IBIS Global Banks Breifing

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June 2012
IBISWorld Industry Report J5511-GL
Global Commercial Banks

June 2012
About This Industry ................................. 2

Industry Definition ........................................ 2 Main Activities ............................................. 2 Similar Industries ......................................... 2 Additional Resources ................................... 3
Basis of Competition .................................... 27 Barriers to Entry........................................... 28 Industry Globalization .................................. 29
Major Companies .................................... 30

Bank of America Corporation ....................... 30 JPMorgan Chase & Co. ............................... 31 HSBC Holdings plc ...................................... 33 Citigroup Inc. ............................................... 34 Industrial and Commercial Bank of China Limited ......................................................... 35 Other Players .............................................. 36
Industry Performance .............................. 4

Executive Summary ..................................... 4 Key External Drivers .................................... 4 Current Performance ................................... 5 Industry Outlook .......................................... 9 Industry Life Cycle ....................................... 12
Products & Markets ................................. 13

Supply Chain ............................................... 13 Products & Services .................................... 14 Demand Determinants ................................. 17 Major Markets .............................................. 18 International Trade ...................................... 19 Business Locations...................................... 20
Operating Conditions .............................. 37

Capital Intensity ........................................... 37 Technology & Systems ................................ 37 Revenue Volatility ........................................ 38 Regulation & Policy ..................................... 38 Industry Assistance ..................................... 39
Key Statistics ........................................... 40

Industry Data ............................................... 40 Annual Change ............................................ 40 Key Ratios ................................................... 41 Jargon ......................................................... 41
Competitive Landscape ........................... 23

Market Share Concentration ........................ 23 Key Success Factors ................................... 23 Cost Structure Benchmarks ......................... 25
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About This Industry

Industry Definition
This industry comprises of banking enterprises that provide commercial, industrial and consumer loans as well as offering deposit facilities to their customers. These corporations also accept term deposits, extend mortgage and real estate finance and invest in high-grade securities. Included in this industry are commercial banks, foreign banks, savings and loan associations, credit unions, thrifts and other savings banks.
Main Activities
The primary activities of this industry are: Accepting demand and other deposits Accepting time deposits Investment in high-grade securities Making commercial, industrial and consumer loans Making mortgage and real estate loans The major products and services in this industry are: Consumer deposits Commercial deposits Secured consumer loans Secured business loans Other non-interest income Other loans Other deposits
Similar Industries
J5521-GL - Global Investment Banking & Brokerage Establishments in this industry engage in underwriting, originating and maintaining markets for issues of securities.
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Additional Resources
For additional information on this industry: www.imf.org International Monetary Fund www.fdic.gov Federal Deposit Insurance Corporation www.thecityuk.com TheCityUK www.federalreserve.gov US Federal Reserve
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Industry Performance
Executive Summary
Banks perform a vital role within the markets they operate in, providing businesses, consumers and governments with access to financial products and services. They ensure the sustainability of the financial system by bringing together lenders and borrowers, which allows for the flow of funds. The collapse of the US subprime mortgage market and consequential global recession shook the world's financial system and threatened to destroy the core foundations that the financial system relies on to function. Throughout the world, banks suffered unprecedented losses as their loan loss provisions skyrocketed due to their borrowers becoming unable to repay debt obligations. Coupled with this, banks wrote off billions of dollars worth of assets, as values depreciated, during a time when the cost of funding rose sharply due to credit availability disappearing. As a result, over the five years to 2012, the Global Commercial Banking industry is projected to decline at an annualized 1.2% to $5.14 trillion. In 2012, marred by persistent uncertainty surrounding the eurozone economy and slightly slower economic growth in China. Consequently, industry revenue is forecast to grow by a subdued 5.3% in 2012. Looking ahead, the industry is set to fare well albeit at a slower rate compared with pre-crisis period. Banks operating in developed economies are expected to perform better as deferred business and capital expenditure moves forward. Banks in emerging markets held up well during the crisis and opportunities exist for large global banks operating in mature markets to expand into these regions and benefit from the growth that is expected to occur in the coming five years. Over the five years to 2017, industry revenue is expected to increase 3.8% annually to $6.18 trillion.
Key External Drivers

