Professional Documents
Culture Documents
13 March 2012
Global Banks
Kian Abouhossein
AC
(44-20) 7325-1523
kian.abouhossein@jpmorgan.com
J.P. Morgan Securities Ltd.
Amit Ranjan
(44-20) 7325-4780
amit.x.ranjan@jpmorgan.com
J.P. Morgan Securities Ltd.
AC
(7-495) 967-3172
alex.kantarovich@jpmorgan.com
J.P. Morgan Bank International LLC
AC
Delphine Lee
(33-1) 40 15 49 28
delphine.x.lee@jpmorgan.com
J.P. Morgan Securities Ltd.
Eugenio M Cicconetti
AC
(44-20) 7325-8215
eugenio.cicconetti@jpmorgan.com
J.P. Morgan Securities Ltd.
Joseph Leung
AC
(852) 2800-8517
joseph.mj.leung@jpmorgan.com
J.P. Morgan Securities (Asia Pacific) Limited
Mervin Naidoo
AC
(27-11) 507-0716
mervin.x.naidoo@jpmorgan.com
J.P. Morgan Equities Ltd.
Naresh Bilandani
AC
(971) 4428-1763
naresh.n.bilandani@jpmorgan.com
JPMorgan Chase Bank, N.A., Dubai Branch
AC
(81-3) 6736-8618
natsumu.tsujino@jpmorgan.com
JPMorgan Securities Japan Co., Ltd.
Raul Sinha
AC
(44-20) 7742-2190
raul.sinha@jpmorgan.com
J.P. Morgan Securities Ltd.
Saul Martinez
AC
(1-212) 622-3602
saul.martinez@jpmorgan.com
J.P. Morgan Securities LLC
Scott Manning
AC
(61-2) 9220-1803
scott.r.manning@jpmorgan.com
J.P. Morgan Securities Australia Limited
AC
(91-22) 6157-3575
seshadri.k.sen@jpmorgan.com
J.P. Morgan India Private Limited
Sofie Peterzens
AC
(44-20) 7777-9063
sofie.c.peterzens@jpmorgan.com
J.P. Morgan Securities Ltd.
Vivek Juneja
AC
(1-212) 622-6465
vivek.juneja@jpmorgan.com
J.P. Morgan Securities LLC
See page 229 for analyst certification and important disclosures, including non-US analyst disclosures.
J.P. Morgan does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that
the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single
factor in making their investment decision.
www.morganmarkets.com
This document is being provided for the exclusive use of Rathiesh Chandran at PREMJI INVEST.
Kian Abouhossein
(44-20) 7325-1523
kian.abouhossein@jpmorgan.com
Amit Ranjan
(44-20) 7325-4780
amit.x.ranjan@jpmorgan.com
Table of Contents
For Specialist Sales advice,
please contact:
Harry Harutunian
(44-20) 7779-2695
harry.harutunian@jpmorgan.com
James Lloyd
(44-20) 7742-4267
james.d.lloyd@jpmorgan.com
Adriana Roitstein
(1-212) 622-2702
adriana.roitstein@jpmorgan.com
This document is being provided for the exclusive use of Rathiesh Chandran at PREMJI INVEST.
Kian Abouhossein
(44-20) 7325-1523
kian.abouhossein@jpmorgan.com
Amit Ranjan
(44-20) 7325-4780
amit.x.ranjan@jpmorgan.com
Executive Summary
Executive Summary
This document is being provided for the exclusive use of Rathiesh Chandran at PREMJI INVEST.
Kian Abouhossein
(44-20) 7325-1523
kian.abouhossein@jpmorgan.com
Amit Ranjan
(44-20) 7325-4780
amit.x.ranjan@jpmorgan.com
Executive summary
Table 1: Selective Global Banks
across geographies included in this
IB analysis
North America
Goldman Sachs
Morgan Stanley
Citigroup
Bank of America
JAPAN
Nomura Holdings
Europe
UBS
CSG
Deutsche Bank
Barclays
RBS
HSBC
Standard
Chartered
BNP Paribas
Socit Gnrale
Crdit Agricole
Natixis
SEB
UniCredit
Mediobanca
MENA
EFG Hermes
RUSSIA
VTB
Africa
Investec
Australia
Macquarie Group
Brazil
Itau Unibanco
India
ICICI Bank
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Kian Abouhossein
(44-20) 7325-1523
kian.abouhossein@jpmorgan.com
Amit Ranjan
(44-20) 7325-4780
amit.x.ranjan@jpmorgan.com
Figure 1: IB revenue wallet progression since 1999: 2012E-13E between 2005-2006 levels (1999
indexed to 100)
Equities (LHS)
500
450
400
350
300
250
200
150
100
50
0
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012E
2013E
Source: J.P. Morgan estimates, company data. Note: Clean IB revenues (Equities, FICC, Advisory & Underwriting) excluding
writedowns, basis risk losses and DVA/own debt; revenues for GS, MS, DB, UBS, CS, BoA-ML, Citi and JPM included
IB ROE
Tier I IB ROE
Tier II IB ROE
PreReg.
