Mr. Lars Kalbreier Presentation


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Mr. Lars Kalbreier Presentation

  1. 1. Global Bank Outlook Outlook in Middle East 11 th May 2006 Lars Kalbreier Global Head of Equity and Alternatives Research CREDIT SUISSE PRIVATE BANKING
  2. 2. Global view: what is moving international banks? <ul><li>Globalization  Concentration, M&A activities </li></ul><ul><li> Slump of basic commissions (cheques, transfers,…) </li></ul><ul><li>Enrichment  Private banking, Asset management </li></ul><ul><li> Pressure on traditional teller banking systems </li></ul><ul><li>Growth of derivatives  lower dependence on interest rates and cycles </li></ul><ul><li> higher risk </li></ul><ul><li>IT, bank infrastructure development  higher consumer finance </li></ul><ul><li> higher IT and personnel costs </li></ul><ul><li> Positive for global banks </li></ul><ul><li>Challenges for: retail banking (commission and interest rate dependent) </li></ul><ul><li>Key divisions to benefit: Private Banking, Asset management, Investment banking </li></ul>
  3. 3. Trend on world banks will likely follow US example of past 20 years … <ul><li>The US example </li></ul><ul><li>US regional banks: +10% earnings growth p.a. in the 80s, +5% in the 90s +2% in 2000s </li></ul><ul><li>Reasons: slump of commissions, rising competition, increased sophistication of clients lack, Real end of Glass Steagall Act </li></ul><ul><li>Asset managers 10 to 15% p.a. earnings growth past 10 years, brokers +15 to +20% </li></ul><ul><li>Growth opportunities: IB & brokerage, asset managers, private banking, size (economies of scale) </li></ul><ul><li>Same likely to happen to all banks worldwide. Catalyst: regulation. US trend applied to EU in 80s and started in EM in the 90s </li></ul>
  4. 4. Sector trends: Investment banking, backed by M&A … <ul><li>M&A will likely continue in next years: </li></ul><ul><li>Saturated markets in US/Europe, economies of scale, globalization of markets, deregulation </li></ul><ul><li> International M&A toward EM target will continue </li></ul><ul><ul><li>LatAm: move well advanced </li></ul></ul><ul><ul><li>Asia: the current priority </li></ul></ul><ul><li>Gulf countries: limited so far by regulation, tomorrow the next big trend ? </li></ul>Source: Prudential Global M&A
  5. 5. … and the stronger growth of capital markets long term <ul><li>1990: 50% of world GDP = total market cap debt + equity </li></ul><ul><li>Today: 85% (US: 120%, China: 12%, India: 7%,…) </li></ul><ul><li>“ We will never look like the US capitalism” Edith Cresson, French Prime Minister, 1992  CAC40 now: 70% of French GDP </li></ul><ul><li>80% of European companies still finance needs via corporate banking, 85% of Asian companies, </li></ul><ul><li>90 to 95% of non OECD companies, against 20% got US companies </li></ul>Source: Prudential The Global Debt and Equity Market Capitalization 0 20000 40000 60000 80000 100000 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 Equities Fixed Income
  6. 6. Sector trend: Asset mgt: growth in US/EU to continue… <ul><li>Strong and regular return of equities markets </li></ul><ul><li>Rise of private pension schemes </li></ul><ul><li>Demand for risk diversification </li></ul><ul><li>Increasing complexity of financial products </li></ul><ul><li>New investment vehicle: Hedge funds </li></ul>Global Fund Management Of Conventional Assets Hedge fund size and number Source: International Financial Service, Hennessee Group LLC, Hedge Fund Research 0 200 400 600 800 1000 1200 85 90 95 96 97 98 99 00 01 02 03 04 USD bn assets Number of hedge funds Insurance Pension Mutual 0 5 10 15 20 25 30 35 40 45 50 1998 1999 2000 2001 2002 2003 2004 USD
  7. 7. … and under representation of EM makes it the next big trend <ul><li>Europe similar to the U.S. a decade ago and Asia similar to the U.S. 2 decades ago </li></ul><ul><li>Fund assets = 166% of GDP in USA, 85% non US </li></ul><ul><li> Catch up likely with more activity, liquidity, and investment confidence </li></ul>Conventional Investment Management Sources of Funds Share of global GDP OECD: 61% of GDP, 78% of funds under management Source: International Financial Services for asset mix and IMF for GDP mix 45% 12% 8% 5% 4% 2% 2% 22% 30% 5% 1% 6% 1% 5% 33% 4% 2% 11% 2% United States France Switzerland Germany Netherlands UK Other China India Japan Korea