The key sensitivities affecting the performance of the Global Commercial Banks industry include: Economic Indicators - Investor Confidence Investor confidence relates to consumers' and businesses' expectations regarding the opportunities that exist in the market place to yield significant returns from their investment activities. If investors believe that investments exist which will yield the required rate of return, given their investment horizon and the risks inherent, then they will seek finance to make those investments. Thus, as their confidence improves, the amount of finance they demand rises which translates into more lending for the banks from which they yield interest income and fee and commission income. Industrial Production Index The Industrial Production Index (IPI) measures the pulse of economic activity within its component sectors, which make up a sizeable share of the total US GDP. Therefore, the index is closely followed as measure of total business activity and overall economic health. This driver is expected to increase in 2011, but is a threat to the industry as it will not increase at the same rate as 2010. Interest Rates - Bonds Effectively, interest rates represent the cost of money. Therefore, as interest rates rise, consumers' and businesses' demand for borrowing falls, as it becomes relatively more expensive to attain funding. However, when interest rates are high, the loans that are issued attract more interest income. So, although their volume of loans issued falls, the amount of revenue generated does not fall necessarily as it depends on the change in interest rates, the magnitude of the fall in demand and the amount of revenue that their outstanding loans accumulate. Stock Market Performance - Key Indices The performance of equity markets affects both the demand for bank lending and the quality of banks' lending portfolios. A positive development in the stock market will generally result in increased lending
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due to the wealth effect of rising share prices - investors feel wealthier and may therefore increase their demand for credit. Rising stock prices will also impact on the quality of the lending portfolio because borrowers have an increased ability to meet repayments. Conversely, a fall in share prices will have a negative impact on borrowers' ability to service debt, resulting in increased risk for banks. This risk is often accentuated by the fact that the demand for credit tends to rise with rising asset prices. Total Value of Construction Put in Place The performance of property markets affects the demand for bank lending products and the quality of the banks' lending portfolio. The number of housing starts is an indicator of the overall performance of the residential property sector, which is important because mortgages make up a large portion of banks' lending portfolios. This driver is expected to increase in 2011. World GDP Economic activity and interest rates have an influence on the level of savings, demand for credit, the quality of lending portfolios and the volume of financial transactions. Consequently, increased economic activity, i.e. GDP growth, tends to result to an increase in global banking revenue. This driver is expected to increase in 2011, representing an opportunity for the industry.
Current Performance
Over the five years to 2012, revenue in the Global Commercial Banks industry has decreased 1.2% annually to $5.14 trillion. There have been three distinct phases over the past five years. First in 2007, the industry reached the pinnacle of its growth. Second, a sharp downturn in the global economy due to the subprime and housing crisis in the United States. Lastly, an emergence of an economic recovery in many parts of the world over the course of 2010 and 2011 facilitates a slow return on the path to prosperity. However, persistent uncertainty in the eurozone is forecast to impede growth in 2012. Industry revenue is expected to grow at a subdued rate of 5.3%. Good times The collapse of the US subprime mortgage market in mid-2007 put a sudden end to what had been a prosperous period for banks around the world. In the lead up to the crisis, banks operated in an economic environment of strong growth, with rising asset prices. Global stock markets continued to climb, reflecting higher corporate profits. Meanwhile, real estate values boomed, driving up household wealth. Combined with low interest rates, the combined result saw the demand for loans peaking as businesses and households went on a debt binge. Allowing this to happen was a relaxation of lending standards by the banks as they faced more competition from other lending institutions. In the process, banks neglected their risk management practices. As a result, much of the growth experienced occurred because of growing fault lines that ran throughout the global financial system. This was exemplified in the United States more so than anywhere else. The collapse of the US subprime mortgage market came about as loans were issued to individuals who, in retrospect, should never have been able to borrow as much funds as they did. As much as the borrowers themselves were to blame, ultimately it was the financial institutions, like the banks, that caused their own demise having become highly leveraged and chasing debt-fuelled returns. From crisis to crisis Over 2008, bank write-downs continued to mount. The most hurt were those banks heavily involved in the purchase, repackaging and onselling of subprime loans. The collapse of Bear Stearns in March 2008, a firm heavily involved in the securitization of mortgages, was induced by large write-downs and a loss of market confidence. This loss of confidence in the banking system grew as the size and number of banks announcing losses increased. Banks announcing quarterly losses over the first half of 2008 grew to include not only investment banks but also many of the larger banks that had purchased these debt products. In September 2008, Lehman Brothers announced its bankruptcy, which led to a complete loss of confidence in the global financial system. A string of financial institutions faced collapse. Governments in
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developed countries hastily stepped in to support a suddenly fragile financial system, pumping billions of dollars in stimulus packages just to keep it functioning. Banks virtually stopped lending and the credit market froze. Activity in financial markets shuddered to a halt, signaling the end of securitization with investors pulling their money out of the market as quickly as possible. Stock markets around the globe plunged and entire economies faced downturn as a result. The global financial crisis had arrived. Asset write-downs The write-down of assets in the global banking system was huge. From the third quarter of 2007 to the end of 2008, the Global Commercial Banks industry is estimated to have experienced about $750 billion in write-downs. Approximately 10 financial institutions, mainly banks, were responsible for over half these losses. Although the largest share of asset write-downs originated in the United States, the global nature of the banking system resulted in banks across the globe having exposure to these assets. Initially, the write-downs in assets that banks recorded on their balance sheets were those associated with US subprime mortgages. As time went on and conditions worsened, the effects spread and a broader range of assets depreciated in value. These included residential and commercial mortgages, consumer and corporate debt and investments held on banks' balance sheets. Write-downs continued to be a problem for banks throughout 2009, but they were brought under control somewhat in 2010. The International Monetary Fund (IMF) forecasts that potential write-downs on mature market credit for global market participants will reach $4.1 trillion. Of this, $2.5 trillion is estimated to be attributable to banks around the globe for the period from 2007 through 2010. Moreover, banks are expected to face a further $340 billion in asset write-downs through their exposure to emerging markets. Together, this brings total expected asset write-downs to $2.8 trillion for the global banking system. Loan losses The events that unfolded in the United States in mid-to-late 2007 caused many countries around the world to experience an economic downturn of some sort, while many others battled recession. As a result, banks saw the rate of delinquencies, bankruptcies and charge-offs rise drastically as corporate and individual borrowers encountered financial difficulty and failed to service their debt obligations. Many people found themselves without a job as unemployment rose and continued to rise in many countries. This made it difficult for borrowers to repay their debts and made it impossible for them to be issued with new debt, particularly because banks' lending standards tightened. Consequently, businesses saw demand drop, as people no longer had the financial capacity to purchase as much as they were able to in the past. As a result, corporate profits declined; with many being highly leveraged, they too found it difficult to pay down their debts. Over the course of 2008 and 2009, banks incurred unprecedented loan loss provisions. In the first three quarters of 2009, US banks set aside more than $173.3 billion for loan loss provisions, equivalent to more than one-third of their total revenue. During the same period, they charged off close to $124 billion in loans issued. This is in addition to that set aside for loan loss provisions. Comparing this with the same period a year ago, loan loss provisions grew in dollar value and as a percentage of total revenue. Given that they generally increase when economic growth stunts and unemployment rises, IBISWorld estimates loan loss provisions continued to rise into 2010. According to Moody's global speculative-grade, corporate default rates reached 8.3% in April 2009, up from 1.7% in April 2007. By the end of 2009, Moody's estimated that corporate default rates reached about 15%; thus, continuing to eat directly into banks' profit margins. Role of government The attitude of governments in developed economies toward direct intervention in the banking system underwent an abrupt reversal following the bankruptcy of Lehman Brothers. The liquidation of the banking conglomerate triggered mass hysteria in the world of finance and confidence plunged. With that,
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the global banking system went into a downward spiral that forced governments to intervene in order to minimize losses and restore stability. The primary concern of governments was to provide capital to banks under financial distress to allow them to recover, which was expected to restore confidence and stability. Taxpayer funded initiatives, such as providing banks with access to funds and direct capital injections, government guarantees on deposits and various forms of bank debt, were some of the ways that governments intervened. However, their approaches to dealing with the problems associated with toxic assets have differed between countries. The US Government introduced a raft of packages to support the banking system, the most recent was announced in February 2009, named the Financial Stability Plan, which proposed a private-public partnership to purchase impaired bank assets. Meanwhile, the UK Government has guaranteed to limit the impact of further losses on banks. The Swiss and Irish governments took yet a different approach, placing assets considered at risk of being written-down into a separate asset management company. Most governments had to inject billions of dollars into specific banks at risk of collapsing or facing bankruptcy due to the size of losses incurred and their exposures. In many cases, this involved governments taking an ownership stake in banks, particularly in Europe. The German Government took a 25% stake in the Commerzbank after it experienced losses following the acquisition of Dresdner Bank. The UK Government committed about $2.2 trillion to bolster the nation's banking system through various measures. Beyond that, it nationalized Northern Rock PLC and Bradford & Bingley PLC. In October 2008, the British Government partially nationalized the Royal Bank of Scotland and the newly merged HBOS-Lloyds TSB. Then, in January of 2009, the government increased its stake in the Royal Bank of Scotland to 70%. Meanwhile, several European governments took a stake in Fortis NV, a Dutch-Belgian bank, as the Irish Government nationalized the Anglo Irish Bank. In the United States, a similar trend occurred with the US Government having provided capital injections to nine of its largest banks over the course of 2008. It also provided guarantees against pools of assets that were vulnerable to large losses, as in the cases of Citigroup and Bank of America, both of which received about $45 billion in assistance. According to the IMF, the various measures introduced by governments around the world to restore capital strength in their respective financial systems are estimated to have cost taxpayers a combined total of $8.9 trillion. This includes the provision of liquidity facilities, asset purchase schemes and guarantees on bank debt issuances. Mergers and acquisitions The banking assets of the global banking system have been reshuffled and it is not over yet. Banks in search of capital have sold parts of their business or have retreated from their overseas operations. Others are acquiring or merging with competing banks as they look for greater economies of scale to reduce costs and to increase the size of their retail deposits. In 2008, the majority of mergers and acquisitions occurred out of necessity, in the fight for survival. However, 2009 saw more strategic mergers and acquisitions take place as management looked to place their banks in a competitively advantageous position where they could stand to benefit from the changed operating environment. Much of this restructuring involved US investment banks, which have now become part of the commercial banking system through mergers or acquisitions. The largest deals to date include the takeover of Merrill Lynch by Bank of America, the acquisition of Wachovia by Wells Fargo, and in the United Kingdom the merger of Lloyds TSB with HBOS. One of the largest bank failures in history occurred in September 2008 when Washington Mutual was placed into receivership and sold to JP Morgan Chase. Investment banks Morgan Stanley and Goldman Sachs converted to a bank holding company structure, which allowed them to expand their retail banking operations and grow their retail deposit base.
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Although the Global Commercial Banks industry was already undergoing consolidation, the occurrence of the global recession acted as a catalyst to this, accelerating the process. This caused industry enterprise numbers to decline 2.1% per year to 54,674, in the five years through 2012.
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Industry Outlook
Over the next five years, the Global Commercial Banks industry will experience moderate results. Annual revenue growth of 3.8% is expected in the five years through 2017, with revenue reaching $6.18 trillion. In 2013, industry revenue is expected to increase 6.0%. However, profit margins are expected to narrow due to stricter capital requirements and further regulation that will restrict the undertaking of risky activities. Availability of capital For the post-global recession business environment, IBISWorld expects drastic changes to occur in the landscape that banks will be operating in throughout the world. One of the major changes will be the reduction in the amount of capital that banks will have access to. Although governments spent up big in order to bail out their domestic banks, and protect their entire financial system and wider economy from collapsing, their capacity to do so in the future has reduced drastically. Many governments slid from having a current account surplus to a deficit, while others moved from a small deficit, deep into debt. For this reason, expected changes will aim to prevent future collapses, as the global economy cannot afford to withstand another shock of this magnitude. Among the changes expected are regulatory enactments that will increase disclosure of information requirements and enhance transparency. This will allow for more accurate risk assessments to be conducted, which will enable credit agencies and regulatory bodies to quickly identify companies with the potential of encountering financial distress. It will also act as a good indicator to the company itself that its risk levels are too high. In the process, confidence in valuations, methodologies and assumptions will improve, making for a far more complete and sustainable financial system. Banks already began to hoard capital and boost their capital reserves in response to the market's greater sensitivity to risk. Regulatory changes also necessitated this. Beyond that, banks are going through deleveraging process, which is expected to continue over the next couple of years. Deleveraging will continue until debt falls in line with managements' target bands where it is more sustainable and would allow the company to shield itself from any unexpected, catastrophic events like those of the financial crisis. The catastrophe that the collapse of the US subprime mortgage market brought on effectively put securitization out of business. Currently, government bodies make up the greatest proportion of investors participating in securitization markets. Over the coming five years, securitization will return to prominence as investor confidence builds and participation rates increase. However, the dollar value of assets securitized and, therefore, the size of the market are expected to be lower than previously. Thus, banks will rely less on securitization in accessing capital, with retail deposits becoming fundamentally important. IBISWorld expects to see further consolidation occurring because of this, with banks looking to grow their networks and customer base in order to cover more of the market and attract a larger proportion of retail deposits. The battle for retail deposits will intensify throughout the next five years as banks look to attract customer deposits by offering attractive rates on their deposit accounts and reducing fees charged. As a result, during the five years through 2016, the lending growth rates of banks will be linked to growth in their retail deposits, which may act as a constraint, prohibiting lending due to a lack of funds, causing demand for loans to exceed supply. New banking structure The importance of retail deposits to commercial banks over the coming years will reshape the industry. Much of the consolidation activity that took place in Europe and the United States provided the opportunity for some large banks such as Wells Fargo and JP Morgan to increase their access to retail deposits and enlarge their branch networks. The range of services and products provided to customers is an important feature in attracting new customers and maximizing the value obtained from these customers. Banks are likely to increasingly offer
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their customers a range of banking and wealth management services and products. The cross selling of products to clients allows banks to introduce clients to products that may have a higher profit margin than simple deposit accounts. It also allows banks to gain economies of scale on the high fixed cost of an extensive branch network. While the growth in wealth management and cross selling of products is already apparent, it is expected to grow in importance over the coming years. Regions of note Banks within many emerging economies escaped much of the damage metered out to banks in developed economies. They have been far less exposed to subprime-related assets. Many of the BRIC (Brazil, Russia, India and China) banks already operate in regulatory environments that are relatively conservative. Household savings ratios are higher and leveraging by businesses is lower. Although these banks may need to adjust to declining asset values, they are less exposed to large losses and will continue to operate as usual in the coming five years. Boding well for banks in the emerging economies is the strong economic growth forecast to occur in these economies in the five years ahead. Having financial markets that are in the growth stage of their life cycle means that capacity exists for the development of more complex products and services. With time, banks in these markets will offer a wider array of products and services to the market, which will see them expand the range of sources that they derive revenue from. Furthermore, cross selling of products will become a major strategy for increasing sales volume as a single customer can be sold multiple, complimentary products at the one time. For example, a bank issuing a mortgagee with a loan for the purchase of a home can also sell them house and contents insurance. Thus, both interest related and non-interest related activities are expected to generate more revenue for banking enterprises, which will see the industry growing in these regions. Due to the potential for growth within emerging markets, large, global commercial banks are expected to resume their pre-crisis plans of expanding operations. IBISWorld expects the potential of these markets to lure many back as soon as they regain the capital strength to do so. Tapping into these markets offers banks, particularly those operating in the mature markets of North America and Europe, the chance to share in the growth that these markets are expected to undergo. Consequently, those that manage to expand into these markets successfully and take ownership of a significant share of the market will be able to outperform their domestic peers.
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Industry Life Cycle

