INVESTMENT BANKING & CAPITAL MARKETS THE BOSTON CONSULTING GROUP

Transcription

1 INVESTMENT BANKING & CAPITAL MARKETS Market Report Q3 23 Edition New York, Frankfurt November 18 th, 23 THE BOSTON CONSULTING GROUP

2 TABLE OF CONTENTS Chapter Page Overview of 3 rd quarter 23 2 Market review Corporate finance 9 Fixed income trading 16 Equity trading 21 Data definitions 28-1-

3 Overview of 3 rd Quarter 23-2-

4 RISING INTEREST RATES AFFECTED INVESTMENT BANKING RESULTS IN THIRD QUARTER BCG s investment banking performance index declined by 3 points to 59.9 percent Fixed income growth of the previous quarters ended Revenues of top investment banks declined 13 percent from previous period Investment banks improved their profit margins from 31% on average in the previous quarter to 33% in the current period U.S. investment banks in particular created a highly flexible cost base during the downturn and lowered operating expenses quickly to meet the revenue decline The continuing recovery in global stock markets has yet to generate enough equity and corporate finance revenues to compensate for the decline in fixed income trading Fees in underwriting and advisory often deferred and thus don t immediately translate into revenues Rising rates depressed the refinancing activity, reducing bond underwriting volumes -3-

5 END OF THE BOND RALLY DEPRESSED BCG PERFORMANCE INDEX IN THIRD QUARTER 23 BCG IB Performance Index Indexed Q1/ Q2/ Q3/ Q4/ Q1/1 Q2/1 Q3/1 Q4/1 1Q/2 2Q/2 3Q/2 4Q/2 1Q/3 2Q/3 3Q/3 Note: : BCG IB performance index is calculated based on profit weighted volume trends in M&A, ECM, Equity Sales & Trading and Bond Origination Source: Dealogic; SDC; Autex; BCG analysis -4-

6 BOND TRADING SURGE ENDED IN THIRD QUARTER 23 Recovery in Equities and Advisory Business $B 15 Corporate Bonds Origination $B 6 M&A Advisory (1) Q1 3Q1 1Q2 3Q2 1Q3 3Q3 1Q1 3Q1 1Q2 3Q2 1Q3 3Q3 $B 1 US Bond Trading (2) $tr 1 Equity Trading Q1 3Q1 1Q2 3Q2 1Q3 3Q3 Asia US Europe 1Q1 3Q1 1Q2 3Q2 1Q3 3Q3 (1) Based on effective transactions (2) Daily average trading volumes for treasuries, agencies, ABS/MBS, corporate bonds Source: Dealogic; SDC; FIBV; Fed. Reserve Bank of New York; BCG analysis -5-

7 INVESTMENT BANKING MARGINS IMPROVED DESPITE DECLINING REVENUES Q3/23 vs. Q2/23 Gross profit margin (%) 5% BS JPMC 4% ML Citi Ø+2.4% 3% LB MS GS Q3/3 Ø: 33.5% Q2/3 Ø: 31.1% UBS 2% CSFB DB Q3/3 Q2/3 1% Ø 12.8% Revenues ($B) Note: Ø calculated on a revenue weighted basis; Operating revenue for investment banking and institutional sales and trading; extraordinary charge-offs excluded Source: Company reports, BCG analysis -6-

8 RESULTS SIGNIFICANTLY BETTER THAN A YEAR AGO Q3/23 vs. Q3/22 Gross profit margin (%) 5% Citi 4% BS JPMC MS Q3/3 Ø: 33.5% Ø +15.3% 3% LB ML UBS Q3/3 Q3/2 2% 1% CSFB GS DB (-13.2%) (-14.3%) Q3/2 Ø: 18.2% Ø +22.8% Revenues ($B) Note: Ø calculated on a revenue weighted basis; Operating revenue for investment banking and institutional sales and trading; extraordinary charge-offs excluded Source: Company reports, BCG analysis -7-

9 TRADING AND CORPORATE FINANCE REVENUES DECLINED Goldman Sachs Has Highest Share Of Corporate Finance Revenues Trading Revenues Q3/3 vs. Q2/3 Corporate Finance Revenues Q3/3 vs. Q2/3 Trading rev as % of total revenues Q3/3 95% 9% 85% 8% 75% 7% BS LB ML CSFB MS Citi UBS DB JPMC Ø: 77.7% 35% IBD rev as % of total revenues 3% Q3/3 25% 2% BS LB MS GS CSFB ML JPMC Citi Ø: 23.% 65% 6% 55% 5% GS Ø 17.9% Revenues ($B) Q3/3 Q2/3 15% 1% UBS DB Ø-9.8% Revenues ($B) Note: Source: Trading and corporate finance revenues don t add up to 1% because of Other revenue Company reports; BCG analysis -8-

