Michael Frieser Chairman of EMEA Financial Institutions Investment Banking Team. 24 May 2016

Transcription

1 Michael Frieser Chairman of EMEA Financial Institutions Investment Banking Team 24 May 2016

2 A Tough 1 st Quarter by our financial staff The Wall Street Journal FINANCIAL TIMES Financial Times In Europe, seven analysts polled by the Financial Times predicted that the top four investment banks Credit Suisse, Deutsche Bank, UBS and Barclays suffered an average collapse of about 25 per cent in trading revenues for the first quarter of the year. Europe s Investors See IPO Freeze Until Mid-Year listings on ice due to uncertainty surrounding the U.K. s membership of the European Union and wider market weakness Negative interest rates erode the profitability of the banking sector and pose a threat to financial stability. Global Risk Insights 16/ 15 Investment Revenues banks M&A: had (10%) their ECM: (45%) worst start to the DCM: (18%) year since 2009 Loans: (22%) Total: (23%) Business Insider Quartus horribilis sharp declines in M&A, high yield and IPO activity. Financial News Significant monetary loosening has led to anaemic volume growth industry to remain mired in the revenue margin and operating leverage swamps. BofAML Nasdaq FINANCIAL TIMES by our financial staff Sterling fears mount as Britain nears vote on EU FINANCIAL TIMES by our financial staff Fed flip-flops are a reflection of global uncertainty ECB prepared to do more if necessary to achieve inflation target Reuters Greece's Euro Future May Be Back in Play Bloomberg... Globally investment banks at present are facing revenue pressire as issues pertaining to market turmoil, low interest rates, volatility in commodity prices and slowdown of emerging markets continue to affect business and client activity levels as well as market volumes. 2

3 The Bankers World Weather Map 2015A Median (1) ROE: 12.4% EPS Growth: 9.6% 2015A Median (1) ROE: 8.2% EPS Growth: 2.2% Trump or Clinton 2015A Median (1) ROE: 0.4% EPS Growth: (21.6%) Brexit RWA Floors 2015A Median (1) ROE: 5.6% EPS Growth: 18.8% Growth Deceleration & Credit Concerns Stimuli Tariff and Strong Dollars Credit Cycle Negative Rates Credit Cycle 2015A Median (1) ROE: 16.9% EPS Growth: (2.9%) Negative Rates 2015A Median (1) ROE: 8.1% EPS Growth: (10.1%) Slowing Growth / Stronger US$ 3 Source: FactSet, SNL. 1) US Banks include Bank of America, Citigroup, Goldman Sachs, JP Morgan, Morgan Stanley and Wells Fargo. 2) UK Banks includes Barclays, HSBC, Lloyds and RBS. 3) Nordic Banks include Nordea, Handelsbanken, SEB, Swedbank, DNB and Danske Bank. 4) EU Banks corresponds to EURO STOXXX Banks index. 5) Chinese Banks include Industrial and Commercial Bank of China (ICBC), China Construction Bank (CCBC) and Agricultural Bank. 6) Japanese Banks include Nomura, Mizuho Financial, Mitsubishi UFJ and Sumitomo Mitsui.

4 Rates At a Record Low Lowest available 18% 13% 8% 3% -2% Pyramids Built World Population ~50m (1% of Today) Columbus Reaches the New World 3000BC 2,500 2,000 1,500 1, AD 500 1,000 1,500 2, BC: Mesopotamia 20% 1772 BC: Babylon, Code of Hammurabi 20% 539 BC: King Cyrus takes Babylon 40%+ 443 BC: Rome, Twelve Tables 8.3% BC: Athens/Rome: Punic Wars 8.0% 325 AD: Byzantine Empire, under Constantine 12.5% 1490s: da Vinci paints "The Last Supper in Milan 6.25% 1520s: Aztec Empire at its height 8.13% 1700s: England, The Treaty of Union 9.92% 1810s: US, West Florida annexed by the US 7.64% 1940s: US, World War II 1.85% 1980s: US, Reagan administration 15.8% : US 0.25% 4 Source: UBS research, Business Insider.

5 Investment Banks - Profitability Return on Equity (ROE) 20,0% 10,0% 0,0% (10,0%) YTD (1) (2) (3) (4) US Banks EU Banks Chinese Banks Japanese Banks 5 Source: FactSet, SNL. (1) US Banks include Bank of America, Citigroup, Goldman Sachs, JP Morgan and Morgan Stanley. (2) EU Banks include Barclays, BNP Paribas, Credit Suisse, Deutsche Bank, Societe Generale and UBS. (3) Chinese Banks include Industrial and Commercial Bank of China (ICBC) and China Construction Bank (CCBC). (4) Japanese Banks include Mizuho Financial, Mitsubishi UFJ, Nomura and Sumitomo Mitsui.