This industry is in the mature stage of its life cycle. Life Cycle Stage Life cycles vary across geographic regions The number of banks is in decline The industry is undergoing consolidation The largest banks operate globally Banks in different regions of the globe are at different stages of their life cycle. Banks in developed countries are at a mature stage of their life cycle, reflecting the large and mature financial systems in which they operate. Banks in some of the emerging economies are in the growth phase of their life cycle. They have great potential to expand the range of products and services on offer to both households and businesses. Over the 10 years to 2017, industry valued added is expected to increase 1.3% annually compared to World GDP which is expected to increase 5.5% annually. For banks, one of the most important determinants of their future growth is the level of economic growth. This influences household disposable income, savings and spending. It also drives business borrowing and investment. Over the ten years from 2006 through 2016, the North American region experienced an average annualized decline in industry value added of 2.6%. This compares to the Indian and Central Asian region's annualized growth of 10.2% over the ten-year period. Over the next five years, banks in developing economies are expected to grow at a faster rate than their US and European counterparts. However, given the current dominance of the mature European and US banks, the overall industry is considered to be in its mature phase. The global financial crisis has accelerated many of the trends already present in this mature industry. Increasing consolidation has been underway for many years, driven by technological development. There has also been increasing convergence as individual banks offer a wider range of services to consumers and business. With the demise of the large stand-alone investment banks, investment banking services have now entered the domain of commercial banks. Emerging from the current crisis will be a few very large global financial institutions that offer a wide range of products and services across many countries. Some of the effects of the financial crisis are expected to extend beyond the recovery of bank revenue and profits. The current crisis has seen some US and European banks reduce the reach of their global operations. This has been driven by the scarcity of capital, with banks either conserving capital for domestic markets or selling overseas assets to raise capital. A more lasting change is the introduction of greater regulation, which may constrain the growth of banks in developed economies in years to come. Likewise, the part-nationalization of banks in the United States and Europe may act as a constraint on future growth.
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Products & Markets

Supply Chain
Key Buying Industries Z01 - Global Consumers Consumers are the major demand linkage for banks, as they require various loans and product servicing. Key Selling Industries Z01 - Global Consumers Not only are consumers demand linkages through loans, but they also provide a significant funding source for banks through deposits. Therefore, they are a key supply linkage.
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Products & Services