13.6%
14.2%
13.3%
PostReg.
6.8%
6.7%
6.8%
306
403
288
380
258
243
IB comp/head
Tier I IB
comp/head
Tier II IB
comp/head
CS
BNP
SG
Barcap
UBS
Fixed and
Deferred
Comp
88%
88%
83%
83%
71%
Variable
Comp
12%
12%
17%
17%
29%
This document is being provided for the exclusive use of Rathiesh Chandran at PREMJI INVEST.
Kian Abouhossein
(44-20) 7325-1523
kian.abouhossein@jpmorgan.com
Amit Ranjan
(44-20) 7325-4780
amit.x.ranjan@jpmorgan.com
These two headwinds discussed above could lead to polarisation of the IB industry in
our view as we believe Tier I players should be able to manage their cost base
better having generally lower salaries as well as less deferred compensation
schedules. More importantly the main differentiator between Tier I and Tier II IB
players would be FICC in our view considering it constitutes 51% of the 2013E
IB revenue wallet in our estimates and operates at a higher efficiency level than the
equity business (i.e. more absolute profit). In addition FICC is more affected by the
regulatory changes relative to equities. We believe the winning model in a more
polarised IB environment should be Tier I institutional players and Boutiques
with a high profitability model with Tier II agency players in the middle.
Emerging market players should continue to benefit from growth in the region.
Generally, FICC is becoming more cash-equity like due to regulatory
pressures. This is led by i) Dodd-Frank increasing the transparency within FICC,
moving from an OTC to a more transparent SEF platform trading business as we are
used to in cash equities (but not like exchanges) and ii) due to Basel capital rules
increasing FICC capital consumption, IB for the FICC clients becoming highly
valuable.
1. As we have witnessed in cash equities, FICC will likely become even more
execution-only focused with a drive to electronic trading. These platform builds
in our view are high barriers to entry due to the heavy technological investments
involved which will likely only be supported by large-scale FICC revenue players
generating c.$10bn+ (i.e. Tier I players). Tier II IBs generating about $5bn will
struggle to compete in our view. Over time liquidity will flow to IBs with the best
technology-execution type platforms as we witnessed in cash equities, which has
seen GS and CS in top positions in the equity electronic segment.
2. To be a Tier I FICC player in the future one needs to be running a full
product/platform business as seen in cash equities with the willingness to commit
capital on behalf of clients. In short, in a Basel 3 world, clients will be willing to
pay for IB capital access. Cash Equities has become an increasingly commoditylike business for two key reasons: i) the rise of cheap execution through electronic
trading, and ii) the expectations from clients for IBs to commit capital on their behalf
to get paid in full agency trades by clients. The capital usage in trading is part of the
revenue wallet calculation paid by the client reflected in the block loss level. Hence
we think in a FICC world which is becoming more transparent, giving access to
balance sheet and capital is the key. This means FICC Tier I players will likely
remain committed to the Basel 3 low ROE businesses such as hybrid and exotics
within FICC, leading to gaining flow market shares from clients that will pay for the
access to IB capital. We believe Tier II IBs could lose continuous flow market
share due to their unwillingness to commit capital on behalf of clients.
Equity boutiques are highly profitable, illustrating the issue of polarisation, as equity
clients are willing to pay for advice. We expect FICC boutiques to start to develop
more actively in FICC, which is becoming more cash equity like.
We already see a large polarisation in the IB businesses but we believe Tier I
players could become even bigger liquidity providers in FICC. The top 6 players
account for 50% of our estimated 2013E IB revenue wallet while the top 10 players
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Kian Abouhossein
(44-20) 7325-1523
kian.abouhossein@jpmorgan.com
Amit Ranjan
(44-20) 7325-4780
amit.x.ranjan@jpmorgan.com
account for 72% of our estimated IB revenue wallet in 2013E, leaving the bottom 10
players with 8% market share.
