World Financial Center building in Manhattan. CITI GROUP Citigroup Inc., operating as Citi, is a major American financial services company based in New York City, formed from the merger of Citicorp and Travelers Group on April 7, 1998. The company employs approximately 358,000 staff around the world, and holds over 200 million customer accounts in more than 100 countries. It is the world's largest bank by revenues as of 2008. It is a primary dealer in US Treasury securities and its stock has been a component of the Dow Jones Industrial Average since March 17, 1997. FALCOM FINANCIAL SERVICES 10
  11. 11. FALCOM is an investment bank built with unmatched financial strengths, state of the art technology and top tier talent. As an active member of both global and local communities the goal is to challenge conventions using the power of ideas. FALCOM’s client centric managers pursue strategic opportunities using research, indepth local analysis to create an experience that is tangible and result orientated. FALCOM claims to utilize their resources to understanding and anticipating tomorrow’s needs to future proof investments and deliver “performing ideas”.. GS CAPITAL PARTNERS GS Capital Partners is the private equity arm of Goldman Sachs. It has invested over $17 billion in the 20 years from 1986 to 2006. One of the most prominent funds is the GS Capital Partners V fund, which comprises over $8.5 billion of equity. On April 23, 2007, Goldman closed GS Capital Partners VI with $20 billion in committed capital, $11 billion from qualified institutional and high net worth clients and $9 billion from the firm and its employees. GS Capital Partners VI is the current primary investment vehicle for Goldman Sachs to make large, privately negotiated equity investments. CREDIT SUISSE The Credit Suisse Group (SWX: CSGN, NYSE: CS) is a financial services company, headquartered in Zurich, Switzerland. Credit Suisse was founded by Alfred Escher in 1856 under the name Schweizerische Kreditanstalt (SKA, Swiss Credit Institution). The bank is organized into three divisions, Investment Banking, Private Banking, and Asset Management. Shared Services, which includes functions such as IT and legal/compliance, encompasses all three major areas. JPMORGAN CHASE GP Morgan Chase & Co. (NYSE: JPM) is one of the oldest operating financial services firms in the world. The company, headquartered in New York City, is a leader in investment banking, financial services, asset and wealth management and private equity. With assets of $1.7 trillion, JPMorgan Chase is currently the second largest banking institution in the United States, behind Citigroup. The hedge fund unit of JPMorgan Chase is the largest hedge fund in the United States with $34 billion in assets as of 2007. Formed in 2000 when Chase Manhattan Corporation acquired J.P. Morgan & Co., the firm serves millions of consumers in the United States and many of the world's most prominent corporate, institutional and governmental clients. The Chase brand named is used for credit card services in the United States and Canada and the bank's retail banking activities in the United States. The JPMorgan brand is used by the Investment Bank as well as the Wealth & Asset Management Group's partially merged Private Bank and Personal Client Services divisions. Fiduciary activity within W&A is done under the aegis of JPMorgan Chase Bank, N.A. -- the actual trustee. The newly acquired Bear Stearns private client group is expected to operate under the name "Bear Stearns Wealth Management, a JPMorgan Company" within the Wealth & Asset Management structure. UBS AG 11
  12. 12. UBS AG (NYSE: UBS; SWX: UBSN; TYO: 8657) is a diversified global financial services company, with its main headquarters in Basel & Zürich, Switzerland. It is the world's largest manager of private wealth assets, "the world's biggest manager of other people's money" and is also the second-largest bank in Europe, by both market capitalisation and profitability. UBS has a major presence in the U.S., with its American headquarters located in New York City's Manhattan borough, (Investment Banking); Weehawken, New Jersey (Private Wealth); and Stamford, Connecticut (Capital Markets). UBS's retail offices are located throughout the United States, and in over 50 other countries. UBS is an abbreviation, which originated from a predecessor firm, the Union Bank of Switzerland, however UBS ceased to be considered a representational abbreviation after its 1998 merger with Swiss Bank Corporation. UBS's global business groups are Private Banking, Investment Banking, and Asset Management. Additionally, UBS is one of the leading providers of retail banking and commercial banking services in Switzerland. Overall invested assets are 3.265 trillion Swiss francs (CHF), shareholders' equity is 47.850 billion CHF and market capitalization is 151.203 billion CHF by end of 2Q 2007. CHINA INTERNATIONAL CAPITAL Established in 1995 as a strategic partnership among prestigious Chinese and international financial institutions and corporations, CICC is the first joint venture investment bank in China and has a registered capital of US$125 million. Headquartered in Beijing ,CICC has established offices in strategic in china, such as HongKong, Shanghai and Shenzhen. With such a domestic service network close to the Chinese stock exchanges, CICC is well positioned to feel the pulse