Commercial deposits Consumer deposits Other deposits Other loans Other non-interest income Secured business loans Secured consumer loans 24.0% 28.0% 4.0% 4.0% 6.0% 15.0% 19.0%
Commercial banks across the world primarily earn revenue and profits by accepting deposits and lending funds from these deposits. The industry therefore provides both products and services. The service component of the industry includes all the deposit accounts they provide, including savings deposits from small-time consumers to large deposits from corporate clients. Banks provide various other servicing activities, but deposits constitute the bulk of the sector. The product component of the industry is where banks generate their income. By offering various loans to consumers, they are able to generate interest income. Furthermore, banks also invest deposits in various markets to generate capital gains. When combining the two products and services, deposits constitute the core activities for a bank, as they sign up customers and create bank accounts. This represents a significant amount of time because they also service and manage these accounts. Although these deposits are the essential source of funds in order to generate income, they are actually an expense for banks, as interest expenses are paid to depositors. While this is the case, it is an essential activity. Deposits generate the bulk of their funds and they are able to charge higher premiums on the loans they make as opposed to these deposits they receive. The following discussion revolves around both the services (deposits) and products (loans) that the commercial banking industry undertakes. Deposits While the industry generates income from interest and non-interest bearing activities, commercial banks will also provide the services of deposit accounts. Deposit products provide a relatively stable source of funding and liquidity for commercial banks. Firms will earn interest revenue from investing deposits in earning assets, through client facing lending and asset and liability management activities. Deposits also generate various account fees such as non-sufficient fund fees, overdraft charges and account service fees, while debit cards generate interchange fees. Interchange fees are volume-based and paid by merchants to have the debit transactions processed. As deposits do not generate revenue and are actually an expense, it is difficult to include them in this segmentation. Nonetheless, they do constitute an important business activity, as they tend to service the majority of their loans. Rather than segmenting this industry by revenue (therefore excluding deposits), they have been included through the time spent handling and managing, and through their importance to the industry. It is therefore estimated that deposits account for about 60% of the industry's activities. Deposits will generally include traditional savings accounts, money market savings accounts, certificates of deposits, individual retirement accounts, time deposits, core retail deposits, and regular and interest-
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checking accounts. It is estimated that household savings contribute the majority of deposits, hence their market share of 28% of the industry. Meanwhile, the second most significant deposit category is from corporate clients, at about 24% of the industry's activities. Other deposits are from governmental agencies and various other business sectors, representing a mere 4% of industry activity. Income sources Banks generate income both from interest and non-interest earning activities. The interest earning activities are the core area of revenue generation, and include the interest earned on loans, from mortgages to credit cards. Non-interest income on the other hand is generally obtained from fees, charges and commissions. The majority of lending within this industry relates to consumer lending. More specifically, it revolves around secured lending, such as vehicle loans and residential mortgages. Mortgage products are typically available to customers through a commercial bank's retail network, geographic branch centers, and through sales account executives and sales force personnel who offer customers direct telephone and online access to products. Firms will also serve customers through any partnerships they may have with various mortgage brokers. In general, mortgage product offerings are for home purchasing and refinancing needs, where these mortgage products will have fixed or variable rates. Commercial banks will manage these mortgage portfolios through their balance sheets for asset and liability management purposes, or, as increasingly being observed, repackaged into products and then on-sold into the secondary mortgage market to investors (i.e. collateralized debt obligations and securitization) - while still retaining customer relationships. The mortgage business includes the origination, fulfillment, sale and servicing of first mortgage loan products. Servicing activities primarily include collecting cash for principal, interest and escrow payments from borrowers, and accounting for and remitting principal and interest payments to investors and escrow payments to third parties. Servicing income includes ancillary income derived in connection with these activities, such as late fees. Overall, secured consumer loans account for about 19% of the industry's activities (but constitute a significantly greater share when representing revenue generation as deposits are included in the segmentation). Regarding business lending, this includes a range of lending-related products and services offered to financial businesses and non-financial businesses. These are primarily offered to customers through client relationship teams and various product partners that are associated with the commercial banks. Products include commercial and corporate bank loans and commitment facilities, which will cover business banking clients, middle market commercial clients, and large multinational corporate clients. Real estate lending products are likely to be issued to public and private developers, home builders and commercial real estate firms. Products also include indirect consumer loans, which allow firms in the commercial banking industry to offer financing through automotive, marine, motorcycle and recreational vehicle dealerships across the United States. Business lending is dominated by loans to non-financial businesses, and revolves around secured business loans. IBISWorld believes that these secured loans include loans for production equipment, warehouse machinery, and structures and buildings. Interest income is the main source of revenue for firms that provide these types of loans, with origination fees making up the remainder. Loans to financial businesses account for a smaller proportion of revenue compared to that of non-financial businesses. These loans are typically short-term borrowed money loans, with interest income being the main source of revenue. These secured business loans account for about 15% of the industry's activities. However, they once again constitute a significantly greater share when representing revenue generation as deposits are included in the segmentation.
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Other lending activities include home equity loans, and other unsecured interest income activities such as personal lines of credit. Finally, the other non-interest income activities for the commercial banking industry include servicing fees; financial planning; insurance commission fees; securitization fees; net gains on sales of loans, real estate and other assets; investment banking, advisory, brokerage and underwriting fees; venture capital revenue; and various other fees. Servicing fees are the major part of the other non-interest income category, which includes the reported income from servicing real estate mortgages, credit cards and other financial assets held by the industry's customers. In total, these revenue streams account for about 6% of the industry's activities.
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Demand Determinants
Deposits Affecting the demand for deposit facilities banks offer to their clients is the real after-tax investment return they generate. When deciding to deposit funds with a bank, customers will compare alternative investment options and the returns they offer given the risks inherent. Traditionally, investments in deposit and savings accounts have been regarded as a relatively low risk investment when compared to stocks and real estate. Thus, people with a risk-averse attitude are more likely to demand such products. Moreover, any volatility in equity prices, falls in corporate profits or a slowdown in economic activity can affect investor confidence and increase the demand for deposits, as investors look to minimize risk and protect their wealth. Loans/advances Loans are a form of debt financing. The demand for loans is determined by the real after-tax cost of debt relative to other sources of funding, i.e. capital raising through equity issuance. Generally, the interest rate charged on a loan represents the cost of money to the borrower. As such, any increase in interest rates will translate into a fall in demand for debt financing because it becomes relatively more expensive to borrow. Negatively affecting the demand for loans although in a less direct way than an interest rate increase include an economic downturn, rising unemployment, declining wages, asset value depreciation and/or a fall in investor/business confidence. All of these factors affect the ability of households and businesses to take out a loan and to service it in the subsequent period. The trending behavior of borrowers has also emerged as a significant factor affecting the demand for loans. With households going on a debt binge for much of this decade leading up to the global financial crisis, the demand for loans skyrocketed. Since then, demand has curtailed as more difficult economic conditions have caused consumer behavior to change, resulting in many aiming to reduce their level of indebtedness. From a business perspective, the development of securitization markets around the world has seen corporate banking clients bypassing the banks, raising debt capital directly through financial markets through the issuance of commercial paper and corporate bonds. Other Other factors which influence the demand for banking products and services include competitiveness of banks in key market segments relative to other financial institutions, and more commonly, non-traditional suppliers; accessibility of distribution networks and diversity of product/service offering to meet customers' needs; and the general cost to consumers of maintaining accounts (i.e. fees).
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Major Markets
Consumer and retail customers Small businesses, corporations and institutions Governmental clients Other 45.0% 35.0% 15.0% 5.0%
Consumer and retail customers The consumer and retail customer market segment is expected to account for the largest part of a commercial bank's customer base. Although these customers most often deal in relatively small transaction sizes, the sheer proportion of customer numbers makes this market segment significant. Consumer and retail customers provide a substantial amount of deposits for commercial banks, where account keeping fees and investments made on the deposits make these customers highly profitable. Furthermore, with the high degree of competition in the Global Commercial Banking industry, the ability to attract and retain these customers is considered essential. If a commercial bank has a satisfied base of retail customers, they are then able to market various other products and services to them at minimal costs. For example, banks may entice customers to branch out from their primary banking activities (deposits) into mortgage products, fund management services, credit cards, and other banking sectors within that specific company. Small business, corporate and institutional clients Unlike the aforementioned market segment, small businesses, corporate and institutional clients will deal in a much larger scale of transaction value. Although there may be fewer clients in this category, their dollar value of dealings is substantially larger. Corporate clients require large forms of business lending, and they too deposit cash into commercial banking accounts. Generally, larger corporate and institutional clients will deal with commercial banks whose assets are greater than $1 billion. According to data from the Federal Deposit Insurance Corporation, commercial banks with assets in excess of $1 billion had a greater exposure to commercial and industrial (C&I) and credit card loans. On the other hand, commercial banking institutions with less than $1 billion in assets had a greater exposure to residential mortgages, commercial real estate and agriculture loans. IBISWorld believes that this market segment accounts for 35% of the industry. Governmental clients Commercial banks in this industry provide loans to and accept deposits from government institutions. Loans will vary across regions and governmental departments, but tend to be similar to other market
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segments and can include various types of real estate lending, personal loans, auto loans, and various other governmental-type loans. Other Customers in the "Other" market segment demand a range of other products and services. The Other category holds only a small market share, and generally involves a once-off, niche type of transactional service. These customers can often be involved in student loan services, retirement services, auto finance, and other forms of real estate.
International Trade
Exports in this industry are low and steady. Imports in this industry are low and steady. The level of trade within the commercial banking industry is insignificant. Activity by individual commercial banks outside their domestic market generally occurs through the establishment of subsidiaries domiciled in the foreign markets. Liberalization and leveling of regulatory and legislative barriers across the globe has resulted in a lowering of entry barriers into foreign banking markets.
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Business Locations
Region Europe North America North Asia India & Central Asia Africa & Middle East South America South East Asia Oceania % 47.4 22.6 6.1 6.0 5.1 4.4 4.4 4.0
Three regions dominate the Global Commercial Banks industry: Europe, North America and North Asia. The geographical distribution of bank assets reflects both the degree of deregulation and the development in financial and capital markets. The relative shares have started to even out as developing nations are advancing and as the globalization of the banking industry continues. The commercial banking industry still has a considerable way to go yet before becoming completely globalized, and as this trend continues, the three regions' shares of global bank assets is expected to diminish. The following discussion outlines some of the features of the geographic spread of these three regions.
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Europe The European region is solely responsible for generating more than half of the industry's total revenue. IBISWorld estimates that in 2011 it will account for 47.4%. Although remaining the most important region for this industry, its significance has declined considerably over the last two years, having held a 55.1% market share of total industry revenue in 2008. The main contributing factor to this has been the financial distress many European banks have faced as a result of the global financial crisis which saw large increases in loan loss provisions, charge offs and a considerable increase in the cost of funding. At the same time, the majority of European countries have suffered an economic downturn is some shape or form which has seen demand for banking products and services fall from levels experienced in the years prior. Of course, for the European region to lose ground to other regions around the world, means that they have been more affected by the global financial crisis and/or that it is taking banks in that region longer to recover from the downturn. According to IBISWorld, regions around the world that have noticeably increased their market share of total industry revenue at the expense of Europe include India and Central Asia, Africa and Middle East and North America. However, countries within Europe that contribute significantly to the revenue generated include those of the United Kingdom, responsible for around 27% of the region's revenue, Germany, accounting for some 16.5% and France, with a share of around 11%. In terms of assets, the European region is also the most dominant having an estimated market share of 55.9%, in 2010. As with revenue, the total value of assets under the control of European banks has declined considerably, falling from $67.6 trillion in 2008 to $62.8 this year. This has occurred on the back of depreciating asset values and through the contraction in the size of their loan books. With economic conditions deteriorating and investor confidence plummeting, asset values dipped sharply as observed through the decline in share market indices and deflated real estate prices. Consequently, consumer and business confidence fell along with their wealth. Combined with rising unemployment, many borrowers forfeited on loans issued, while demand for borrowing dropped, which resulted in European banks' loan portfolios deteriorating in value and size. In regards to enterprise numbers, Europe is a much less significant region in the global context given its dominance with respect to total industry assets and revenue. IBISWorld analysis suggests that the reason for this is due to Europe's general integration and proximity of countries, which reduces the desire of potential entrants into the market place establish themselves in a highly competitive region, within a mature and saturated market. IBISWorld estimates that Europe is home to 14.8% of total industry enterprises, making it the third largest region globally. North America The North American region generates an estimated 22.6% of total industry revenue, making it the second most significant region in the world. Within this region, the United States is of crucial importance being the global financial hub that it is, where the majority of the region's banking activities are conducted. Coupled with this, North America also accounts for a large portion of global banking assets, estimated to be 16.1%, housing 29.1% of the industry's enterprises. More and more the North American region, the United States in particular, is becoming less dominant in terms of its share of global banking activity. Being a relatively mature market, it is falling behind emerging markets where economic growth and the demand for banking products and services is booming, as witnessed in China and India. The subprime collapse and the global financial crisis that ensued have made matters worse, having had a far more profound and detrimental effect on banking activity within the North American region than any other part of the world. Many American banks have had to write off billions of dollars in assets, whilst the economy wide impact these events have had resulting in far less revenue being generated as banking activity fizzled out. Looking ahead, the recovery is expected to be far more challenging for banks operating in the North American region than those in other parts of the world.
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Therefore, it is expected that further ground will be lost, with the region becoming less significant. Having said this, the United States will continue to be a focal point of global banking activity from a long-term perspective and any losses in overall market share are expected to be minimal. North Asia Based purely on geographic size, the North Asian region is the largest in the world. Comprising of countries such as China, Japan, Korea and Hong Kong, it accounts for the greatest percentage of industry enterprises, estimated to be around 40%. Creating the need for the existence of a large number of enterprises is the demand emanating from China's population of 1.3 billion people who are located throughout the country, in both, urbanized and remote regions. To effectively capture the market banking enterprises of all sizes operate throughout China, with the majority being small co-operative type businesses. China and the North Asian region also account for a large proportion of the industry's total assets having gone through a period of rapid growth over the last five years. On the back of this growth, three of China's big-four state owned commercial banks have risen into the top 10 global banks in terms of assets under management. Looking ahead a further five years growth of a similar scale is expected which is expected to see the nation's banks grow their asset base and become even bigger, increasing the regions significance in terms of assets owned. Other main reasons why China has a high asset base are due to government control over foreign exchange flows, central bank intervention restrictions and the competitive nature of marketplace in which they operate. A point to note is that, although the North Asian region is the largest in terms of enterprise numbers, with the second largest asset base accounting for 18.4% of the industry's total, its significance in terms of revenue is comparably small. Despite the size of the market, the relative underdeveloped nature of the region's banking product and service offering impedes on its ability to generate substantial gains in revenue from a global perspective. IBISWorld analysis shows that although the region is experiencing strong growth overall, its accountability, as a percentage of total industry revenue, is unlikely to grow at the same pace. This is because more mature economies, like those of Europe and North America, are far better equipped to develop innovative ways to grow their revenue sources and retain their dominance in a global market place. Nevertheless, the North Asian region holds a 12.1% market share of total industry revenue, which is expected to increase slightly over the next five years.
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Competitive Landscape
Market Share Concentration
Industry concentration is low. Commercial banking globally displays low concentration, with the four largest players accounting for about 8.8% of total industry revenue. Due to the sheer size of the industry and the revenue generated by thousands of industry players, the relative share of each industry player is minimized. The four largest industry players are truly global in their operations, as they have operations in every corner of the globe; however, the thousands of other industry players make them appear to have a relatively small status. The financial crisis has led to a number of major corporations to either lose market share or gain market share. Two organizations come to mind, both with opposing share growth. Citigroup has been severely affected by the global financial crisis, and its market share has declined in the two years prior to 2010. Citigroup once held the top position within this market; however, they have since fallen and have now started on their long journey to recovery. On the other hand, the credit crisis has seen the merger between two of the five biggest British banks, HBOS and Lloyds. This will ultimately create a significantly player within the industry, thus once again affecting the industry's concentration level. In given time, the level of concentration will increase, but this is not expected to expand to moderate levels for many years. The large industry players will continue to seek to enter untapped markets, in particular, emerging markets such as China and India.
Key Success Factors