Table 4: Classification based on
FICC
Tier I
Institutional
GS
DB
BARC
Citi
BofA
Tier II
Institutional
MS
UBS
CS
BNPP
SG
RBS
Jefferies
RBC
FICC is even more concentrated today with the Top 6 players accounting for
58% of market share in our estimates with the next 5 players only accounting for
24% of our 2013E estimated revenue wallet. The bottom 12 players only account
for 10% of 2013E FICC market share in our estimates.
Tier II Agency
HSBC
Standard
Chartered
In Equities we estimate the Top 6 players account for 48% of our revenue wallet
share in 2013E with the bottom 10 players again accounting for only 8% of revenue
wallet share in our 2013E estimates. We see exit strategies by Tier II institutional IBs
such as RBS and UCG, announced recently, leading to ongoing market consolidation.
Growth Market
Players
EFG Hermes
Investec
VTB
In IBD as well we see a similar picture, with the Top 6 players accounting for
57% of the revenue wallet in our 2013E estimates with the bottom 10 players only
accounting for 6% of the IBD revenue wallet. We note that within IBD U.S. IBs are
relatively more profitable compared to Europe due to more concentration.
Itau Unibanco
ICICI BANK
Tier III Agency
CASA
Natixis
SEB
UCG
MB
We show our 2013E estimated market shares based on our IB revenue wallet by bank
in Table 6 and Table 7.
FI
58%
76%
7%
Eq.
48%
69%
8%
IBD
57%
79%
6%
IB
50%
72%
8%
This document is being provided for the exclusive use of Rathiesh Chandran at PREMJI INVEST.
Kian Abouhossein
(44-20) 7325-1523
kian.abouhossein@jpmorgan.com
Amit Ranjan
(44-20) 7325-4780
amit.x.ranjan@jpmorgan.com
GS**
DB
BofA
Citi
BARC
MS
HSBC
CS
BNPP
UBS
Nomura
RBS
IB Fees
Advisory
Equity Underwriting
Debt Underwriting
Total
11.8%
11.9%
8.2%
7.0%
8.8%
5.8%
6.0%
6.1%
5.9%
9.9%
13.5%
11.2%
11.2%
3.6%
5.1%
9.7%
6.7%
6.3%
5.6%
8.9%
8.1%
12.7%
11.0%
5.7%
9.0%
5.1%
6.7%
10.3%
7.8%
6.9%
6.2%
5.9%
6.2%
0.7%
1.5%
2.3%
1.6%
2.8%
6.2%
1.7%
3.1%
3.0%
4.2%
1.4%
2.5%
0.5%
0.6%
3.8%
2.0%
12.4%
5.5%
17.2%
7.4%
10.5%
2.7%
21.3%
9.7%
6.7%
10.2%
14.6%
10.2%
7.9%
9.6%
9.6%
9.2%
5.7%
6.8%
3.0%
12.1%
14.3%
7.0%
8.2%
3.7%
4.6%
4.3%
5.8%
1.6%
13.3%
4.7%
5.7%
1.5%
6.6%
2.7%
16.1%
0.0%
5.6%
11.4%
5.6%
2.2%
4.4%
4.6%
2.7%
4.3%
2.0%
0.8%
4.6%
6.6%
1.9%
2.1%
3.5%
1.3%
6.5%
7.0%
4.5%
2.3%
1.4%
4.0%
3.4%
2.7%
4.1%
3.9%
5.1%
5.6%
0.0%
3.9%
7.3%
16.7%
18.9%
11.5%
11.6%***
5.2%
6.7%
5.9%
5.4%
6.2%
4.9%
5.6%
2.8%
6.8%
5.0%
8.3%
12.4%
14.8%
9.4%***
1.8%
3.2%
12.4%
5.0%
7.3%
12.5%
8.6%
7.2%***
10.2%
0.5%
1.1%
4.4%
5.8%
8.6%
6.3%
6.3%
5.2%
2.3%
0.7%
0.6%
1.4%
10.2%
9.3%
8.1%
7.8%
7.6%
7.1%
6.4%
5.6%
5.1%
5.0%
4.1%
3.4%
3.3%
Equity Markets
Equity Derivatives
Cash equities
Prime brokerage
Total equities1
Total Revenue
8.4%
Source: J.P. Morgan estimates. *JPM market share assuming constant revenues at 2011 levels. JPM FICC revenues adjusted for DVA gain of $70m in 2Q, $529m in Q3 and DVA loss of $135m in 4Q 2011. Q2 2011 DVA gains of $140m in trading equally divided
between FICC & Equity Markets. JPM Equities revenues adjusted for DVA gains of $70m in 2Q, $377m in Q3 and DVA loss of $27m in Q4 2011. Q2 2011 DVA gains of $140m in trading equally divided between FICC & Equity Markets.**GS only institutional Client
services revenues for Fixed Income and equities. ***/1. Equity revenues adjusted for brokerage, clearing and settlement fees for GS, MS and CS.