  8. 8. Sector trend: Private banking: moving up the value chain + be local (1) <ul><li>Trend for Private Banking worldwide </li></ul><ul><li>Focus on personalization, easy of contact & navigation and revival of personal client </li></ul><ul><li>Development of a highly dedication approach with high added value integral financial services & products linked to UHNWI </li></ul><ul><li>Tailor made services, incl. Ad hoc structured products, alternative investments (hedge funds) and less liquid investment (private equity, arts,…) + trading scenario analysis, risk modelling and performance attribution managements </li></ul><ul><li>EM </li></ul><ul><li>Develop networks locally instead in large financial capitals to increase personalization and availability </li></ul><ul><li>Synergies with corporate finance (ex: sale of business  RM goes to client to offer investment ideas with the cash) </li></ul><ul><li>One Research centre / decentralized distribution networks </li></ul><ul><li> Rise of local branches, Research to be leveraged to international needs </li></ul>
  9. 9. Private banking: moving up the value chain + be local (2) <ul><li>Example of worldwide priorities: UHNWI </li></ul><ul><li>HNWI financial wealth is expected to grow by 7% p.a. and to exceed USD 40.7 trillions by 2008. The ultra-HNWI financial wealth (USD 30 millions per individual) growth is expected even to exceed the HNWI wealth growth by 2008 (Source: World Wealth report, Cap Gemini Merrill Lynch) </li></ul>Source: World Wealth Report <ul><ul><li>PB majors all streamline their UHNWI strategy based on RM’s input in order to offer a uniform “best of breed” service </li></ul></ul>
  10. 10. Sector trend: Retail banking: consolidation and investment <ul><li>Retail banking key drivers </li></ul><ul><li>Europe / US: consolidation, further technological innovations (commodization of services, electronic payments), outsourcing to low-cost countries (India, China etc) </li></ul><ul><li> IT, Cost cutting and M&A key competitive advantage </li></ul><ul><li>EM: deployment of services: credit cards, ATMs, cash advances, international transfers, … </li></ul><ul><li> Gain on fees of new services / losses of cash cows (charge for account opening, charge for balance checking, charge for check, …) </li></ul><ul><li> Size and investment key competitive advantage </li></ul><ul><li>Likely outcome for EM banks </li></ul><ul><li>M&A and partnerships in emerging markets from US/EU banks </li></ul><ul><li>New regulation to open new services </li></ul>
  11. 11. Financial services outlook by 2010 : Engines of growth Catalysts estimated to have the highest impact on banks Source: Survey Deloitte Touche 2005-06 in collaboration with EIU; 175 respondents: AM firms 23%, Banks 28%, Insurances 27%, Securities firms 22% 3% 22% 30% 31% 24% 46% 54% 55% 0% 10% 20% 30% 40% 50% 60% Globalization Regulation & Compliance Risk management Demographics shifts Technology Innovation Home country consolidation and convergence Others
  12. 12. Conclusion on global banking trends <ul><li>IB, brokerage, asset management, private banking to continue flourishing </li></ul><ul><li>Retail banking needs to adapt </li></ul><ul><li>Size matters: expected sales growth long term (all banks): 5-6% mid size 8-9% large caps </li></ul><ul><li>Expected earnings growth: 6-7% mid size, 10-12% large cap </li></ul><ul><li>Worldwide standardization of services and narrowing of major differentials between countries </li></ul><ul><li>Besides Private Banking: increased local distribution </li></ul>
  13. 13. Middle East banks: regulation change to unlock development ? <ul><li>Main problems </li></ul><ul><li>Regulation / Property laws </li></ul><ul><li>Lack of market transparency </li></ul><ul><li>Ownership of large domestic companies </li></ul><ul><li>Solutions under development </li></ul><ul><li>Privatization of stock exchanges: sale of Saudi Tadawul Stock Exchange </li></ul><ul><li>New financial districts: Dubai Financial Center, King Abdullah International financial district near Riyad, Qatar financial center in order to attract international banks </li></ul><ul><li>Privatisations of companies: Saudi Aramco international equity offering in March 2006, privatization calendar from the Egyptian government </li></ul><ul><li>Ownership of large domestic companies </li></ul>
  14. 14. Middle East banking: catalysts in the short term for Private Banking (1): new opportunities for structured products <ul><li>Past issues </li></ul><ul><ul><li>Sharia rules limited investment scope and hedging possibilities </li></ul></ul><ul><ul><li>Local banks lack international presence </li></ul></ul><ul><li>Recent catalysts: </li></ul><ul><ul><li>lower regulation, higher liquidity  new asset classes: Mortgage Backed Securities (Sukuk) </li></ul></ul><ul><ul><li>Sharia-compliant structured products: Arboun (Islamic version of option) and Murabaha (Islamic version of future for physically owned commodity), takaful (sharia-compliant insurance) </li></ul></ul><ul><li>New trend are just starting </li></ul><ul><li>May 2005: Deutsche Bank issued what is thought to be the first capital-protected commodity-linked product sold to Abu Dhabi Commercial Bank, </li></ul><ul><li>4Q05: HSBC sold CPPI on the Dow Jones Islamic Asia-Pacific index </li></ul><ul><li>Dec 4 to 6, 2005: Inaugural Middle East Hedge Fund Investment summit in Dubai. </li></ul>