The key success factors in the Global Commercial Banks industry are: Membership of joint marketing/distribution operations Developing innovative alliances/joint ventures that help expand distribution channels and extend customer reach are crucial, reducing costs and the reliance on branch networks. Willingness to outsource when appropriate Outsourcing specific, non-core banking activities to other entities that have operating efficiencies in those areas allows banks to reduce the costs associated with those activities and helps improve profit margins. Superior financial management and debt management A bank's management of its interest rate and other operational risks is crucial to its survival. Thus, banks must employ a rigorous and conservative risk management policy that instills confidence in their customers that the bank is financially strong. Ability to raise revenue from additional sources Increasingly, the ability to generate revenue from non-interest related activities is becoming paramount to banks' success. Therefore, banks need to look into expanding their product and service offering to nontraditional segments, i.e. super/insurance. Economies of scale In an increasingly competitive market, achieving efficiencies and cost reductions through economies of scale has never been more important. Thus, banks face pressure to reduce per unit costs, which are a key driver of profitability. Access to the latest available and most efficient technology and techniques Success depends on prudent investment in, and proper application of, technology in retail banking, customer information systems, risk management and distribution channels. Technology allows banks to
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deliver better services more efficiently. Control of distribution arrangements Banks are increasingly looking to change the role performed by branches toward becoming sales centers for complex products and services, cross selling of products and providing information to customers, rather than being transaction processing hubs. Production of goods currently favored by the market A priority for banks is customer satisfaction. To achieve this, banks must offer their customers a product range and level of service that meets their needs and wants, keeping in mind convenience, flexibility, accessibility and choice offered.
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Cost Structure Benchmarks
Interest Expenses Wages Loan Loss Provisions Depreciation Rent General & Admin Fees & Commissions Advertising Other Profit
45.0% 10.5% 8.5% 3.9% 3.0% 2.0% 2.0% 1.1% 12.8% 11.2%
Interest expense The single largest cost faced by global commercial banks is interest expenses. These are determined by the amount of liabilities, type and maturity of the liabilities, market interest rate conditions, and competition in lending markets. The most significant item comprising interest expenses comes from domestic office deposits, with foreign office deposits, federal funds purchased, trading liabilities and other borrowed money, and subordinated notes and debentures making up the remainder of interest expenses banking enterprises incur. Wages Labor costs are the second most significant expense item for commercial banks, estimated to account for around 10.5% of industry revenue in 2012. The profitability of a commercial bank can be directly related to the quality of its employees and consumer satisfaction; as a result, staff expenses will always be high for this industry. Commercial banks will employ numerous salespeople, tellers, and customer service personnel across their network of branch offices. Average wages differ considerably from region to region, with the highest wages being attributable to the North American ($65,508) and Oceania ($57,319) regions, while the Indian and Central Asian region has the lowest average wage of $8,968. Profitability and loan loss provisions In 2012, global banking profit is expected to recover slightly from the horrid years of 2008 and 2009. Although expected to be well below where it stood prior to the crisis, it will climb back to double digits, at 11.2%. With many banks having written of billions of dollars worth of assets since the last quarter of 2007, profit of, mainly, US and European banks tumbled. Beyond this, the economic conditions that have been witnessed throughout the globe have seen loan loss provisions skyrocketing, affecting all banks, not just those in the developed world. In the United States, in particular, loan loss provisions account for more
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than 30% of total banking revenue. IBISWorld expects that loan loss provisions will continue to be decline in 2012. Rent A key to success in attaining and retaining banking customers is to have an easily accessible branch. Banks are ever expanding their presence across the globe, although the number of enterprises is in decline (primarily as a result of acquisitions and industry exits). Having a presence across the industry through branches helps reach customers. This is particularly true within emerging economies where the use of internet banking is reduced. Establishment numbers in these regions are high, which adds to rent costs. IBISWorld expects that rent costs account for 3.0% of industry revenue. Other There are various other expenses related to this industry, including professional fees and commissions, advertising, utility expenses, depreciation, data processing, and telecommunication fees. As competition has intensified in this industry, IBISWorld believes that these costs have also escalated.
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Basis of Competition
Competition is medium and increasing. The activities within the Global Commercial Banks industry are very competitive and vary across different regions. Generally, the lines of activity and markets served by this industry involve competition with banks, thrifts, credit unions, government agencies, mortgage brokers, co-operatives, and other non-bank organizations offering financial services. Firms in this industry will also compete against banks and thrifts owned by non-regulated diversified corporations and other entities which offer financial services through alternative delivery channels, such as the internet. The basis of competition centers on various factors. These include customer service, interest rates on loans and deposits; quality and range of products and services; lending limits; and customer convenience, such as locations of offices. Customers' ease of access to banks' services is an important aspect of a banks' competitiveness. Relatively modest concentration levels indicate that local, state and regional markets are very important to banking organizations, which highlights the importance of an accessible network of distribution channels, such as bank branches, ATM's, EFTPOS, telephone and internet banking, in gaining a competitive advantage. The importance of such a distribution network is further highlighted by the observation that, despite the large decline in the number of commercial banks and the explosion in the number of ATM's, growth in the number of banking offices has continued. Transaction execution, innovation, technology, reputation and price are also methods on which firms compete in this industry. Competition for retail deposits is likely to increase, as banks position to be less reliant on retail deposits. A factor that may lead to lower competition is the increased regulatory regime expected over the next few years. Greater regulation may manifest itself in the form of greater constraint on the activities in which particular banks can engage, and restrictions on the entry and/or activities of foreign banks in domestic markets.
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Barriers to Entry
Barriers to entry are high and decreasing.
Barriers to Entry checklist Industry Competition Industry Concentration Life Cycle Stage Capital Intensity Technology Change Regulation and Policy Industry Assistance
Level/Impact Medium Low Mature High Medium Heavy Medium

SOURCE: IBISWORLD
In order to operate as a commercial bank in domestic banking markets, the corporation or a similar organization has to receive prior approval of the central bank and/or other regulatory bodies. In order to operate in international banking markets, or to acquire all or parts of assets of a commercial bank in a foreign jurisdiction, the corporation must obtain approval of the central bank and/or regulatory body of the particular international jurisdiction. Banks can also be restricted in their range of activities, in acquisitions of other banks and in interstate banking activities. Furthermore, commercial banks are subject to capital and operational requirements based on risk and leverage. These capital requirements have increased in light of Basel II, and the global financial crisis will see greater capital requirements for banking organizations. The relaxation of global financial markets, starting in the early 1980s, has led to increased competition in the commercial banking industry. Commercial banks face competition from other credit intermediaries, both bank and non-bank, as well as organizations outside the financial services industries. Businesses tend to be very large and have strong market capitalization. This makes it difficult for new entrants to make an impact, and generate any decent market share.
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Industry Globalization
The level of globalization is low and increasing. Banking is increasingly becoming global in nature. The deregulation of financial markets in countries across the globe and the adoption of more uniform regulation lowered barriers to entry of foreign banks into new markets. International capital standards, outlined in the new Basel II capital accord implies that very little adjustment to a bank's operational and capital standards is required in order to enter banking markets of participating countries. Such international alignment of financial market regulation and capital requirements opens up banking markets for increased international competition and consolidation. Many large global banks have a presence in hundreds of countries across the globe. Banks are also involved in cross-border lending. Around 87% of the assets of US banks are US assets. For UK banks, around 64% of their portfolio assets are UK assets, with another 12% of assets coming from the rest of Europe. While the last decade saw banks extend their global reach more so than ever, geographical diversification did not provide the spreading of risk that it might have achieved in other times. In some cases, it added to banks' woes. Globalization of banking is currently making somewhat of a retreat. Some global banks have sold or reduced their stakes in the large Chinese banks. European banks are also withdrawing from emerging markets in Eastern Europe. This withdrawal has been driven by the need to raise capital or conserve capital for domestic markets where serious financial distress has been experienced because of the global financial crisis. According to IMF, the proportion of cross-border assets in banks' total assets fell over the recessionary years of 2008 and 2009, with cross-border lending falling at an even faster rate than overall lending. There have been some cross border purchases such as the purchase of some Lehman Brothers operations by Barclays. Increased regulation of the banking system globally may make it harder in some cases for foreign banks to purchase domestic banks in the future.
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Major Companies
Major Player Bank of America Corporation JPMorgan Chase & Co. HSBC Holdings plc Citigroup Inc. Industrial and Commercial Bank of China Limited Other
Market Share 2.1% (2012) 2.1% (2012) 1.9% (2012) 1.7% (2012) 1.6% (2012) 90.6% (2012)
Bank of America Corporation