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Kian Abouhossein
(44-20) 7325-1523
kian.abouhossein@jpmorgan.com
Amit Ranjan
(44-20) 7325-4780
amit.x.ranjan@jpmorgan.com
RBC2
CASA
STAN
MQG
UCG
Natixis
0.7%
1.1%
1.8%
1.3%
2.9%
1.2%
0.9%
1.1%
1.1%
0.4%
0.5%
0.6%
0.5%
3.1%
2.2%
0.4%
1.6%
0.3%
0.6%
0.5%
0.5%
0.1%
0.2%
0.1%
0.2%
0.8%
0.8%
2.7%
3.0%
0.8%
1.1%
1.8%
2.0%
3.6%
0.8%
1.9%
0.0%
1.8%
1.5%
0.9%
0.4%
1.9%
1.7%
0.4%
0.0%
1.0%
0.0%
0.6%
8.8%
3.6%
0.0%
3.8%
2.9%
0.0%
0.0%
0.3%
0.2%
0.0%
7.3%
1.2%
1.0%
1.5%
3.4%
1.4%
2.1%
1.0%
1.7%
0.0%
0.0%
0.6%
0.6%
0.2%
1.1%
0.4%
13.8%
1.0%
0.0%
5.6%
4.3%
0.0%
4.0%
0.0%
1.3%
0.0%
2.2%
0.0%
0.6%
0.0%
1.5%
7.3%
2.3%
3.3%
0.3%
1.0%
1.7%
1.4%
1.0%
0.0%
0.9%
3.3%
2.4%
2.2%
1.6%
1.5%
1.3%
1.2%
Jefferies4
ING3
Investec
VTB
SEB
MB
2.2%
0.6%
0.4%
0.4%
0.5%
0.9%
0.8%
2.2%
1.4%
0.4%
0.4%
0.2%
0.3%
0.5%
0.9%
0.5%
0.6%
0.2%
0.3%
0.1%
0.2%
0.6%
0.0%
0.4%
2.5%
1.8%
0.0%
0.0%
0.9%
0.0%
0.8%
0.2%
0.0%
0.0%
0.0%
0.2%
0.5%
0.3%
0.1%
1.8%
0.1%
0.0%
0.0%
0.4%
0.1%
0.1%
0.2%
0.1%
0.1%
0.1%
0.1%
1.0%
0.6%
0.2%
0.2%
0.0%
0.4%
0.7%
0.4%
0.6%
0.7%
0.5%
1.6%
0.1%
0.5%
0.8%
1.0%
0.7%
0.5%
0.5%
0.4%
0.3%
Source: J.P. Morgan estimates. * GS only institutional Client services revenues for Fixed Income and equities.1. Equity revenues adjusted fro brokerage, clearing and settlement fees for GS, MS and CS. 2. estimated using average IB universe growth rates on 2011
numbers. 3. Estimated from 9M-11 disclosure with Investor day 2011 using average IB universe growth rates. 4. Year ending November for Jefferies; estimated using average IB universe growth rates on 2011 numbers
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Kian Abouhossein
(44-20) 7325-1523
kian.abouhossein@jpmorgan.com
Amit Ranjan
(44-20) 7325-4780
amit.x.ranjan@jpmorgan.com
6.8%
Post
legacy
asset
reducn.
7.7%
6.7%
7.7%
6.8%
7.6%
2.
Market share movements in FICC in the new regulatory world will increase
the ROE gap between Tier I and Tier II institutional players as discussed in
section on page 100. As we discussed above, and also in the section FICC
becoming more like cash-equity post regulations - winning formula: scale
institutional, captive agency-only, or boutique, we expect increased volumes
of business will flow to FICC liquidity providers with the willingness to commit
capital on behalf of clients in segments such as credit structuring, who at the
same time offer technologically advanced electronic FICC trading platforms, i.e.
scale players who offer a universal FICC solution. We run our sensitivity on a 15% decline in market share for Tier II institutional players and a -5% decline
for selected agency players. Post the market share movements, average IB
ROE in 2013E for Tier I players goes up to 9.2% while for Tier II
institutional players it goes down to 6.9%.