of the capital market and best serve its clients in China. CICC’s business has been expanding since its incorporation. Oday its core business departments include Investment banking, Capital Markets, Sales & Trading, Research, Fixed Income, Asset Management and Private Equity. These core businesses are enhanced by internal risk control and information technology systems as well as other supporting departments. ICICI SECURITIES ICICI Securities Ltd is a premier Indian Investment Bank, with a dominant position in its core segments of its operations - Corporate Finance including Equity Capital Markets Advisory Services, Institutional Equities, Retail and Financial Product Distribution. With a full-service portfolio, a roster of blue-chip clients and performance second to none, we have a formidable reputation within the industry. Today ICICI Securities is among the leading Financial Institutions both on the institutional as well as retail side. 12
  13. 13. The Corporate Finance team regularly ranks highest among the leading capital markets league tables and recently topped the Prime Database League tables for funds mobilized through equity instruments in the first half of CY 07. Headquartered in Mumbai, I-Sec operates out of several locations in India. ICICI Securities Inc., the stepdown wholly owned US subsidiary of the company is a member of the National Association of Securities Dealers, Inc. (NASD). As a result of this membership, ICICI Securities Inc. can engage in permitted activities in the U.S. securities markets. These activities include Dealing in Securities and Corporate Advisory Services in the United States and providing research and investment advice to US investors. ICICI Securities Inc. is also registered with the Financial Services Authority, UK (FSA) and the Monetary Authority of Singapore (MAS) to carry out Corporate Advisory Services and Dealing in Securities. BANCO ITAÚ Banco Itau Holding Financeira is a financial holding company. Through its subsidiaries and associated companies, Co. is engaged in commercial and investment banking with operations in demand, time and special remunerated deposits and savings accounts, consumer loans, housing loans and other real estate financing; export and import financing; foreign exchange operations; leasing; consumer credit; funds management including domestic and foreign fixed-yield and commodities; brokerage and underwriting; Mastercard and Diners Club credit cards management; corporate banking and portfolio management. SAMBA FINANCIAL GROUP Samba is a leading financial services group in the Kingdom of Saudi Arabia, providing world class service to meet the financial needs of its consumer, corporate and institutional customers. Samba achieves this through providing world-class advice, products and customer service, investing in its staff, contributing to its communities and delivering superior returns to its investors. It is part of Samba's strategy to achieve geographical diversification to expand the business and enhance shareholder returns. Samba continues to expand its business into other markets in the GCC and Asia, focusing on the excellence of its products and services. Samba considers mergers and acquisitions as one of the means of expanding its operations and footprint. Acquisitions have helped Samba to increase its reach, fine tune service delivery and achieve synergies across client segments. CONCLUSION Businesses mentioned above are only a few of the plethora of investment banks operating in our target market. In an era of intense competition, it is imperative not only to integrate vigilant information systems with cutting-edge technology to be ahead of the competition, but also to realistically pursue Unique Selling Points (USPs) in order to gain consumer confidence and ensure a long-term business relationship based on mutual trust and ethical soundness. 13
  14. 14. TARGET MARKET AND PRODUCT POSITIONING The target market for this project is proposed to be multi-dimensional, keeping in view the volatile and demanding nature of both corporate and consumer banking. A brief outlook is provided below: TARGET MARKET PREMIUM CONSUMER BANKING (20% OF REVENUE GENERATION) 1- Retirement wealth management 2- Inheritance wealth management 3- Fixed Deposit Accounts 4- Equity advice services INVESTMENT BANKING (80% OF REVENUE GENERATION) 1- Corporate Account management 2- Corporate insurance policies 3- Corporate leasing of equipment 4- Venture capital @ 80:20 ratio Most of the operations would be targeted towards corporate consumers with an obvious tilt towards investment banking. This provides for the rule of thumb stating that 80 % return comes from 20% customers and, on average, the corporate customers are more likely to be the big guns of investment and account holding. Moreover, the lending-borrowing interest rate differential varies from country to country, with a high of about 10 % points in favour of the bank in Pakistan. This and other loopholes in the monetary system of the target market would be stretched to the limit by bending the rules, short of breaking them. As far as the positioning of the services is concerned, it would be advisable to use a two-pronged strategy, vis-à-vis, Premium and convenient consumer banking, whereas professional and unique corporate banking. The importance of a USP in this context cannot be understated as it becomes the competitive edge. Brief positioning maps of the two areas of operation follow on the next page: 14