Market Share: 2.1% Headquartered in Charlotte, North Carolina, Bank of America (BoA) is the largest commercial bank in the United States. Through its banking subsidiaries and various non-banking subsidiaries, Bank of America provides a diversified range of financial services and products. In 2011, Bank of America operates through three business segments: global consumer and small business banking; global corporate and investment banking; and global wealth and investment management. The company restructured its business operations in 2009 following the acquisition of investment bank Merrill Lynch. As of December 2010, Bank of America had 59 million consumer and small business relationships with more than 6,100 retail banking offices and nearly 18,700 ATMs. The bank has about 243,000 employees. Subprime In May 2009, as part of its stress test, the Federal Reserve notified Bank of America that it would need to increase its Tier 1 common capital by $33.9 billion. In October 2008, Bank of America received a $25 billion capital injection from the US Government as part of its capital purchase program. In January 2009, the government provided Bank of America with an additional $20 billion. The additional funds were required in light of the bank's rising consumer loan losses and unexpectedly large fourth-quarter write-downs from its Merrill Lynch acquisition. Under the terms of an agreement with the government, Bank of America is responsible for the first $10 billion of future losses on a pool of $118 billion in illiquid assets. The government will take responsibility for the next $10 billion in losses, and 90% of any losses after this. In return, the government has taken about a 6.0% stake in Bank of America, to become its largest shareholder. Bank of America also agreed to cut its dividend payments and put restrictions on executive pay.
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Recent acquisitions and events Over the past five years, Bank of America maintained an aggressive strategy of acquiring companies. In September of 2008, Bank of America agreed to buy Merrill Lynch, in a deal worth $29.1 billion. The acquisition finalized on January 1, 2009. This acquisition added around 16,000 financial advisors and a 50% economic ownership of the Blackrock Inc. investment management company. Another major acquisition occurred in late 2007, when Bank of America made a $2 billion investment in Countrywide Financial, and in early 2008 agreed to buy the troubled company. The deal was initially valued at $4 billion, but finalized at about $2.5 billion. The acquisition made Bank of America the largest residential mortgage lender and servicer in the United States. Financial performance Operating condition have remained poor despite the worst being over. Interest income for 2011 was 12.3% lower compared with the previous year. The bank reported an $8.8 billion loss in mortgage banking income. These factors translated into lower revenue for the year. Over the five years to 2011, total bank revenue successfully grew at an annualized 9.7%, due primarily to its previously mentioned acquisitions.
Bank of America Corporation - financial performance

Year Revenue $ million Growth % change NPBT $ million Growth % change
2006 2007 2008 2009 2010 2011
72580 66833 72782 119643 134194 115074
26.9 -7.9 8.9 64.4 12.2 -14.2
N/A 20924 4428 4360 -1323 -230
N/C N/C -78.8 -1.5 N/C -82.6

SOURCE: ANNUAL REPORT
JPMorgan Chase & Co.

Market Share: 2.1% JPMorgan Chase & Co. has its origin in the Manhattan Company, which was created in 1799 to bring water to New York City. Manhattan Company had a provision in its incorporation documents to provide banking services and was brought into competition with the Bank of New York as the Bank of Manhattan. The Bank of Manhattan merged with Chase National, named after Abraham Lincoln's secretary of treasury and architect of the national bank system, Salomon Chase, in 1955. The merged company renamed itself Chase Manhattan and remained the largest US bank into the 1960s. The JPMorgan Chase business structure has six main segments. The firm's wholesale businesses comprise the investment bank, commercial banking, treasury and securities services, and asset management segments. The firm's consumer businesses comprise the retail financial services and card services segments. IBISWorld considers the retail financial services and commercial banking segments to have the most relevance to this industry, while the four other business segments are more relevant to other financial industries.
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The retail financial services segment aims to help meet the financial needs of consumers and businesses through regional banking, mortgage banking and auto finance segments. Retail financial services provides consumer banking through the United State's fourth-largest branch network and third-largest ATM network. Through this segment, JPMorgan Chase became a top-five mortgage originator and servicer, and holds strong market positions in home equity originating and non-captive originating of automobile loans, as well as being one of the largest student loan originators. Acquisitions In July 2004, Bank One Corporation merged with JPMorgan Chase & Co. The transaction united the investment and commercial banking strength of JPMorgan Chase with Bank One's large consumer banking operations. The combined company amassed assets of $1.1 trillion, coupled with a network of 2,300 branches in 17 states. It continued to trade under the name JPMorgan Chase & Co., eliminating an estimated 10,000 jobs in an effort to save $2.2 billion in the three years through 2007. The majority of job losses occurred in the retail banking segment. JPMorgan Chase has since become one of the largest credit card banks with 119.4 million general-purpose cards in circulation around the world in 2008 with a total amount outstanding of $183.3 billion. In 2008, JP Morgan Chase made two significant acquisitions. One of which was Bear Stearns, for which it initially offered $270 million, equating to $2 per share. However, further negotiations led to the offer being raised to $10 a share, costing the company $1.2 billion to complete the transaction. Later that year, it also acquired Washington Mutual, which encountered liquidity issues in the tough economic climate. Beyond its acquisition activity, in October 2008, JPMorgan Chase accepted a $25 billion capital investment by the US Treasury under TARP. By mid-2009, an arrangement was made to repay the debt owed to the government, the company was deemed financially strong enough to do so after passing the government's stress test. Financial performance Over the five years to 2011, company revenue increased 14.5% annually to $106.5 billion. JPMorgan generated $67.25 billion (net of interest expenses) in 2008, down 5.8% on the previous year. The fall in total net revenue was due in large part to $10 billion of markdowns on mortgage related positions. Fees from investment banking fell, while lending and deposit related fees rose by 29% to $5.09 billion. Net interest income rose by 47% due mainly to a fall in interest expenses.
JPMorgan Chase & Co. - financial performance

2006 2007 2008 2009 2010 2011 2011
61999 71372 67252 100434 102694 97234 106541
14.3 15.1 -5.8 49.3 2.3 -5.3 3.7
19886 22805 2773 16067 24859 26749 18111
N/C 14.7 -87.8 479.4 54.7 7.6 4.3

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HSBC Holdings plc

Market Share: 1.9% HSBC is one of the largest global banks, with operations throughout the United Kingdom and Europe, North and South America, Asia-Pacific, Australia, the Middle East, and Africa. Globally, HSBC has about 10,000 offices in 82 countries and territories, servicing approximately 130 million customers. Business segments HSBC operates across four distinct segments: commercial banking; personal financial services; global banking and markets; and private banking. It also has a small "other" segment. Collectively, these segments provide consumer and commercial banking services, investment banking, credit cards, asset management, private banking, securities underwriting and trading, insurance and leasing. Most specific to the industry are the commercial banking and personal financial services segments. Through HSBC's commercial banking segment, the company aims to be the leading international business bank. This segment provides businesses and customers payments, collections, liquidity management, account, and wealth management services worldwide. Through this segment, HSBC will also offer insurance protection, employee benefits programs and pension plans, trade services (credit, collections and financing products), leasing, finance and factoring, and credit cards. The company's personal financial services segment provides customers with a vast range of basic banking products and services. These include deposit accounts, various mortgage and finance loans, debit and credit cards, insurance and investment services, local and international payments services, and taxpayer financial services. The global banking and markets division provides customized financial solutions to clients worldwide. These clients tend to be larger, such as governments and corporations. The services provided by the private banking segment include investment services, global wealth solutions, specialty advisory services and general banking services. Finally, HSBC's other division comprises the company's captive private equity funds, strategic relationships with third-party private equity managers and other investments. Financial performance Over the five years to 2011, company revenue increased 7.2% annually to $99.2 billion. As with most banks and financial service companies that operate globally, the recent financial crisis affected HSBC. However, overall the company has fared well, with continued success in its consolidated performance. Specific to the United States, however, mortgage defaults plagued HSBC and the company ended up shutting down Decision One in 2007, which was the US-based wholesale subprime lending unit of HSBC Finance. HSBC also placed its US vehicle lending business in run-off, while the consumer finance operations will begin to focus on card and consumer lending. Following the subprime credit crisis, which had a severe impact across the United States and Europe, HSBC lifted its direction towards emerging markets in Asia for stability and growth. IBISWorld believes that this will be a key strategic direction for the company going forward.
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HSBC Holdings plc - financial performance

2006 2007 2008 2009 2010 2011
70070 87601 88571 78631 98918 99152
13.6 25 1.1 -11.2 25.8 0.2
21240 22709 7646 5298 4006 3112
N/C 6.9 -66.3 -30.7 -24.4 -22.3