6.8%
Post
mkt.
share
movemt
7.7%
6.7%
9.2%
6.8%
6.9%
Post our sensitivity analysis on FICC market share movements, the top 6
players account for 61% of our estimated 2013E revenue wallet, as shown in
Figure 3, and we expect the key counterparties globally in FICC to include GS,
DBK, Citi, BofA and Barclays.
10
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amit.x.ranjan@jpmorgan.com
%
100%
90%
80%
70%
HSBC
60%
40%
BARC
BofA
Citi
30%
DB
50%
SG MQG. ING
VTB MB
BNPP STAN
INP
CASA JEF KN SEB
RBC
UBS
UCG
RBS
NOM.
CS
100%
90%
80%
MS
70%
HSBC
BARC
60%
BofA
50%
Citi
40%
DB
30%
20%
GS
20%
10%
JPM*
10%
GS
JPM*
0%
0%
0
10
12
14
16
18
20
22
24
26
28
Source: J.P. Morgan estimates. Note:*JPM clean revenues for 2011 based on published
numbers. JPM FICC revenues adjusted for DVA gain of $70m in 2Q, $529m in Q3 and DVA
loss of $135m in 4Q 2011. Q2 2011 DVA gains of $140m in trading equally divided between
FICC & Equity Markets.
Average IB
comp/head
Average Tier I
IB comp/head
Average Tier II
IB comp/head
Prereguln
306
Post
sensitivity
262
403
352
258
243
11.0%
13.0%
Post
reguln.
(ex reg
arb.)
12.1%
14.9%
10.0%
10.5%
10
12
14
16
18
20
22
24
26
Source: J.P. Morgan estimates. Note:*JPM clean revenues for 2011 based on published
numbers. JPM FICC revenues adjusted for DVA gain of $70m in 2Q, $529m in Q3 and DVA
loss of $135m in 4Q 2011. Q2 2011 DVA gains of $140m in trading equally divided between
FICC & Equity Markets.
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Amit Ranjan
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amit.x.ranjan@jpmorgan.com
-37% below the best in class compensation benchmark. We believe the key talent
pool will concentrate on FICC Tier I IBs.
Although 10% ROE for Tier II institutional FICC players looks low, we think
an agency model can be run at lower comp/head and with less volatility in
revenues mainly supporting the Private Banking or Retail client base, and the
business should be able to command 1x TBV valuation. Agency-type employees
focused on executing relationship business arguably will not require material bonus
pay. We believe BNPP is best in class in respect to transferring from an
institutional to an agency type model and operating out of Paris with lower staff
compensation.
Tier I FICC players with more volatile revenues in our view need to generate
13% ROE over time and can be valued at a premium to 1x TBV post
restructuring. Emerging Market focused IBs will likely create superior returns and
should be less affected at this point from the regulatory change, in our view.
12
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Amit Ranjan
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amit.x.ranjan@jpmorgan.com
reaching enough to generate adequate ROEs and hence we expect further ongoing
capital release of these IBs.
Tier I institutional IBs in our view will undertake limited restructuring at this
point and hence will likely trade at a discount to BV until the market feels that
ongoing market share gains are more permanent than cyclical. This in our view
could be years away and hence on an 18-month view we prefer the Tier II
restructuring IBs, with IB implied values close to zero, than Tier I IBs. At a later
stage we are looking to switch from Tier II IBs into Tier I.
We conclude, we remain OW IBs over credit banks and our preferred names in
the IB space are Swiss IBs UBS and CSG on account of their restructuring. We
realize in the short-term FICC houses could outperform due to the strong 1Q12
environment, but our preference for UBS and CSG is based on an 18 month
view. We believe both Swiss IBs should be able to deliver on their restructuring
program. However, to generate at least 10% ROE, we expect further restructuring
measures in terms of staffing and capital release may be necessary to create increased
shareholder value. In short, the smaller the IB business of Tier II FICC becomes,
currently valued at a material discount to BV or zero in our SOP, the more
value is created for shareholders by paying back capital and becoming more
private banking focused.