  15. 15. POSITIONING MAP OF THE PREMIUM CONSUMER BANKING SERVICES PREMIUM Equity advice Retirement wealth management Inheritance wealth management Fixed Deposit Accounts CONVENIENT STRESSFUL ECONOMY POSITIONING MAP OF THE INVESTMENT BANKING SERVICES ADDITIONAL PERKS corporate insurance Corporate accounts LONG-TERM DEALS SHORT-TERM DEALS Equipment leasing Venture capital NO BELLS AND WHISTLES 15
  16. 16. RATIONALE FOR SELECTION OF PROPOSED GEOGRAPHICAL TARGET MARKETS PAKISTAN Pakistan’s sustained economic growth of 7% has prompted many Multinational banks to establish an economic link by opening branches in the country. Analysts believe that if Pakistan maintains its economic growth momentum, it will become an economic powerhouse in the region, attracting substantial foreign investment. Furthermore, the reforms introduced by the Pakistani government have been widely appreciated. The financial sector has significantly contributed to the overall growth of the Pakistani economy and led to the country’s improved international credit rating. The recent successful launching of Pakistan’s sovereign bond is seen as a manifestation of investors’ confidence in Pakistan’s policies. NBP, HBL, Muslim Commercial Bank and Allied Bank of Pakistan have shown high growth in recent years. It is expected that consumer lending will continue to gather momentum as more banks focus their energies on gaining a share of the market, which is largely unpenetrated. Pakistan is tipped by foreign investment bankers as a potential hotbed of equity issuance activity because of its high economic growth and the government’s aggressive privatization policy. The $129 billion Pakistan economy is expected to expand 8% annually over the next five years. Foreign portfolio investment in the local bourses has also shown an upward trend, signifying an increasing foreign interest in the country’s capital markets. Foreign portfolio investment, as represented by the Special Convertible Rupee Account, showed a net inflow of $104 million in January 2008 alone; an inflow of $23 million was recorded on just one day - January 31. Interest exhibited by foreign companies in buying stakes in Pakistani companies has also been well received by the market through the country’s privatization program. As in other Asian markets, financial globalization in Pakistan has led to increased liquidity and lowered the cost of capital, thus leading to better allocation of financial resources and more productive investments. It has also spurred competition and led to a new age of financial-sector development by improving screening of credit risks, monitoring of borrower activities, diversification of financial portfolios and substantially increasing the outreach to customers. Foreign financial institutions have also brought about improvements in the system by bringing in highly diversified financial tools and best practices from more developed economies. Pakistan’s banking-sector boom has attracted considerable interest at foreign banks. The share of foreign banks has reached 11.4% of total banking-sector assets in Pakistan. Foreign banks’ share in profitability is about 11% of total banking-sector profits. Pakistan has assured that it will provide all possible support and facilities to foreign banks in the country. 16
  17. 17. Pakistan’s financial sector is attracting heavy foreign investment and is among the top three sectors with respect to foreign inflows, reaching a mammoth $572.8 million during July-February in fiscal year 2007. The government intends to play the role of regulator and facilitator in the financial sector, sustaining the momentum of reforms so far achieved through the maintenance of a growth-enabling environment INDIA With the Indian economy moving on to a high growth trajectory, consumption levels soaring and investment riding high, the Indian banking sector is at a watershed. Further, as Indian companies globalize and people of Indian origin increase their investment in India, several Indian banks are pursuing global strategies, The industry has been growing faster than the real economy, resulting in the ratio of assets of commercial banks to GDP increasing to 92.5 per cent at end-March 2007. The Indian banks have also been doing exceptionally well in the financial sector with the price-to-book value being second only to china, according to a report by Boston Consultancy Group. Consequently, the degree of leverage enjoyed by the banking system, as reflected in the equity multiplier (measured as total assets divided by total equity), has increased from 15.2 per cent at end March 2006 to 15.8 per cent at the end of March 2007. A burgeoning economy, financial sector reforms, rising foreign investment, favorable regulatory climate and demographic profile has led to India becoming one of the fastest growing banking markets in the world. The overall banking industry's business grew at about 20 per cent from US$ 469.4 billion as of March 2002, to US$ 1171.29 billion by March 2007. Aggregate bank deposits of banks increased by US$ 129.26 billion (22.1 per cent) at the end of March 2007 over the corresponding in 2006. It further increased by 21.2 per cent to US$ 161.47 billion as at end-March 2008 over the corresponding period in 2007. While aggregate demand deposits increased by 19.2 per cent, aggregate time deposits increased by 21.6 per cent in the same period, indicating migration from small savings schemes of the Government. Similarly, aggregate deposits of the scheduled commercial banks (SCB) grew by 17.8 per cent and 24.6 per cent in 2005-06 and 2006-07. In 2007-08, aggregate deposits of SCBs have increased by 22.2 per cent in absolute terms to US$ 136.55 billion, against US$ 118.30 billion in 2006-07. Simultaneously, loans and advances of SCBs rose by over 30 per cent (i.e. 33.2 per cent in 2004-05, 31.8 per cent in 2005-06 and 30.6 per cent in 2006-07) in the last three financial years, underpinned by the robust macroeconomic performance. The growth has continued in the current fiscal with non-food credit by SCBs increasing by 22.3 per cent, year-on-year, as on March 31, 2008. 