Citigroup Inc.
Market Share: 1.7% Citigroup, Inc. is a diversified holding company with businesses that provide a broad range of financial services. Citigroup operates across North America, Latin American, Africa, Europe, the Middle East and Asia. Citigroup's predecessor, Travelers Group Inc. (TRV), was founded in 1864 as the first US accident insurer. In 1997, TRV bought investment bank Salomon Brothers and formed Salomon Smith Barney Holdings. Citigroup formed when Citicorp merged into a newly formed, wholly owned subsidiary of Travelers Group Inc. in October 1998. Following the effectiveness of the merger, that subsidiary changed its name to Citicorp, and Travelers changed its name to Citigroup Inc. In 2008, Citi restructured, with its business segments reduced from five to two. The aim of this restructure was primarily to allow Citigroup to focus on its core banking operations. The two new operating units are Citicorp and Citi Holdings. Citicorp encompasses the group's global business and consumer banking operations. It includes the retail bank business, corporate and investment bank, and Citi Private Bank and holds the group's core operations. It has relatively low-risk, high return assets. The other unit is Citi Holdings, which is made up of brokerage and asset management; consumer finance, mortgage loans, and private label credit cards; and a special asset pool. Citi Holdings has about one-third of staff and includes the $310 billion in assets covered by a loss-sharing agreement with the government. Subprime events Citigroup has been one of the banks most affected by the global financial crisis. In November 2008, the company announced that it was going to shed 52,000 jobs from its global operations. By November 2008, the US Government had agreed to protect $301 billion of loans and securities on the company's balance sheet, in order to support investor confidence in the bank. Citigroup also received $45 billion from the government in return for non-voting preferred stock. In addition, Citigroup agreed not to pay common stock dividends in excess of $0.01 per share per quarter for three years beginning in 2009. In September 2008, Citigroup announced plans to acquire Wachovia Bank in a $2.16 billion deal. The acquisition would have created the third-largest branch network in the United States and given Citigroup a 10% share of total US deposits. This plan fell through, with Wachovia eventually acquired by Wells Fargo.
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In 2008, the company announced that it was scaling back its US mortgage business after it suffered nearly $10 billion worth of fourth-quarter losses in 2007 due to mortgages and the subprime crisis. In November 2007, the Abu Dhabi Investment Authority a Middle Eastern sovereign fund purchased a 4.9% stake in Citigroup for $7.5 billion. Financial performance Over the five years to 2011, company revenue increased at an annualized rate of 1.9% annually to $78.3 billion. The banks operating profit decline was more dramatic, due to the reported NPBT loss of $53.1 billion in 2008 due to the financial crisis. This loss was attributed to mark-to-market losses of $32 billion and an increase in loan loss reserves. Although Citigroup's revenue rebounded strongly in 2010, the bank's net revenue declined in 2011 due to lower loan balances and lower interest earning assets in the bank's portfolio. Despite this, the bank successfully recorded improvements in its NPBT margins due to substantially lower provisions for loan losses.
Citigroup Inc. - financial performance

2006 2007 2008 2009 2010 2011
86327 77300 51599 80285 86601 78353
7.8 -10.5 -33.2 55.6 7.9 -9.5
28489 776 -53055 -7799 13184 14624
N/C -97.3 N/C -85.3 N/C 10.9

Industrial and Commercial Bank of China Limited

Market Share:1.6% Although ICBC was only founded on January 1, 1984, it is the world's largest bank by profit and market capitalization. In 2006 the bank listed simultaneously on Hong Kong Stock Exchange and Shanghai Stock Exchange. However, the bank's largest shareholder is Huijin, a wholly state-owned company that was incorporated in 2003. Within the decade, the bank has expanded rapidly. As of 2010, the bank had 16,227 domestic branches, 203 overseas branches and over 1,500 correspondent banks. The bank maintains close ties with Goldman Sachs, who was one of its initial strategic investors prior to the IPO in 2007. Over the five years through 2011, ICBC's revenue grew at an annualized rate of 21.0% a year. The 55% growth in 2007 compensated for the slow year in 2009, when revenue was hit by the slowing world economy. True to its reputation, the bank's operating profit substantially exceeds the largest bank based on earnings, HSBC. HSBC's net profit before tax of $3.1 billion pales in comparison with ICBC's $42.5 billion in 2011. Based on NPBT margins, the bank is highly profitable compared with its peers, primarily because its operating expenses are substantially lower, averaging 5.0% per year. Although most banks were severely affected by the financial crisis, due to the nature of their dealings and their focus on European and North American markets, ICBC survived relatively unscathed. The bank's
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focus on China helped the bank navigate through the downturn. China continued to record GDP growth above 9.0% while most of the developed economies were going through a recession. ICBC's largest market is that surrounding the Yangtze River Delta, where the major cities of Shanghai and Nanjing are located. Its corporate banking business contributes an estimated 53.1% of bank's total revenue. However, economic indicators suggest that China may be slowing down over the next year. Consequently, the bank's personal banking segment is expected to play a greater role in driving growth for the bank in the next year.
Industrial and Commercial Bank of China - financial performance

Year Revenue Growth % change NPBT Growth % change
2007 2008 2009 2010 2011
36260.21 45440.03 44723.4 57912.5 74267.8
n/c 25.3 -1.6 29.5 28.2
19658.9 21036.5 24250.5 32354.6 42477.1
N/C 7.0 15.3 33.4 31.3

Other Players
Other than the four major banks listed, IBISWorld has identified a further 10 banks of considerable size with strong global presence within the industry. The 10 other banks estimated to be significant players in the industry are UBS (based in Switzerland), Credit Agricole, BNP Paribas, and Societe Generale (all based in France), Deutsche Bank (based in Germany), HBOS-Lloyds TSB and the Royal Bank of Scotland Group (both based in United Kingdom), ING Group (based in the Netherlands), Mitsubishi UFJ Financial Group (based in Japan). All of these banks hold strong market positions in their respective countries and a solid global presence. Their revenue, profit, assets, and market capitalization may all differ, but they are strong global commercial banking operations that are relevant to the industry.
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Operating Conditions
Capital Intensity
The level of capital intensity is high. Substantial investments in branch and technology infrastructure Human resources form the basis of this industry The industry is characterized by establishments providing financial services on a state level to a national level. In order to compete effectively, a physical presence is required in the form of branches and ATMs. Industry participants have invested substantially in a branch network as a means of distributing their services. Further and continuous investments in technology and communication infrastructure are necessary to remain competitive. Such investment costs will include keeping up with technology improvements, maintaining a strong branch network and distribution status, increasing ATM presence, and aims to increase efficiencies with internet and other electronic means. In more mature industries, there have been efforts to reduce capital intensity by selling property and closing branches, aided by the development of direct distribution channels and technological improvements. Furthermore, there have also been efforts to reduce labor intensity, as banks look to cut costs by making their operations more streamlined and technology based. This tends to be the opposite for developing countries, where there is a high degree of labor intensity with numerous employees serving individual bank branches. This is because the implementation of technology in banking systems in developing countries is not as advanced.
Technology & Systems

The level of technology change is medium. Technology has significantly changed the commercial banking industry by lowering the cost of storing, processing and accessing data through the growth of low-cost communications equipment. Technology will continue to contribute to significant changes in retail payments systems and financial services distribution channels, bank risk management and data assessment. The increasing need for technologic empowerment and continuous improvement of equipment, new pricing structures and distribution channels have emerged. It is expected that these developments will encourage customers to adapt to these new, low-cost distribution channels in favor of more costly alternatives. Access to the Internet, restricted internal Intranets and increasingly secure transmission of information is expected to accelerate the use of network use as a means to reduce costs. Furthermore, technological developments have vastly altered the banking landscape for many of the emerging economies. In India for example, there have been significant improvements in processes and procedures leading to higher productivity, rapid product development through alternative delivery channels, and reduction in the transaction cost. Technology is also being leveraged to increasingly expand banking outreach aiming to target many of the rural areas associated with emerging economies. Such technological developments include computerization (which is considered the starting point of all technological initiatives), ATM installation, and the use of electronic payments (both retail and cardbased).
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Revenue Volatility
Industry revenue volatility is medium. There are many factors which affect revenue volatility, with the most important being the level of interest rates, investor confidence, the demand for borrowing, the availability of funds, and global share market performance. The global nature of this industry would normally act to reduce volatility. Slower growth in some regions may be balanced by faster growth in others. The global nature of this industry means that the largest banks can extend their operations into those regions where prospects are brightest. The current financial crisis has seen a period of unusual volatility. Most affected have been the US and European banks which dominate this industry. Volatility has been acerbated by the arrival of both a financial crisis and global recession. While the affects of the financial crisis have been most pronounced for banks in developed countries, where asset write-downs have been greater, banks in other regions have felt the impact of rising loan losses associated with the downturn in economic conditions. The industry is expected to return to its more usual state of moderate volatility over the next five years. Measures planned by governments around the world in regulating financial institutions of systemic importance to the financial system will contribute to a more stable future environment.
Regulation & Policy