Table 12: Global Investment Banks: P/BV of the SOP Investment Banking division and sensitivity to group valuations 2013E
Local currency
UBS
12.5
16
2
13
CS
24.5
28
7
21
SG
24.5
26
8
19
BNP
37.0
41
12
30
MS
18.2
23
13
10
DB
35.4
36
20
16
BARC
2.4
2.6
1.8
0.9
GS
117.4
120
102
19
Average
-
0.6
0.5
0.3
0.7
0.9
0.6
0.9
0.9
0.7
-0.2
0.2
0.3
0.4
0.5
0.6
0.7
0.8
0.4
SOP value IB at 1x BV
Implied SOP Value rest
Implied SOP group
Upside
4
13
17
37%
13
21
34
40%
23
19
41
69%
17
30
47
26%
15
10
25
37%
35
16
51
44%
2
1
3.0
24%
117
19
135
15%
37%
Source: J.P. Morgan estimates. priced from Bloomberg as of 9th March 2012 (intra-day)
Within Tier I IBs we prefer Citi, trading at 0.6x TBV 2012E as we expect good
growth driven by 1) benefit from capital returns given solid capital ratios and
potential for the capital position to grow further with continued shrinkage of Citi
Holdings; 2) continued potential for revenue growth led by its emerging markets
footprint especially in its Consumer and Transaction Services businesses; and 3)
improved operating leverage including in its Securities & Banking business.
Within the Tier I IBs, we see DB and GS as winners and expect them to generate
strong 1Q12 due to their Tier I FICC franchises and gearing. However, we find both
of these Tier I IBs less attractive over the next 18-months. GS is valued at 0.9x
2012E tangible BV generating low RoNAV. We find GS is doing little in terms of
adjusting its compensation ratio and staffing level, the two management control
levers, to generate adequate ROE for shareholders. As we discussed earlier, as a Tier
I IB, we believe GS will wait to get clarity in terms of regulation and exit of Tier II
players before starting to materially change its business model. Hence, we do not see
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GS materially re-valuing above its tangible BV. DB in our view is more attractively
valued than GS, but operates with 7.8bn of capital deficit in our estimates and
material tail risk considering NPL coverage of 45% and structured credit assets of
23bn that are operating with mark-to-model losses of 2.7bn. We find in this
respect Citi significantly more attractive at 8.6% fully loaded 2012E at Basel 3
capital position against Deutsche Bank 7.4%. We refer to our report Deutsche Bank:
Downgrade from OW to N: unleveraged valuation unattractive for DB as we
conclude a structural re-rating will be possible post equity issuance, in our view.
Within growth FICC players, our preference is for Investec as we believe it has high
liquidity and adequate capital levels, we estimate 9.5% core tier 1 (Basel 3) for
Investec at present. In addition, we expect gradual improvement in activity levels
which should support top-line and we also believe earnings risk is cushioned by
impairment release in a world where asset prices are improving. Hence at current