17
  18. 18. Also, the banking sector has been doing exceedingly well on the financial front. For example, in the quarter ended March 2008, while the interest income of the 18 public sector banks and seven private banks rose by 28.4 per cent, the net profit rose at much higher rate of 33.61 per cent. CHINA The ongoing development of China's financial system will play a critical role in the country’s effort to narrow social disparities and pursue balanced growth. Reforming the financial system would increase the rate of GDP growth and help spread China’s new wealth more evenly. If the reforms directed additional funds to private companies — China's new growth engine — the economy would generate significantly higher returns for the same level of investment and GDP would rise. Such a shift will stimulate mass job creation in the strongest areas of China's economy and increase tax revenues to finance social programs. After more than a quarter century of reform and opening to the outside world, by 2005 China’s economy had become the second largest in the world after the United States when measured on a purchasing power parity (PPP) basis. The government has a goal of quadrupling the gross domestic product (GDP) by 2020 and more than doubling the per capita GDP. Financial reform in China's banking sector include the introduction of leasing and insurance, and operational boundaries are being slowly eroded to promote competition for customers who are now permitted to choose banks as well as hold accounts in more than one bank. Banking reform was initiated in China in 1994, and the Commercial Banking Law took effect in July 1995. The aims of these actions were to strengthen the role of the central bank—the People’s Bank of China—and to allow private banks to be established. The People’s Bank of China was established in 1948. It issues China’s currency and implements the nation’s monetary policies. Since the inception of the "open door policy", a number of foreign banks have been permitted to open their doors in major cities in China. However, these are largely representative branches, with only a few being permitted to carry out branch functions in Shanghai and Shenzhen. Their participation in China's financial system has been limited, but as China starts to borrow more from abroad, their role may become greater in the future. When first permitted in the mid-1980s, foreign banks were restricted to designated cities and could deal only with transactions by foreign companies in China. After those restrictions were loosened following China’s accession to the World Trade Organization in 2001, some foreign banks have been allowed to provide services to local residents and businesses. In 2004 there were some 70 foreign banks with more than 150 branches in China. 18
  19. 19. China also obtains foreign capital through foreign loans, foreign direct investment (FDI), and other investment by foreign businesses. Since 1980 foreign businesses from more than 170 countries and regions have invested in Chinese joint-venture enterprises. Most joint-venture activities are located in coastal cities and increasing numbers in inland cities as well. Some 300 of the 500 top transnational companies in the world have invested in China, and foreign investments have become an important capital source for China’s economic development. In 1999 FDI totaled US$40.3 billion. Between 1979 and 1999, cumulative FDI totaled US$305.9 billion, US$40.3 billion of which was invested in 1999 alone. In that year, China had approved the establishment of 342,000 foreign-funded enterprises, more than 100,000 of which have gone into operation. Contracted FDI reached nearly US$82.8 billion in 2002, US$115 billion in 2003, US$153.48 in 2004, and US$130.33 billion in the first nine months of 2005. Analysts say the overall impact on foreign direct investment would be limited due to China's relatively cheap labor and the promise of a huge market. THE MIDDLE EAST The UAE banking sector continues to be exposed to a long-anticipated downturn in the real estate sector with a 23 per cent exposure in the "personal loans for business and consumption" segment, analysts have warned. This is despite the fact that mortgages still account for a relatively small part of bank loan portfolios in the country, Kuwait-based Global Investment House said in a report released last week. UAE banks have benefited from the rapid economic expansion with assets and profits increasing by 43.4 and 23.2 per cent, respectively, in 2007. The return on equity (ROE) at 21 per cent for the year too has improved over