10 Market review: Corporate finance -9-

11 CORPORATE FINANCE BUSINESS SLOW DESPITE POSITIVE DEVELOPMENTS IN THE THIRD QUARTER 23 Equity origination recorded the strongest quarterly volume since 21 Global equity issuance jumped 6 percent from previous quarter U.S. deal volume more than doubled in last three months M&A activity in the U.S. improved strongly Volume of announced deals increased by more than 3 percent from second quarter However, these positive developments have so far failed to improve results in corporate finance Fee payments for equity and m&a transactions are generally deferred Decline in bond underwriting ate up gains from equity and advisory Goldman Sachs continued to be the dominant investment bank in high margin equity underwriting and advisory businesses in third quarter of 23 Lazard has improved its position in global m&a under Wasserstein s leadership The integrated corporate and investment banks dominated the bond underwriting business Morgan Stanley only bulge bracket firm in the top five underwriters, but still 5% behind the market leader Citigroup leads bond underwriting in the U.S. and Deutsche Bank in Europe -1-

12 M&A and Equity Origination EQUITY UNDERWRITING BOOMED IN ASIA AND THE U.S. Market Volumes ECM Announced M&A deals 1 $B $B Q1/1 Q2/1 Q3/1 Q4/1 Q1/2 Q2/2 Q3/2 Q4/2 Q1/3 Q2/3 Q3/3 Global Q1/1 Q2/1 Q3/1 Q4/1 Q1/2 Q2/2 Q3/2 Q4/2 Q1/3 Q2/3 Q3/3 Asia US Source: Dealogic; SDC; BCG analysis Europe -11-

13 M&A and Equity Origination CITIGROUP LOST SHARE IN U.S. BUT GAINED IN EUROPEAN ECM ECM US ECM Europe Relative marketposition 9M3 1% Gained share GS Relative marketposition 9M3 1% Gained share Citi GS 8% MS Citi 8% ML DB 6% 4% 2% % JPMC BoA Wachovia DB BS Thomas Weisel ML UBS LB CSFB Lost share % 2% 4% 6% 8% 1% Relative marketposition 9M2 6% 4% 2% % JPMC LB DKW BNP CACL SG ING HSBC MS ABN CSFB Cazenove UBS Lost share % 2% 4% 6% 8% 1% Relative marketposition 9M2 Note: Relative to market leader Source: Dealogic; SDC; BCG analysis -12-

14 M&A and Equity Origination GOLDMAN SACHS REMAINED THE GLOBAL LEADER IN M&A M&A US M&A Europe Relative marketposition 9M3 1% Gained share GS Relative marketposition 9M3 1% Gained share GS 8% 8% Lazard JPMC Citi 6% Lazard BS MS 6% Rothschild ML MS 4% 2% % HSBC DB UBS BoA DKW Rothschild LB CSFB JPMC ML Citi Lost share % 2% 4% 6% 8% 1% Relative marketposition 9M2 4% 2% % UBS CSFB CL LB CA Greenhill BNP HSBC SG ABN DKW DB Lost share % 2% 4% 6% 8% 1% Relative marketposition 9M2 Note: based on Date effective, relative to market leader Source: Dealogic; SDC; BCG analysis -13-

15 BOND ORIGINATION VOLUMES DECLINED Fixed Income Origination All Bonds Corporate Bonds 15 $B $B Q1/1 Q2/1 Q3/1 Q4/1 Q1/2 Q2/2 Q3/2 Q4/2 Q1/3 Q2/3 Q3/3 Note: Corporate bonds for industrial issuers only Source: Dealogic; SDC; BCG analysis Global Asia US Europe Q1/1 Q2/1 Q3/1 Q4/1 Q1/2 Q2/2 Q3/2 Q4/2 Q1/3 Q2/3 Q3/