valuation, with the stock trading at 0.9x PB (CY12e) and RoNAV 10.5%, riskreward is attractive against global peers. In a scenario of further write-downs of the
run-off book, we calculate the worst case NAV/sh in GBP of 360p (1.1x). We note,
Investec is able to generate a 13.5% ROE in FY14e and 15.4% by FY16e.
14
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UBS
CSG
DB
Euro IBs
39.8
24.8
33.0
97.7
12.3
23.0
43.1
12.3
25.9
47.1
11.8
21.0
44.1
12.8
24.2
48.1
9.4
8.8
7.6
8.7
7.9
7.4
7.4
7.6
1.0
1.1
0.8
1.0
1.0
0.9
0.8
0.9
1.1
1.2
0.8
1.0
1.0
1.0
0.7
0.9
12.3%
14.5%
11.2%
12.5%
13.0%
14.9%
10.4%
12.6%
Fully
Loaded
Basel 3
Eq.Tier 1
2012E (%)
8.5%
6.9%
7.4%
7.7%
SG
BNPP
CASA
French Banks
19.2
45.0
12.0
76.1
45.1
47.9
10.2
48.8
51.0
10.9
44.5
47.0
9.91
48.2
50.2
10.5
7.5
7.4
6.4
7.3
6.8
7.0
5.6
6.7
0.5
0.8
0.5
0.7
0.5
0.7
0.4
0.6
0.6
0.8
0.5
0.7
0.5
0.7
0.5
0.6
7.6%
11.0%
7.8%
9.7%
7.9%
10.9%
8.5%
9.8%
7.5%
8.8%
5.9%
8.0%
35.1
35.0
119.7
44.5
234.3
4.1
0.5
7.8
15.4
4.4
0.5
8.3
16.8
3.9
0.5
7.7
15.4
4.2
0.5
8.2
16.8
8.7
14.8
10.4
11.5
10.9
6.8
11.3
9.1
10.6
9.3
0.6
0.5
1.1
1.6
1.0
0.5
0.5
1.0
1.5
1.0
0.6
0.6
1.1
1.6
1.1
0.6
0.5
1.1
1.5
1.0
7.6%
1.5%
11.4%
14.5%
10.0%
9.1%
4.2%
12.2%
14.4%
11.0%
8.4%
8.7%
9.3%
11.0%
9.4%
46.1
27.4
73.4
125.8
29.6
136.7
31.5
124.5
28.4
135.4
30.3
10.7
9.1
10.1
9.6
8.6
9.2
0.9
0.6
0.8
0.9
0.6
0.8
0.9
0.6
0.8
0.9
0.6
0.8
9.1%
7.2%
8.4%
9.4%
7.2%
8.6%
9.7%
9.9%
9.8%
75.8
65.9
141.7
54.1
13.3
57.4
14.6
54.1
13.3
57.4
14.6
8.0
12.4
10.0
7.0
7.0
7.0
0.6
0.6
0.6
0.6
0.6
0.6
0.6
0.6
0.6
0.6
0.6
0.6
8.6%
6.3%
7.5%
9.1%
10.0%
9.5%
8.6%
7.3%
8.0%
13.6
13.6
537
573
515
551
13.7
13.7
8.8
8.8
0.7
0.7
0.7
0.7
0.7
0.7
0.7
0.7
4.6%
4.6%
6.9%
6.9%
11.0%
11.0%
Macquarie
Australia
7.3
7.3
32.8
33.8
32.8
33.8
12.1
12.1
10.5
10.5
0.8
0.8
0.8
0.8
0.8
0.8
0.8
0.8
6.5%
6.5%
7.5%
7.5%
Unicredit
SEB
Investec**
23.4
12.1
4.2
8.4
47
437
8.8
50.7
460
8.4
47
437
8.8
50.7
460
10.4
9.1
9.8
7.2
8.3
8.4
0.5
1.0
0.9
0.5
1.0
0.9
0.5
1.0
0.9
0.5
1.0
0.9
6.1%
12.0%
10.5%
7.1%
12.1%
11.8%
9.3%
12.1%
9.5%
VTB*
ICICI Bank
Itau Unibanco
Growth Markets
Total/Avg.
19.6
16.1
68.3
3.8
511
18
4.6
545
21
3.8
511
18
4.6
545
21
7.2
16.7
10.5
10.8
9.3
5.5
14.6
9.3
9.4
7.7
1.3
1.8
2.1
1.9
0.9
1.1
1.7
1.8
1.6
0.8
1.3
1.8
2.1
1.9
0.9
1.1
1.7
1.8
1.6
0.8
20.1%
11.1%
21.6%
19.3%
10.8%
21.2%
11.9%
20.9%
19.3%
11.5%
12.5%
5.8%
8.6%
Barclays
RBS
HSBC
StanChart
UK Banks
GS
MS
US IBs
Citi
Bank of America
US Large Caps
Nomura
Japan
787.9
NAV
2012E
NAV
2013E
NAV ex
own debt
2012E
NAV ex
own debt
2013E
PE 2012E
PE 2013E
P/NAV 12E
P/NAV 13E
P/NAV ex
own debt
12E
P/NAV ex
own debt
13E
RONAV ex
own debt
gain 12E
RONAV ex
own debt
gain 13E
Source: J.P. Morgan estimates, Company data. Priced from Bloomberg on 9th March, 2012 (intra-day.) **Note: March y/end (numbers to financial y/end). * in US$, RONAV = ROE= NI for the period/average equity less goodwill for the previous and current period.