6 Investment Banks - Valuation 4,00x Price-to-Book Ratio (P/B) 3,00x 2,00x 1,00x YTD (1) (2) (3) (4) US Banks EU Banks Chinese Banks Japanese Banks 6 Source: FactSet, SNL. (1) US Banks include Bank of America, Citigroup, Goldman Sachs, JP Morgan and Morgan Stanley. (2) EU Banks include Barclays, BNP Paribas, Credit Suisse, Deutsche Bank, Societe Generale and UBS. (3) Chinese Banks include Industrial and Commercial Bank of China (ICBC) and China Construction Bank (CCBC). (4) Japanese Banks include Mizuho Financial, Mitsubishi UFJ, Nomura and Sumitomo Mitsui.

7 Is the Credit Cycle Turning? Credit Boom Crisis Distressed Restructuring Recovery ? Refinancing Divestitures Bankruptcies Restructurings Zero Rates Balance Sheet Repair Strong M&A Rebound Rising defaults, downgrades M&A / LBO Boom Market Recovery IG Vols HY Defaults $2.7Tr $2.4Tr $2.5Tr $3.1Tr $3.9Tr $4.0Tr

8 Global Markets Fee Pool Global Markets Fee Pools Client Trends Global Equities and FICC Fee Pool, $B 285 Persistently Challenging Market Environment Equities Growth in passive vs. active Equities % CAGR Growth in hedge funds and SWFs Growth in electronic trading FICC FICC Impact of regulatory change Derisking, deleveraging largely complete Liquidity concerns Source: Coalition

9 Global Banking Fee Pool Global Investment Banking Fee Pools Client Trends Global Investment Banking Fee Pool, $B Fragile Recovery IBK M&A rebound has stalled in 16 Lev. Fin. DCM ECM +20% -7% 81,7 79,0 74,7 73,5 64,7 66,9 66,0 16,9 15,0 21,8 53,2 53,6 13,7 16,4 23,7 18,4 7,1 5,5 12,7 12,9 12,9 15,0 15,1 15,5 19,3 15,7 17,0 15,7 21,2 18,6 12,2 20,8 15,7 21,8 13,3 17,7 M&A 28,1 21,2 13,4 17,4 19,8 19,2 17,7 21,6 23, ECM markets challenged due to volatility DCM & Lev. Fin. declined in 15 CBK (not shown) GTS markets becoming more electronic Credit cycle turning provisions, client selection Focus on innovation and technology Source: Dealogic. 9

10 Loan & Bond Market Volumes Loans IG Loans Lev Fin Bonds IG & Lev Fin Volumes, $TR Volumes, $TR Volumes, $TR 3,0 2,1 1,4 2,2 3,0 2,1 2,4 3,0 2,9 0,7 APAC EMEA 1,8 0,8 0,4 0,7 1,1 1,4 1,9 1,8 1,6 0,4 APAC EMEA 2,0 1,9 2,9 2,4 2,3 3,1 3,1 3,5 3,3 1,5 AMRS AMRS 10 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 YTD Source: Dealogic. '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 YTD '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 YTD

11 Gap Between US and European Banks Widening ($B) Investment Banking + Sales & Trading Revenue US Banks (BofAML, JPM, Citi, GS, MS) $96,4 $104,1 $104,7 $102,2 $102,2 European Banks (DB, CS, BARC, UBS, BNP, SG) $70,5 $67,9 $66,2 $67,2 $61,8 Revenue Gap Between US and European Banks $25,9 $36,2 $38,5 $35,0 $40,

12 Outlook 1 Increased activity in Q2 so far but will it be enough to make up for Q1? 2 Ultra-low rates, asset liquidity challenges put pressure on banks revenue opportunities 3 Re-pricing is not enough still too much irrational competition 4 Banks will not earn cost of capital in wholesale and investment banking especially in Europe 5 No light at the end of the tunnel sector trends continue particularly in FICC 12

13 What Does the Future Hold for us? 13

14 What Do We Do to Stay Afloat In Banking Prepare for the credit cycle turning Strategic Pruning: Geographics & Products Structure Banking (= Client Coverage) Right Client selection never more important Re-engineer the operating model particularly FICC Think Bank M&A scale benefit undeniable 14

15 The Case for Bank Mergers and Acquisitions [Does not fit on a page / Intentionally Blank] Bank mergers I don t believe it Luke Skywalker That is why you fail Master Yoda 15 Source: Copyright Lucasfilm Star Wars, The Empire Strikes Back 1980.

16 Thank you