16 INTEGRATED CORPORATE AND INVESTMENT BANKS DOMINATED BOND UNDERWRITING Fixed Income Origination Corporate bonds US Corporate bonds Europe Relative marketposition 9M3 1% Gained share Citi Relative marketposition 9M3 1% Gained share DB 8% 6% 4% 2% % GS LB UBS BS Barclays Wachovia HSBC SG BNP MS ML CSFB DB BoA JPMC Lost share % 2% 4% 6% 8% 1% Relative marketposition 9M2 8% 6% 4% 2% % BNP UBS MS CSFB SG LB CA DKW ING BoA ML Coba ABN GS JPMC Barclays HSBC Citi Lost share % 2% 4% 6% 8% 1% Relative marketposition 9M2 Note: Relative to market leader Source: Dealogic; SDC; BCG analysis -15-

17 Market review: Fixed income trading -16-

18 FI Trading BOND TRADING VOLUMES STAGNATED AND REVENUES SUFFERED Bond trading volume growth ended in third quarter 23 Overall U.S. bond trading volumes slowed down Average daily ABS/MBS and corporate bond trading volumes declined by eight and two percent respectively from previous quarter As expected, rising interest yields made trading gains difficult 1-year U.S. Treasury yield increased by a full percentage point in three months period ending in September Aggregated fixed income trading revenues of the top ten investment banks declined by 22 percent from last quarter Banks managed their fixed income risk exposure successfully in the last quarter Combined value-at-risk of leading investment banks in interest rates, foreign exchange and commodities declined by 18 percent from previous quarter Goldman Sachs took highest risks in fixed income trading -17-

19 FIXED INCOME TRADING RALLY SLOWED IN 3 RD QUARTER ABS/MBS Refinancing Activity Declined FI Trading US Daily Average Bond Trading Volumes Growth $B 1% % % 4% 2% % -2% -4% -6% +/-% 5% -8% -2% 48% 27% 17% 26% 26% 16% 2.5% 27.6% -8% Q3/1 Q4/1 Q1/2 Q2/2 Q3/2 Q4/2 Q1/3 Q2/3 Q3/3 Total -1% 3Q/3 vs. 2Q/3 3Q/3 vs. 3Q/2 9M3 vs. 9M2 Corp. Bonds MBS/ABS Note: Daily average trading volumes, with Interdealer Brokers and others Source: Fed. Reserve Bank of New York; BCG analysis Treas/Agencies -18-

20 TREASURY YIELDS ROSE OVER 1 BASIS POINTS IN THIRD QUARTER 23 Directly Affecting Fixed Income Revenues FI Trading (%) 6 5 U.S. Government Bond Yield 15 (%) 125 Fixed Income Trading Revenues By Quarter (Indexed) bp Jan- 2 Mar- 2 Jun- 2 Sep- 2 Dec- 2 Feb- 3 May- 3 Aug- 3 Nov- 3 Q1/2 Q2/2 Q3/2 Q4/2 Q1/3 Q2/3 Q3/3 Note: 1-year U.S. Treasury bonds; aggregated revenues for top 1 investment banks Source: Bloomberg, S&P, company results -19-

21 TOP TEN INVESTMENT BANKS MANAGED VALUE AT RISK SUCCESSFULLY IN THIRD QUARTER FI Trading Market Risk: Combined Value-at-Risk Risk Efficiency Q3/3 1 $M , Fixed Income Trad Rev $M 1,5 1, Broker LB ML BS JPMC Ø all players DB MS CSFB Citi UBS GS Q4/1 Q1/2 Q2/2 Q3/2 Q4/2 Q1/3 Q2/3 Q3/3 Note: VAR at 99% confidence/1 day intervals for interest rate, currency, commodities price risk; differently reported VARs converted assuming normal distribution of risk positions Source: Company reports, BCG analysis Total VAR Commodities FX Interest rate Trader VAR $M -2-

22 Market review: Equity trading -21-

23 SUMMARY EQUITY TRADING Equity Trading Global stock markets continued their recovery in third quarter 23 All major global equity indices rose in the three months ending September Nikkei stock market index climbed 19 percent year to date Increased trading volumes did not translate into revenue gains in third quarter 23 While global volumes picked up 9 percent to USD 8.7 trillion, Aggregated equity trading revenues of top ten investment banks declined by 9 percent Low-margin program trades continued to gain market share at NYSE Investment banks took increased equity trading risks to generate equity trading income UBS, Deutsche Bank and Goldman Sachs took the highest market risk relative to their equity trading revenues Merrill Lynch and Lehman Brothers were the most risk efficient banks in equity trading UBS continued to gain market share in European and U.S. equity trading and was the leading equity trading house in the third quarter measured by revenues -22-

