Outlook for Global Wholesale and Investment Banking - BlackRock ...

March 16, 2010BanksExhibit 32Competitive Landscape in sales and trading for thelargest players: we think 15-20% is up for grabsMarket share100%90%80%70%60%50%40%30%20%10%0%ExpandingRegionals“Bank the profit”Domestics /RegionalsGlobalslooking torecommitGlobalwinners2007 2009e 2010eSource: Oliver Wyman data and analysis1. Excludes write-downsMarket share“up for grabs”(~$50-70 BN)CorefranchiseThe primary drivers of outperformance in the past two yearshave arguably been balance sheet strength, fundingadvantages, consistency of support from group and continuityof management team. This has been reinforced by breadthand depth of footprint in the critical FICC businesses, withrelatively few firms well placed to replace falling G10 ratesand FX revenues with commodities, rebounding Credit andEmerging Markets.Among the Globals, while there is clearly a group of crisis‘winners’, the remaining firms in that group have recommittedto the business, and the strong tailwinds in 2009 haveensured cash flow available to re-engage in the talent war(Exhibit 33). We now see a relatively uniform commitment toreposition among the top 5 for these firms, as a prevailingview that the shake-out is still under way is pushing the banksto work hard to maintain or gain share.“Expanding Regionals” targeting growth. There is arelatively long list of regional banks who intend to leverage thegood conditions they have enjoyed for the past two years andrecapture market share from the globals as a basis to launchambitious growth strategies. Where these are based tightlyaround fundamental competitive advantages (e.g. balancesheet, or emerging markets footprint) we see scope forsuccess. However, there is almost certainly too wide a groupof banks in this category, and we anticipate some failedexperiments here. Clarity of objectives, managementcohesion and commitment, and speed of execution will becritical to the few firms who succeed in repositioning.Regionals ‘banking the profits’ and Domestics. For manybanks, particularly in continental Europe and North America,we anticipate a retraction to domestic footprints “plus”, wherethese firms will be under much more shareholder pressure tojustify the rationale behind any non-domestic activity.Overall, we expect banks with strong funding to leverage theprimacy of balance sheet. We note that this is driven more bynet funding position, sophistication in collateral managementand ability to liquefy, than it is about size. In this regard, wesee the former investment banks as reasonably wellpositioned.We expect focus to become a greater driver of returns, givenbalance sheet constraints. Banks that channel scarcemarginal resources to business segments where they have anexisting edge and do not need to compete on price shouldoutperform.Finally, as we argued above, we are likely to see greaterdeviation in performance within the sector over the comingyears, as a subset of competitors deliver performanceimprovements to offset widely applied regulatory measures.29