the 18.2 per cent reported in the previous year. The return on assets (ROA) has come down marginally to 2.0 per cent at the end of 2007 from 2.2 per cent recorded in the previous year, the Kuwait-based investment bank said. The banking sector's balance sheet continues to remain strong with the regulatory capital-assets ratio (CAR) at 14.23 per cent at the end of September 2007. "There are also concerns that the UAE banks may be heavily exposed to a longanticipated downturn in the real estate sector . "Although mortgages still account for a relatively small part of bank loan portfolios (7.8 per cent at the end of September 2007), the indirect exposure (personal loans for business and consumption purposes comprising 22.7 per cent of the total credit) could be significant," the report said. The UAE banking sector continues to grow as a result of the relatively low interest rate environment, high oil prices and a flourishing economy, Global's analysts wrote. 19
  20. 20. "The UAE has a remarkably high number of banks to serve a population of around 4.5 million and an economy with an annual GDP of about $190 billion (Dh698bn). "As of September 2007, UAE had 22 local banks, 27 foreign banks, two specialised banks and around 65 representative offices of other foreign banks." The total assets of banks operating in the country have grown by 43.4 per cent to reach Dh1,232.5bn at the end of 2007, against Dh859.6bn at the end of 2006, making it the largest among the GCC countries. This has come on the back of a strong year-on-year growth of 34.7 per cent reported at the end of 2006. Banking assets have grown at a compound annual growth rate, or CAGR, of 35.4 per cent in the four years from 2003 to 2007. However, foreign assets of the banking sector witnessed a decline of 1.2 per cent in the first nine months of 2007 after having increased by 32.5 per cent to Dh231.94bn in 2006. Foreign liabilities increased by 37.8 per cent as at the end of September 2007 to reach Dh244.9bn. "This has come on the back of a massive increase of 108.5 per cent recorded in 2006. As a result, the UAE banking sector has become a net borrower with net foreign liabilities of banks standing at Dh15.6bn as compared to net foreign assets of Dh54.3bn at the end of 2006 and signifies the increased borrowing by UAE banks from the external market," Global said. "Banks increasingly relied on foreign borrowing, at longer maturities and lower rates than available in the domestic market, to fund the strong growth of credit. Although potentially increasing their exposure to exchange rate risk, these foreign borrowings have allowed banks to better match the duration of their liabilities and assets, thereby reducing their sensitivity to interest rate risk." BRAZIL & ARGENTINA THE stock markets of Argentina and Brazil staged startling comebacks in the first month of 1996, and they have now recovered all the losses suffered after stocks were dragged down by Mexico's financial crisis. In Buenos Aires, where the Merval index has risen 5.7 percent since Jan. 1, the rally is being fueled by local investors, mainly large retirement funds that have acquired new capital, and renewed faith at home and abroad that Argentina will not devalue its currency as Mexico did so fatefully in December 1994. In Sao Paulo, Brazil, where the Bovespa index is up 22.1 percent since New Year's, the boom is being driven by foreign bargain hunters and growing optimism over Brazil's prospects for growth and lower interest rates this year. After erratic trading, heavy losses, capital flight and overall uncertainty in 1995, the sharp rise in Argentine and Brazilian stocks demonstrates new confidence in these two emerging markets. Stockbrokers and market analysts said they expected the rallies to continue, especially after the recent drop in United States interest rates. 20
  21. 21. "The January rally was not a fluke, and I expect it to continue this year because investors are convinced of Argentina's stability and potential for growth," said Christopher Eccelstone, an analyst for Interacciones Research, based in Buenos Aires. "I only see the market going up from here, perhaps with a few minor glitches along the way." A big contributor to the bull market seen by Mr. Eccelstone would be Argentina's retirement funds, which are looking to increase yields by investing in equities. Mr. Eccelstone predicted that Argentine retirement funds, which now have about 6 percent of their $2.49 billion in assets invested in the stock market, could raise their equity position to 25 percent over the next two years. But Argentina, still struggling to overcome a deep recession brought on by the Mexico currency crisis, desperately needs foreign investment to finance growth in its stock market and economy and to meet its debt payments. The recession wiped away Argentina's growth last year and led to record levels of unemployment. Many economists and analysts said foreign investors were again interested in Argentina, especially because the country had made good on its promise not to devalue its currency and to maintain its convertibility plan, which pegs the Argentine peso one-to-one with the dollar. Foreign investors have also been encouraged by a recent agreement between President Carlos Saul Menem and Finance Minister Domingo Cavallo to stop the public bickering that has raised uncertainty over the continuation of policy changes