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

6 Investment Banking Outlook Summer 2012 – At a turning point?
Exhibit 4: Recent performance diverges both between as well as
within each peer group
Globals
Developed
Markets
Emerging
Markets
Global
Universals
Global IBs
Locals
Advanced
Advanced
Locals
Contracting Moderate recovery Rebounding Continued growth
Q1
Q1
Q1
Q1
2010 2011 2012e 2010 2011 2012e 2010 2011 2012e 2010 2011 2012e
Source: Roland Berger; company disclosure and presentations
Global Universals
rebound stronger
than IBs
Developed market
players increasingly
under pressure
EM franchises as
growth driver?
Continued growth?
However as banks close the books on the second quarter and will begin reporting results
in a few weeks, we expect to see a sharp drop off from the first quarter. Although this sort of
Q1 to Q2 drop has been more the rule than the exception over the last few years (exhibit 2),
the questions that persist are just how bad will the drop off be and where do we go from here?
Even assuming that the sovereign crisis slowly abates, we would expect the full year outlook to
be just around 2011 levels – a year that was rough, but not nearly as negative as 2008. Nobody
can and wants to project the impact of a euro meltdown. In this case all bets would be off. But
even if the sovereign debt crisis is still as intense by the end of the year as today, the downside
for investment banks for the rest of the year will be substantial. In this case the revenue pool
may shrink by another 15% to about EUR 200bn. Even under rosier scenarios, with a fairly
quick recovery and a much more favorable trading environment and deal pipeline, revenues
seem unlikely to revert to 2010 levels (exhibit 2).
As a result of this challenging environment one European and North American player after
another has already lowered their RoE targets: 12 to15% became the new standard down
from the earlier 25% targets. We believe however, that the industry's economic model is more
challenged than those lowered targets suggest. Even when factoring in the stream of restructurings
and lay offs already announced, the industry will only return to single digit post tax RoEs
on average. Our base case scenario envisions a 9% RoE and in our bear case, a mere 5% RoE
(exhibit 5).