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

More documents

Recommendations

Info

March 16, 2010BanksExhibit 45European wholesale bank valuation: today upsidemust come from higher ROEs or strong growthexpectations as COE largely normalisedP/B4.00Exhibit 46BARC, BAC, JPM and CSG look the best value on 2year forward ROE vs price to book2.5 x2.0 xUBSCSG3.503.002.50y = 16.34x - 0.68R 2 = 0.82Pre-crisisperiodPrice/ 09 Tangible Equity1.5 x1.0 xCBNPPEuropean AverageDBKSocGenBARCJPMUS AverageBAC2.000.5 x1.500.0 x1.0012% and14% CoEPost-crisis(dotted line)10% 12% 14% 16% 18% 20% 22% 24% 26% 28%2012e Return on Tangible Equity0.502-yr forwardROE0.000% 5% 10% 15% 20% 25%Source: Morgan Stanley Research estimatesNote: Regression for UBS, CSG, DBK and BARC. Source: FactSet, Morgan StanleyResearch42
March 16, 2010BanksBridging our joint industry conclusions into ourstock callsOur joint work gives us added conviction around a number ofkey issues that drive our stock views. We outline these issuesfirst and then go into our key stock ideas.1. Q1 is off to a respectable startin FICC post marks; lesspromising in equities/ECM/creditAcross our global coverage universe, we model totalrevenues down 14% (pre-marks/DVA) in 2010, driven byequity trading revenues up 6%, FICC (ex marks/DVA) down26% and IBD up 12%. This equates to +6% revenue growthon a reported basis.We edge up our forecasts for FICC, driven by volatility inQ1, and nudge down our numbers for equities/ECM forour large cap bank coverage. The run rate of equity issuancein Q1 so far is down ~50% on the 2009 average. M&A is down~13% although debt issuance is up ~10%, implying total IBDrun rate revenues are off by ~20% in Q1 on the 2009 average.Within the issuance data (see Exhibit 53 below), Barclays andTD are outperforming in Q1 versus the 2009 average –speaking in part to the strength of DCM and a lower share of2009’s bumper year of US FIG recaps. Credit Suisse iscurrently fifth in global equity issuance, reflecting its marketshare gains. RBS, Nomura and Soc Gen have delivered aworse performance in IBD YTD versus the 2009 average. SeeExhibits 53-56.The trading proxies we use are clearly impacted bymargins. Trading of European government bonds on MTSwere up 85% to end February versus the prior year period.US treasury volumes on ICAP’s Brokertec platform are up38% on the same basis. Trading of US equities is up 7%sequentially. Interest rate volumes are up 30% to endFebruary at Eurex versus the prior year period and on anaccelerating trajectory, supported by increasing growth inopen interest, which closed February 10 ~50% higher thanprior year. Against this, equity derivative volumes have beenlacklustre – equity index volumes at Eurex are ~2% lowerYTD versus the prior year period (with open interest down24%), while single stock option volume is down ~5% andopen interest broadly flat on the prior year.We also note that hedge fund performance (typically a goodproxy for equity revenues) is unexciting YTD.Exhibit 47Hedge fund performance has been modest YTDHFRI PerformanceFeb-10 2010 YTDFund Weighted Composite 0.52% -0.18%Equity Hedge 0.62% -0.58%Event Driven -0.11% 0.57%Macro 0.75% -1.00%Relative Value 0.22% 1.79%Emerging Markets -0.71% -1.76%Fund of Funds Composite 0.12% -0.25%Source: HFR estimatesExhibit 48Investment banking – underlying revenue outlookfor global universeEquitiesFICCAdvisoryTotal i-bank-26%-14%-30% -25% -20% -15% -10% -5% 0% 5% 10% 15%Source: Morgan Stanley Research estimates2010e/2009e 2011e/2010eExhibit 49Equities: we forecast 6% underlying growth globallyin 2010Equitiesin bn EUR 09 Reported Marks DVA 09 U/L 10e U/L 10e/09e 11e U/L 11e/10eCSG 5.0 0.0 0.0 5.1 5.3 4% 5.5 5%DBK 2.7 0.0 0.2 2.9 3.5 21% 3.7 5%UBS 3.3 0.0 0.0 3.3 3.3 0% 3.6 8%Investment Banks 11.1 0.0 0.2 11.3 12.1 7% 12.8 6%BARC 3.2 0.0 0.0 3.2 3.6 12% 4.3 20%RBS 1.7 0.0 0.0 1.7 1.4 -15% 1.5 5%UK Banks 4.9 0.0 0.0 4.9 5.0 3% 5.8 16%BNPP 1.4 0.0 0.0 1.4 2.0 37% 2.2 11%Soc Gen 2.7 0.6 0.0 3.3 3.6 10% 3.9 7%French 4.2 0.6 0.0 4.8 5.6 18% 6.1 8%European 20.1 0.6 0.2 20.9 22.7 9% 24.7 9%BAC 3.4 0.0 0.0 3.4 3.7 7% 4.9 35%C 2.2 0.0 0.5 2.7 1.9 -30% 2.2 15%JPM 3.1 0.0 0.3 3.4 4.0 19% 4.6 15%US 8.7 0.0 0.8 9.5 9.6 0% 11.7 23%BMO 0.2 0.0 0.0 0.2 0.2 5% 0.3 8%BNS NA 0.0 0.0 NA NA NM NA NMCM 0.2 0.0 0.0 0.2 0.2 5% 0.2 8%RY 0.7 0.0 0.0 0.7 0.4 -35% 0.5 9%TD 0.3 0.0 0.0 0.3 0.3 7% 0.4 5%Canadian 1.4 0.0 0.0 1.4 1.2 -14% 1.3 8%Nomura 2.1 0.0 0.0 2.1 2.7 24% 2.8 7%Global Banks Coverage 32.4 0.6 1.0 34.0 36.1 6% 40.6 12%e = Morgan Stanley Research estimates; Source: Company data, Morgan Stanley Research0%6%6%8%12%12%43
Page 4 and 5: March 16, 2010BanksIn this report:1
Page 6 and 7: March 16, 2010Banks2009 core revenu
Page 8 and 9: March 16, 2010BanksExhibit 7Base ca
Page 10 and 11: March 16, 2010Banks2) Margins - Tig
Page 13 and 14: March 16, 2010BanksExhibit 13We saw
Page 15 and 16: March 16, 2010Banks4) Regulatory Ch
Page 17 and 18: March 16, 2010BanksExhibit 18Regula
Page 19 and 20: March 16, 2010Banks5) Funding - dri
Page 21 and 22: March 16, 2010Banks6) Derivatives M
Page 23 and 24: March 16, 2010Banks7) Sustainable I
Page 25 and 26: March 16, 2010BanksExhibit 26We hav
Page 27 and 28: March 16, 2010Banks9) Compensation
Page 29 and 30: March 16, 2010BanksExhibit 32Compet
Page 31 and 32: March 16, 2010BanksReturn character
Page 33 and 34: March 16, 2010BanksPart 2 - Investm
Page 35 and 36: March 16, 2010BanksThe key point we
Page 37: March 16, 2010Banksestimated normal
Page 40 and 41: March 16, 2010BanksExhibit 43Indust
Page 44 and 45: March 16, 2010BanksExhibit 50FICC:
Page 46 and 47: March 16, 2010BanksExhibit 57Our ba
Page 48 and 49: March 16, 2010BanksExhibit 61FICC r
Page 50 and 51: March 16, 2010Banks3. Regulatory ou
Page 52 and 53: March 16, 2010BanksBasel III: Expec
Page 54 and 55: March 16, 2010Banks4. Derivatives m
Page 56 and 57: March 16, 2010BanksKey stock callsB
Page 58 and 59: March 16, 2010BanksExhibit 78Gap ha
Page 60 and 61: March 16, 2010BanksOur 2010e EPS mo
Page 62 and 63: March 16, 2010BanksExhibit 86Group
Page 64 and 65: March 16, 2010Bankscutting measures
Page 66 and 67: March 16, 2010Banksis possible if r
Page 68 and 69: March 16, 2010BanksExhibit 971Q pro
Page 70 and 71: March 16, 2010Banksupside to fundra
Page 72 and 73: March 16, 2010BanksImperial Bank of
Page 74 and 75: March 16, 2010Banksis 30% or more d
Page 76: MORGAN STANLEY RESEARCHThe Americas

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

You also want an ePaper? Increase the reach of your titles

Delete template?

Save as template?