that have brought growth and stability to the economy. "The key is foreign investors in Argentina," said Luis Corsiglia, a well-known broker here. "We need an inflow of capital from abroad, and we are starting to see a return of many foreigners who were scared away last year." Mr. Corsiglia, like many other brokers and economists, is predicting 3 to 5 percent economic growth for Argentina this year. He also expects the Merval index to reach 700 this year, for a one-year gain of nearly 35 percent. STOCKBROKERS are recommending Argentine stocks in the banking and utility sectors, including Banco Frances, Banco de Galicia, Telefonica, Telecom Argentina and the oil company YPF. But brokers said the performance of Argentina's stock market would depend heavily on the ability of the Government to control costs and to institute the next round of economic policy changes in the banking, health care, labor and judicial systems and in the provincial governments. In Brazil, meanwhile, foreign investors hungry for bargains poured into its stock market during January and the appetite is expected to continue. These investors are showing keen interest in Brazilian private-sector stocks in areas like steel, banking, paper and pulp, and consumer durables. Those areas will probably benefit most from expected growth in the economy and a reduction in interest rates. "Foreign investors are coming into Brazil because there's a general feeling that some parts of the market are cheap and attractively priced, especially the private sector," 21
  22. 22. said Jay Pelosky Jr., director of research and strategy for Morgan Stanley Latin America. "There is also a sense that the economy is likely to pick up in 1996 and that interest rates will come down dramatically." Morgan Stanley is advising its clients to maintain a 60-40 split between private- and public-sector stocks in Brazil. State enterprises like the oil company Petrobras, the electricity utility Electrobras and the phone company Telebras were the best performers last year. "Capital is coming back into the markets and although there may be some bad political news that leads to selling pressure, it will be minimal," Mr. Pelosky said. "Some people still have a bear-market psychology, but we recommend that people get in and stay in." Wayne Perkins, director of research for Banco Norchem F.A., Chemical Bank's investment banking affiliate in Brazil, said his strategy was to look for stocks that might not have stunning results in the short term but whose prices were so low as to discount potential problems. "For those who have a strong stomach for volatility and an appetite for strong returns, Brazil is a good place to invest," Mr. Perkins said. "I believe this is the best macroeconomic political situation for Brazil in the last 30 to 40 years." SOUTH AFRICA The South African banking industry is experiencing significant growth, especially in terms of banking assets. During 2003-2006, asset growth recorded in the South African banking industry was higher than that witnessed in the global banking industry (though it was lower in 2004), according to “South African Banking Sector Analysis”, a new research report. Foreign Direct Investment (FDI) plays a considerable role in the development of South Africa’s economy. The number of multinationals with direct investments or employees in South Africa is increasing fast. Additionally, EU accounted for approx 66% of net foreign investment in South Africa in 2003 and 2004, and in 2005, EU’s share in the total assets held by foreigners in South Africa amounted to around 60%. The YOY banking industry deposits in South Africa increased by 24.4% in 2006 as compared to a 19.8% YOY hike in 2005. During 2002-2006, banking loans grew at a CAGR of 18.03% due to lower interest rate and rising consumer expenditure in South Africa. The number of credit card purchases increased at a CAGR of 13.18% between 2002 and 2006. Rising disposable income, along with other factors, will drive the South African banking industry deposits to grow at a projected CAGR of 4.8% by 2011. 22
  23. 23. During 2007-2011, net interest income of the South African banking industry is expected to surge at a CAGR of 13.19% due to rising interest margins and soaring return on banking investments. 23
  24. 24. FINANCIAL ANALYSIS BUDGETING TITLE Year 1 ($m) Year 2 ($m) Year 3 ($m) Travelling Boarding and Lodging Meals Fuel Communication Office Accessories Stationery Salary Package Gifts for Prospect clients Misc. 0.5 1 0.05 0.1 0.01 0.001 0.1 1 1 1 1.0 2 1.0 0.5 0.02 0.0015 0.2 1.2 1.5 1 1.5 3 1.5 1.0 0.04 0.002 0.3 1.5 1.8 1 Grand Total 4.661 8.4215 11.642 12 11.642 10 8 8.4215 6 4 4.661 Year 1 Year 2 Year 3 2 0 Budgets 24
  25. 25. COLLECTIONS AND DEPOSITS Consolidated forecast Title Year 1 ($m) Year 2($m) Year 3($m) CONSUMER BANKING SECTOR Retirement wealth management Inheritance wealth management Fixed Deposit Accounts Equity advice services Subtotal (A) 1 0.5 0.5 0.025 2.025 1.7 1.8 1.2 0.5 5.2 2.6 3.2 3.4 1.25 10.45 Corporate Account management Corporate insurance policies Corporate leasing of equipment Venture capital return @ 80:20 ratio Subtotal (B) 6 2 5 3 9 3.4 4.5 5 12 6.2 4 8 16 21.9 30.2 Grand Total (A + B) 18.025 27.1 40.65 CORPORATRE BANKING SECTOR Notes: 1- Corporate Account minimum opening balance = $1m (Yr1; 3 accounts, Yr2; 9 accounts; Yr3; 12 accounts) 2- Interest payable on each account and all kinds of service charges are credited/debited and compounded to the respective accounts. contribution as a % of total 100% 80% Corporate banking sector Consumer banking sector 60% 40% 20% 0% Year 1 Year 2 Year 3 Notes: 1- The contribution of consumer banking section has constantly been on a rise, but the absolute value of total collections has increased. 25
