Investment Banking Outlook Summer 2012 (PDF ... - Roland Berger

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4 Investment Banking Outlook Summer 2012 – At a turning point? We believe that the answer lies in first understanding the underlying structural changes that the industry has experienced and thinking of scenarios in how the market will develop. We see three main shifts that are transforming the industry: > Continued shifts of revenue pools to emerging markets, first and foremost to Asia with Brazil being a second hotspot. > While the FICC roller coaster ride and DVA/CVA effects 2) have been the key drivers behind ups and downs, they have also somewhat masked that Equities and IBD businesses are stagnating and contracting in developed markets. > Many players will continue to see their economic models challenged. The top 16 global investment banks and universal players took a double hit when markets softened in 2011, just as new regulation such as Basel 2.5 kicked in boosting capital consumption especially for European based players. In 2011 the game changed and many local players in developed markets lost their edge as shrinking market shares and revenues propelled cost-income-ratios into unsustainable territory. In addition regulatory headwind puts further pressure on capital efficiency. Exhibit 2: Despite a strong Q1 the full year 2012 revenue pool might only yield a small uptick and substantial downside risk persists Quarterly IB revenues, Q1 2010 – Q1 2012 1) [EUR bn] 88 Q1 2010 60 Q2 2010 59 Q3 2010 57 Q4 2010 85 Q1 2011 62 Q2 2011 43 Q3 2011 39 Q4 2011 80 Q1 2012 ? Q2 2012 JUNE 2012 PROJECTION IB revenues by product groups, 2006-2012e [EUR bn] 270 265 230 240 260 FICC – roller coaster ride > Normalization vs. extra- FICC 200 ordinary Q1 2009/10 levels > Weak flow and position losses in Q3/4 2011 > Once again subdued activity after Q1 2012 rebound Equities 1) Adjusted IBD, Equities, and FICC revenues (before loan loss provisions) calculated at constant 2011 exchange rates Source: Roland Berger; company disclosure and presentations IBD 2006 2010 2011 Bear Base Opti- case case mistic 2012 scenarios Equities – softening > Heavy dip in Q4 2011 > Softer activity with limited Q1 pickup IBD – softening > Downhill from strong Q2 2011 > Limited pipeline 2) Debt Value Adjustments and Credit Value Adjustments: Mark-to-market changes in the value of own debt issued and counterparty exposure as mandated by IAS but often recorded in banks' IB and especially FICC divisions.
The picture is not homogenous – for example, many German small- and midsized players were among those hit hardest. In sharp contrast many – especially Asian and Latin American – emerging market local players continued to grow profitably. Exhibit 3: Not all players are born equal – At least five peer groups compete with distinct business and economic models Peer group IB economics (Basel 2.5) 1) , 2011 [%] Note: Bubble size indicates peer group IB revenues 2) Cost efficiiency (CIR) 110 100 90 80 70 60 50 40 30 Developed Markets Locals Global Universals Emerging Markets Locals (Banks + Brokers) What Lies Ahead Advanced Internationals Global IBs 20 0 1 2 3 4 5 6 7 8 9 10 Capital efficiency (Rev/RWA) Global IBs 8 players Global Universals 8 players Advanced Internationals 15 players Developed Markets Locals > 50 players Emerging Market Locals > 50 players Examples of players Business model > IBD, FICC, Equity > Global > IBD, FICC, Equity > Relatively global > Emerging focus > Mixed player > Developed focus > FICC focus > Limited IBD/Equity > Country focus > Country focus > Mostly bifurcated: Banks vs. brokers Ø EM rev. share 3) 1) Estimate, assuming 70% on disclosed B2.5/3 impact on CT1 ratio will come through CIB Markets' RWA uplift 2) Revenues calculated at constant 2011 exchange rates 3) Emerging market revenue share of total peer group revenue 4) Investment Banking revenue share of total CIB peer group revenues Source: Roland Berger; company disclosure and presentations So far in 2012, these trends are continuing to affect the industry. First quarter results strongly rebounded from the second half of 2011, which was characterized by higher risk, drying up of client flows and position markdowns as the sovereign debt crisis unfolded (exhibit 2). However, not all ships were lifted equally by the tide. Once again emerging markets players roared full steam ahead. Small and midsized locals in developed countries, meanwhile, saw a mixed picture with many of them registering only a moderate recovery or even further revenue contraction against the global trend. Among global players the field was split but on average universal players, who enjoyed broader sources of flow such as FX and rates businesses driven by transaction banking, seemed to fare better (exhibit 3 and 4). ~20% ~30% >90% Ø IB/CIB share 4) ~100% ~60% ~35% ~35% ~45% minimal ~30% 0-5% ~10% 95-100% ~10% Competence Center Financial Services 5
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Investment Banking Outlook Summer 2012 (PDF ... - Roland Berger

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