The level of regulation is heavy and the trend is increasing. Bank for International Settlements (BIS) The Bank for International Settlements (BIS) is an international organization that fosters international monetary and financial cooperation and serves as a bank for central banks. BIS, established in 1930, is the world's oldest international financial institution. However, the bank does not accept deposits from, or provide financial services to, private individuals or corporate entities. BIS' customers constitute central banks and international organizations. The BIS acts as a forum to promote discussion and policy analysis among central banks and within the international community; a center for economic and monetary research; a prime counterparty for central banks in their financial transactions; and, agent or trustee in connection with international financial operations. The growth and globalization of financial markets during the final decades of the twentieth century shaped the nature of central bank cooperation at the BIS as the bank assisted, and continues to assist, the pursuit of global monetary and financial stability in two main ways. First, the bank provides emergency financial assistance in case of need. Second, the bank supports experts from national central banks and supervisory agencies in proposing measures and developing standards aimed at strengthening the international financial and banking supervision. The growth of international financial markets and cross-border money flows in the 1970s highlighted the lack of efficient banking supervision on an international level. National banking supervisory authorities regulated domestic banks and the domestic activities of international banks. However, international activities of these banks were not always closely supervised. Several high-profile banking collapses, the Bankhaus Herstatt in Germany and the Franklin National Bank in the US, prompted the central banks of the G10 nations to set up the Basel Committee on Banking Supervision. The Basel Capital Accord, issued by the Committee in 1988, introduced a credit risk measurement framework for internationally active banks. The Accord became a globally accepted standard, and a revision of the Capital Accord, known as Basel II, is due to be implemented worldwide from end-2006. In addition to the Basel Committee on Banking Supervision, the Committee on the Global Financial System,
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the Committee on Payment and Settlement System, and the Markets Committee help promote monetary and financial stability. Increased regulation Governments around the world are expected to increase the level of regulation of the banking system because of the global financial crisis. A summit of G-20 leaders was held in November 2008 to discuss the crisis. Some general measures to strengthen regulation of the banking sector were agreed upon. This included boosting bank capital requirements for some activities, assessing risk management practices and improving transparency. The need to improve regulation through more consistent national laws, and greater international cooperation and coordination of financial market regulators was identified. Both the United States and the United Kingdom in particular are expected to increase regulation of their banking systems. In cases where governments have taken an ownership stake in banks requiring capital, restrictions on executive remuneration and dividend payments have already been introduced.
Industry Assistance
The level of industry assistance is medium and the trend of industry assistance is steady. There are no specific tariffs for this industry. Governments around the world have been providing banks with access to funds and direct capital injections, and introducing government guarantees on deposits and various forms of bank debt. According to the IMF, the various measures introduced by governments including liquidity facilities, asset purchase schemes and guarantees for bank debt issuance have provided up to $8.9 trillion of financing.
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Key Statistics
Industry Data
Revenue 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 3,592,691.2 3,952,172.9 4,486,881.2 4,984,241.6 5,449,994.6 5,007,405.0 4,521,256.7 4,711,117.4 4,880,698.8 5,139,317.3 5,447,676.4 5,676,478.8 5,846,773.1 6,051,410.2 6,178,489.8 IVA 1,141,601.1 1,270,792.9 1,439,070.7 1,530,168.2 1,489,997.1 1,238,798.5 1,160,889.3 1,211,040.8 1,354,245.8 1,445,958.5 1,532,199.6 1,594,971.6 1,643,712.1 1,683,161.2 1,698,214.3 Establishments Enterprises 952,817 956,923 959,779 820,018 821,077 865,545 811,937 809,295 815,816 818,913 826,303 825,180 827,362 828,434 839,151 72,691 73,129 66,504 62,635 60,950 58,412 55,903 55,279 55,082 54,674 54,233 53,707 53,626 54,102 54,233 Employment 13,103,687 13,365,181 13,812,646 13,981,723 14,354,044 14,330,710 14,577,498 14,839,893 14,928,932 14,958,790 15,048,543 15,229,125 15,381,417 15,581,375 15,799,514 Exports Imports Wages 466,967.6 484,625.6 521,148.8 557,957.7 611,816.8 585,709.6 529,458.5 528,473.8 535,341.9 539,618.5 544,475.0 553,186.6 568,675.9 581,186.7 593,391.6 Total Assets ($ billion) 75,937.9 87,214.6 94,860.2 99,349.4 108,455.9 115,403.7 112,910.9 113,710.5 119,462.1 126,266.3 132,421.4 136,853.1 139,703.0 143,475.0 146,214.0
Annual Change
Revenue (%) 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 10.0 13.5 11.1 9.3 -8.1 -9.7 4.2 3.6 5.3 6.0 4.2 3.0 3.5 2.1 IVA (%) 11.3 13.2 6.3 -2.6 -16.9 -6.3 4.3 11.8 6.8 6.0 4.1 3.1 2.4 0.9 Establishments Enterprises (%) (%) 0.4 0.3 -14.6 0.1 5.4 -6.2 -0.3 0.8 0.4 0.9 -0.1 0.3 0.1 1.3 0.6 -9.1 -5.8 -2.7 -4.2 -4.3 -1.1 -0.4 -0.7 -0.8 -1.0 -0.2 0.9 0.2 Employment (%) 2.0 3.3 1.2 2.7 -0.2 1.7 1.8 0.6 0.2 0.6 1.2 1.0 1.3 1.4 Exports (%) N/C N/C N/C N/C N/C N/C N/C N/C N/C N/C N/C N/C N/C N/C Imports (%) N/C N/C N/C N/C N/C N/C N/C N/C N/C N/C N/C N/C N/C N/C Wages (%) 3.8 7.5 7.1 9.7 -4.3 -9.6 -0.2 1.3 0.8 0.9 1.6 2.8 2.2 2.1 Assets (%) 14.8 8.8 4.7 9.2 6.4 -2.2 0.7 5.1 5.7 4.9 3.3 2.1 2.7 1.9
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Key Ratios
IVA/revenue (%) 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 31.8 32.2 32.1 30.7 27.3 24.7 25.7 25.7 27.7 28.1 28.1 28.1 28.1 27.8 27.5 Imports/ demand (%) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Exports/ revenue (%) N/C N/C N/C N/C N/C N/C N/C N/C N/C N/C N/C N/C N/C N/C N/C Revenue per employee ($'000) 274.2 295.7 324.8 356.5 379.7 349.4 310.2 317.5 326.9 343.6 362.0 372.7 380.1 388.4 391.1 Wages/ revenue (%) 13.0 12.3 11.6 11.2 11.2 11.7 11.7 11.2 11.0 10.5 10.0 9.7 9.7 9.6 9.6 Employees per est. 14 14 14 17 17 17 18 18 18 18 18 18 19 19 19 Average wage ($) 35,636.4 36,260.3 37,729.8 39,906.2 42,623.3 40,870.9 36,320.3 35,611.7 35,859.4 36,073.7 36,181.2 36,324.3 36,971.6 37,300.1 37,557.6
Figures are inflation-adjusted 2012 dollars

NOTE: UNLESS SPECIFIED, AN ASTERISK (*) ASSOCIATED WITH A NUMBER IN A TABLE INDICATES AN IBISWORLD ESTIMATE AND REFERENCES TO DOLLARS ARE TO US DOLLARS.
Jargon
CDO Stands for collateralized debt obligations. LOAN A type of debt where funds are extended to the borrower who is then obliged to repay the principal plus interest over the term of the loan. M&A Stands for mergers and acquisitions. RETAIL DEPOSITS Sums of money deposited by a customer in a banking enterprise. Customers generally earn a rate of return, i.e. principal plus interest accrued over the term of the loan.
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IBIS Global Banks Breifing

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IBISWorld Industry Report J5511-GL

Global Commercial Banks

About This Industry ................................. 2

Basis of Competition .................................... 27 Barriers to Entry........................................... 28 Industry Globalization .................................. 29

Major Companies .................................... 30

Industry Performance .............................. 4

Products & Markets ................................. 13

Operating Conditions .............................. 37

Key Statistics ........................................... 40

Competitive Landscape ........................... 23

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Global Commercial Banks

About This Industry

Global Commercial Banks

Global Commercial Banks

Key External Drivers

Global Commercial Banks

Global Commercial Banks

Global Commercial Banks

Global Commercial Banks

Global Commercial Banks

Global Commercial Banks

Global Commercial Banks

Global Commercial Banks

Industry Life Cycle

Global Commercial Banks

Products & Markets

Global Commercial Banks

Products & Services

Global Commercial Banks

Global Commercial Banks

Global Commercial Banks

Global Commercial Banks

Global Commercial Banks

Global Commercial Banks

Global Commercial Banks

Global Commercial Banks

Global Commercial Banks

Key Success Factors

Global Commercial Banks

Global Commercial Banks

Cost Structure Benchmarks

Global Commercial Banks

Global Commercial Banks

Global Commercial Banks

Level/Impact Medium Low Mature High Medium Heavy Medium

Global Commercial Banks

Global Commercial Banks

Bank of America Corporation

Global Commercial Banks

Bank of America Corporation - financial performance

2006 2007 2008 2009 2010 2011

72580 66833 72782 119643 134194 115074

26.9 -7.9 8.9 64.4 12.2 -14.2

N/A 20924 4428 4360 -1323 -230

N/C N/C -78.8 -1.5 N/C -82.6

JPMorgan Chase & Co.

Global Commercial Banks

JPMorgan Chase & Co. - financial performance

2006 2007 2008 2009 2010 2011 2011

61999 71372 67252 100434 102694 97234 106541

14.3 15.1 -5.8 49.3 2.3 -5.3 3.7