  26. 26. 2- The targeted level of $30 million in collection per year has gradually been met and exceeded in year 3 26
  27. 27. EXPENDITURE Consolidated forecast Title Year 1 ($m) Year 2($m) Year 3($m) Travelling Boarding and Lodging Meals Fuel Communication Office Accessories Stationery Salary Package Gifts for Prospect clients Misc. 0.4 1.2 0.1 0.3 0.05 0.001 0.1 1 1.7 1 5.851 Grand Total 1.3 1.8 1.2 0.8 0.08 0.0018 0.2 1.2 2.5 1 10.08 2.0 3.5 1.4 1.5 0.1 0.002 0.3 2.5 1.8 1 14.1 Expenditure over 3 years 15 14.1 10.08 $m 10 5 Expenditure 5.851 0 Year 1 Year 2 Year 3 time 27
  28. 28. SELECTIVE RATIO ANALYSIS PERCENTAGE OF COLLECTIONS TO EXPENDITURE Formula Year 1 Year 2 Year 3 (Collections ÷ Expenditure) x 100 308.1% 269% 289% 310 300 Percentage 290 280 270 % of collection to expenditure 260 250 240 Year 1 Year 2 Year 3 Time Note: The percentage dropped in year 2 due to inflationary trends, which was controlled internally by rationalizing indirect cost. As a result, an upward trend is seen again in year 3. EXPENDITURE VARIANCE Title Total Budget per expenditure item over 3 years Average Actual Expense over 3 years Average Variance ($m) Travelling Boarding and Lodging Meals Fuel Communication Office Accessories Stationery Salary Package Gifts for Prospect clients Misc. 3.0 6.0 2.55 1.6 0.07 0.0045 0.6 3.7 4.3 3.7 6.5 2.7 2.6 0.23 0.0048 0.6 4.7 6.0 - 0.7 - 0.5 - 0.15 - 1.0 - 0.16 - 0.003 Nil - 1.0 - 1.7 3 24.72 3 30.03 Nil - 5.31 Grand Total 28
  29. 29. BIBLIOGRAPHY 1- Investment Banking: Past, Present, and Future by Alan D. Morrison, Saïd Business School, University of Oxford 2- The Future of Financial Markets by William J. Wilhelm, Jr., McIntire School of Commerce, University of Virginia 3- Financial Accounting by Meigs and Meigs, 3 rd edition, Causway Pulblications. 4- International Marketing by Phillip Kotler et. el., 4 th edition, Longman Publishers 5- http/www.wikipedia.com 29
  30. 30. ANNEXURE 30
  31. 31. A BRIEF HISTORY OF MODERN BANKING Modern Western economic and financial history is usually traced back to the coffee houses of London. The London Royal Exchange was established in 1565. At that time moneychangers were already called bankers, though the term "bank" usually referred to their offices, and did not carry the meaning it does today. There was also a hierarchical order among professionals; at the top were the bankers who did business with heads of state, next were the city exchanges, and at the bottom were the pawn shops or "Lombard"'s. Some European cities today have a Lombard street where the pawn shop was located. After the siege of Antwerp trade moved to Amsterdam. In 1609 the Amsterdamsche Wisselbank (Amsterdam Exchange Bank) was founded which made Amsterdam the financial centre of the world until the Industrial Revolution. Banking offices were usually located near centers of trade, and in the late 17th century, the largest centers for commerce were the ports of Amsterdam, London, and Hamburg. Individuals could participate in the lucrative East India trade by purchasing bills of credit from these banks, but the price they received for commodities was dependent on the ships returning (which often didn't happen on time) and on the cargo they carried (which often wasn't according to plan). The commodities market was very volatile for this reason, and also because of the many wars that led to cargo seizures and loss of ships. Around the time of Adam Smith (1776) there was a massive growth in the banking industry. Within the new system of ownership and investment, the State's intervention in economic affairs was reduced and barriers to competition were removed. In the 1970s, a number of smaller crashes tied to the policies put in place following the depression, resulted in deregulation and privatization of government-owned enterprises in the 1980s, indicating that governments of industrial countries around the world found private-sector solutions to problems of economic growth and development preferable to state-operated, semi-socialist programs. This spurred a trend that was already prevalent in the business sector, large companies becoming global and dealing with customers, suppliers, manufacturing, and information centers all over the world. Global banking and capital market services proliferated during the 1980s and 1990s as a result of a great increase in demand from companies, governments, and financial institutions, but also because financial market conditions were buoyant and, on the whole, bullish. Interest rates in the United States declined from about 15% for two-year U.S. Treasury notes to about 5% during the 20-year period, and financial assets grew then at a rate approximately twice the rate of the world economy. Such growth rate would have been lower, in the last twenty years, were it not for the profound effects of the internationalization of financial markets 31