24 GLOBAL EQUITY PRICES CONTINUED TO RISE Equity trading Development of Main Equity Indices (1) Growth 12 1% 8% 1 6% 8 6 S&P5 Nikkei225 FTSE E3 4% 2% % 1% 13% 19% 5% 22% 9% 4-2% -4% 2-6% -8% J 1Q1 A J 3Q1 O J 1Q2 A J 3Q2 O J 1Q3 A J 3Q3 O -1% YTD 23 Last 12M Nikkei 225 (1) Indexed Note: YTD 1/15/3 Source: Thomson Financial Datastream S&P 5 FTSE E3-23-

25 Equity trading INCREASED EQUITY TRADING ACTIVITY DID NOT PRODUCE REVENUE GAINS IN THIRD QUARTER Global Exchange Trading Volumes Equity Trading Revenue By Quarter (Indexed) $tr 11, ,1 % , , ,4 8, ,6 7, , ,7 8, Q1/1 Q2/1 Q3/1 Q4/1 Q1/2 Q2/2 Q3/2 4Q/2 1Q/3 2Q/3 3Q/3 Global Q1/1 Q2/1 Q3/1 Q4/1 Q1/2 Q2/2 Q3/2 Q4/2 Q1/3 Q2/3 Q3/3 Asia Note: Source: Single counted, includes investment funds traded at exchanges; aggregated trading revenues for top 1 investment banks FIBV; BCG analysis US Europe -24-

26 REVENUE OPPORTUNITIES IN EQUITY TRADING INCREASINGLY RISKY Equity trading Equity Price Risk Risk Efficiency Q3/3 3 Valueat-risk $M Q1 1Q2 2Q2 3Q2 4Q2 1Q3 2Q3 3Q3 Total BS LB JPMC Citi CSFB ML MS GS DB UBS Trad Rev $M 1, Broker BS LB ML CSFB JPMC Citi Ø all players MS GS DB UBS Trader VAR (1) $M Note: VAR at 99% confidence/1 day intervals for equity price risk; differently reported VARs converted assuming normal distribution of risk positions Source: Company reports, BCG analysis -25-

27 SHARE OF PROGRAM TRADING AT NYSE CONTINUED GROWTH TREND Equity trading Program trading share NYSE 23 % of all trades 6 5 In week ofjun3, program trades involved more than 5% of NYSE trading volume Jan Feb Mar Apr May Jun Jul Aug Sep Oct Note: 5% means that in 5% of trades there is a program trade involved on one side of the trade Source: NYSE -26-

28 MERRILL MAINTAINED TOP POSITION IN THE U.S. BUT COMPETITORS CLOSED GAP Equity trading Institutional equity trading NYSE Institutional equity trading Europe Relative marketposition 9M3 1% 8% 6% 4% 2% % SG Gained share JPMC BS Wachovia ABN Knight BoA DB UBS LB MS GS CSFB ML Citi Lost share % 2% 4% 6% 8% 1% Relative marketposition 9M2 Relative marketposition 9M3 1% 8% 6% 4% 2% % Gained share Coba HSBC LB Citi ML JPMC DKW ABN GS Cazenove SG BoA MS UBS CSFB Lost share % 2% 4% 6% 8% 1% DB Relative marketposition 9M2 Note: Source: ML includes HHG; GS includes SLK; DB includes NDB; ABN includes ING US; relative market positions are based on number of traded shares relative to market leader Autex; BCG analysis -27-

29 Data Definitions -28-

30 DATA DEFINITION OVERVIEW Regional deal allocation is based on issuer s country (parent issuer s country where available). M&A deals are allocated by target nation European data comes from Dealogic; U.S. and Asian data from Thomson Financial Securities Data Relative market shares are based on bookrunner league tables Equity origination data include common stock IPOs and secondary issues only Bond origination data contain all convertible and non-convertible bonds including ABS, MBS, municipals, agency, and corporate bonds Corporate bonds are limited to industrials and utilities excluding financial services issuers Equity trading data reflects institutional block trades as advertised in Autex Blockdata Goldman Sachs, Lehman Brothers, and Morgan Stanley s 3 rd quarter ended in August 31 st, all others in September 3 th,