  15. 15. Middle East banking: catalysts in the short term for Private Banking (2): expected sustainable oil revenues <ul><li>Islamic banking and finance: already over USD 300 bn in assets </li></ul><ul><li>Oil prices jump: major catalyst for 2006: countries’ oil export revenues exp. > USD 300 bn in 2006, 3 times average level in the ten years up to 2003 </li></ul><ul><li>Long term sustainable: peak oil scenario (only 35 to 45 year of oil left according to IEA?), geopolitical risks, Chinese and Indian thirst for crude oil  scenario of sustained high oil prices </li></ul>HSBC estimates petro-related net new money (Russia, Middle East, Latam) in 2006 = USD 51.4 bn allocated to PB & AM. Est. cumulative sum of new petro dollars going forward to 2025E = more than USD 1 trillion, mostly from Middle East.
  16. 16. Middle East banking: catalysts for other bank activities <ul><li>Strong GDP growth (ex: Saudi Arabia +6% 2005)  Potential for local branch development </li></ul><ul><li>Spending on projects 2006-07 = $150 bn, 4 x the USD 35 bn in 2003  Potential for Corporate banking, IPOs </li></ul><ul><li>Gulf countries to reshape their economies from oil to tourism and trading  Potential for Investment Banking, IPO advice to government and real estate investment </li></ul>
  17. 17. Middle East : most advanced country for banking business: UAE <ul><li>No income tax </li></ul><ul><li>No corporate tax (besides banks, telecom and oil companies) </li></ul><ul><li>No control on foreign investment </li></ul><ul><li>Freedom for real estate investment for non nationals </li></ul><ul><li>Strong protection of patents and IP </li></ul><ul><li>New investment law 2004: local “partner” in business: only 30% of stakes </li></ul>
  18. 18. Conclusions <ul><li>Trend remains positive for banks, particularly PB and IB, globally </li></ul><ul><li>Middle East countries to benefit from: </li></ul><ul><li>new investment vehicles (structured products) </li></ul><ul><li>sustained oil revenues </li></ul><ul><li>new regulation to ease international money transfer, credit card use, access to capital markets </li></ul><ul><li>major reforms underway in several Middle East countries </li></ul><ul><li>Positive outlook for economic growth in the region  positive for Corporate banking </li></ul>
  19. 19. Disclaimer <ul><li>This document was produced by and the opinions expressed are those of Credit Suisse as of the date of writing and are subject to change. It has been prepared solely for information purposes and for the use of the recipient. It does not constitute an offer or an invitation by or on behalf of Credit Suisse to any person to buy or sell any security. Any reference to past performance is not necessarily a guide to the future. The information and analysis contained in this publication have been compiled or arrived at from sources believed to be reliable but Credit Suisse does not make any representation as to their accuracy or completeness and does not accept liability for any loss arising from the use hereof. An affiliate of Credit Suisse has contributed in whole or in part to the preparation of reports, which comment on US listed companies and/or US markets, however Credit Suisse is solely responsible for the report’s content and analysis and any related opinion and recommendations. The issuer of the securities referred to herein or a Credit Suisse Group company may have acted upon the information and analysis contained in this publication before being made available to clients of Credit Suisse. A Credit Suisse Group company may, to the extent permitted by law, participate or invest in other financing transactions with the issuer of the securities referred to herein, perform services or solicit business from such issuers, and/or have a position or effect transactions in the securities or options thereof. </li></ul><ul><li>An investment in the funds described in this document should be made only after careful study of the most recent sales prospectus and other fund regulations and basic legal information contained therein. The sales prospectuses and other fund regulations may be obtained free of charge from the fund management companies and/or from their agents. </li></ul><ul><li>Neither this document nor any copy thereof may be sent to or taken into the United States or distributed in the United States or to a US person, in certain other jurisdictions the distribution may be restricted by local law or regulation. </li></ul><ul><li>This document may not be reproduced either in whole, or in part, without the written permission of Credit Suisse. © 2006, Credit Suisse </li></ul>