  32. 32. especially U.S. Foreign investments, particularly from Japan, who not only provided the funds to corporations in the U.S., but also helped finance the federal government; thus, transforming the U.S. stock market by far into the largest in the world. Nevertheless, in recent years, the dominance of U.S. financial markets has been disappearing and there has been an increasing interest in foreign stocks. The extraordinary growth of foreign financial markets results from both large increases in the pool of savings in foreign countries, such as Japan, and, especially, the deregulation of foreign financial markets, which has enabled them to expand their activities. Thus, American corporations and banks have started seeking investment opportunities abroad, prompting the development in the U.S. of mutual funds specializing in trading in foreign stock markets. Such growing internationalization and opportunity in financial services has entirely changed the competitive landscape, as now many banks have demonstrated a preference for the “universal banking” model so prevalent in Europe. Universal banks are free to engage in all forms of financial services, make investments in client companies, and function as much as possible as a “one-stop” supplier of both retail and wholesale financial services. Many such possible alignments could be accomplished only by large acquisitions, and there were many of them. By the end of 2000, a year in which a record level of financial services transactions with a market value of $10.5 trillion occurred, the top ten banks commanded a market share of more than 80% and the top five, 55%. Of the top ten banks ranked by market share, seven were large universal-type banks (three American and four European), and the remaining three were large U.S. investment banks who between them accounted for a 33% market share. This growth and opportunity also led to an unexpected outcome: entrance into the market of other financial intermediaries: nonbanks. Large corporate players were beginning to find their way into the financial service community, offering competition to established banks. The main services offered included insurances, pension, mutual, money market and hedge funds, loans and credits and securities. Indeed, by the end of 2001 the market capitalisation of the world’s 15 largest financial services providers included four nonbanks. In recent years, the process of financial innovation has advanced enormously increasing the importance and profitability of nonbank finance. Such profitability priorly restricted to the nonbanking industry, has prompted the Office of the Comptroller of the Currency (OCC)to encourage banks to explore other financial instruments, diversifying banks' business as well as improving banking economic health. Hence, as the distinct financial instruments are being explored and adopted by the banking and nonbanking industries, the distinction between different financial institutions is gradually vanishing. 32
  33. 33. QUESTIONNAIRE FOR POTENTIAL CLIENTS FOR CONSUMER BANKING How many family members are typically in your customers' households? _____________________________________________________________________ What hobbies and/or sports do your customers enjoy? _____________________________________________________________________ What is their lifestyle? _____________________________________________________________________ What types of entertainment do they like? (movies, theater, opera, etc.) _____________________________________________________________________ What publications do they subscribe to? _____________________________________________________________________ How else do they enjoy spending their free time? _____________________________________________________________________ FOR CORPORATE BANKING What growth stage is the company in? (start-up, growth, stable or decline) _____________________________________________________________________ What is the type of workforce they employ? _____________________________________________________________________ Who in the business are you selling to? What department do they represent, what management level? _____________________________________________________________________ 33
  34. 34. Are there common characteristics of a certain department…marketing, IT, human resources, finance that you can identify? Are there common characteristics of a management level that you can identify… entrepreneur, CEO, line manager, store manager? _____________________________________________________________________ What is the company's culture? _____________________________________________________________________ What is the management style? _____________________________________________________________________ What trade associations do they belong to? _____________________________________________________________________ What publications do they subscribe to? _____________________________________________________________________ What factors are most important to your customers Rank the order of importance of the following criteria to your target market: Very Important Somewhat Important Not Important - Price - Quality of products or services - Brand name recognition - Customer service - Broad array of services - Friendly staff attitude - Discounts and sales - Attractiveness of packaging - Convenience of store location - Store appearance - Convenience of product/service use - Guarantees/Warranties - Technical Assistance - Flexible payment terms 34

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