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Fixed Income
Investment Banking
207.7
-31%
183.9
2.75x
167.8
165.9
75.6
93.8
95.6
88.3
33.7
105.3
92.9
75.5
72.9
39.2
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
Source: J.P. Morgan estimates company data. Note: Clean IB revenues (Equities, FICC, Advisory & Underwriting) excluding
writedowns, basis risk losses and DVA/own debt; revenues for GS, MS, DB, UBS, CS, BoA-ML, Citi and JPM included
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Equity derivatives
Cash equities incl electronic trading
Prime Services
Sub total flow
Total Equities ex writedowns/gains/basis risk gains (losses)2
Total Equities ex writedowns/own debt gains
Total Equities
Structured Credit Trading
Credit trading (incl. loans, bonds, CDS)
Total Credit
Rates
Currencies
Commodities
Emerging Markets Fixed Income
Sub total flow
Total Fixed Income ex writedowns/gains/basis risk gains (losses)2
Total Fixed Income ex writedowns/gains
Total fixed income
Total I-banking (ECm+DCM+M&A) ex-writedowns
Total IB revenues ex writedowns/gains/basis risk gains (losses)
Total IB revenues ex writedowns/own debt gains
Total IB revenues
11E/10E
12E/11E
13E/12E
5%
4%
4%
4%
4%
4%
4%
10E-12E
CAGR
-1%
1%
2%
1%
0%
-1%
-1%
11E-13E
CAGR
5%
3%
2%
4%
2%
3%
5%
-5%
0%
4%
-1%
1%
-4%
-6%
5%
1%
0%
3%
-1%
2%
5%
-62%
-52%
-55%
-11%
-2%
-16%
12%
-15%
-12%
-22%
-19%
68%
51%
55%
-7%
-3%
1%
4%
-2%
-3%
5%
4%
-2%
-1%
-1%
-2%
1%
4%
6%
1%
-1%
-1%
-1%
-20%
-15%
-16%
-9%
-3%
-8%
8%
-9%
-8%
-9%
-8%
28%
22%
24%
-4%
-1%
3%
5%
-1%
-2%
2%
2%
-8%
-6%
4%
-7%
-1%
-8%
-14%
-14%
-3%
1%
1%
2%
2%
2%
-5%
-6%
-7%
-1%
2%
2%
Source: J.P. Morgan estimates. Notes: 1.) Weighted Average including UBS, CSG, GS, MS, BNP, SG and BARC ONLY; 2.Adjusted for estimated basis risk losses of $0.9bn in equities and $5bn in
FICC in 2011E.
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FICC
51%
Equities
26%
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increasing equity markets we see potential for growing confidence in equities and
hence a pickup in trading activity and also potentially ECM.
However, structurally we expect equity derivatives to outperform cash equities in
terms of revenue growth in an improving equity environment with 5% p.a. growth in
2012E and 2013E, whereas we estimate cash equities to grow by 1% in 2012E and
4% in 2013E.
We estimate Prime Services revenues to be flat YoY in 2012E and grow 4% in
2013E. We see marginal increase in leverage but hedge funds still remain cautiously
positioned in our view.
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$ million
$ million
Total (Europe+US)
2011
Total (Europe+US)
Source: Dealogic Note: Emerging Market include BRIC, MENA and South Africa
Source: Dealogic Note: Emerging Market include BRIC, MENA and South Africa
$ million
$ million
Total (Europe+US)
Source: Dealogic Note: Emerging Market include BRIC, MENA and South Africa
2012 YTD
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
2012 YTD
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1999
500,000
1998
1,000,000
1997
1,500,000
1996
9,000,000
8,000,000
7,000,000
6,000,000
5,000,000
4,000,000
3,000,000
2,000,000
1,000,000
-
2,000,000
1995
2,500,000
2012 YTD
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1995
2011
2012 YTD
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1996
7,000,000
6,000,000
5,000,000
4,000,000
3,000,000
2,000,000
1,000,000
-
1,400,000
1,200,000
1,000,000
800,000
600,000
400,000
200,000
-
Total (Europe+US)
Source: Dealogic Note: Emerging Market include BRIC, MENA and South Africa
22
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18,000
16,000
14,000
12,000
10,000
8,000
6,000
4,000
2,000
-
25,000
20,000
15,000
10,000
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
2011
2012 YTD
2010
2009
2008
2007
2006
2005
2004
Source: Dealogic Note: Emerging Market include Brazil, Russia, India, China, MENA and
South Africa
2012 YTD
Total (Europe+US)
2003
2002
2001
2000
1999
1998
1997
1996
1995
5,000
Source: Dealogic Note: Emerging Market include Brazil, Russia, India, China, MENA and
South Africa
$ million
$ million
Total (Europe+US)
Source: Dealogic Note: Emerging Market include Brazil, Russia, India, China, MENA and
South Africa
Total (Europe+US)
2012 YTD
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2012 YTD
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
2000
5,000
1999
10,000
1998
15,000
1997
20,000
70,000
60,000
50,000
40,000
30,000
20,000
10,000
1996
25,000
1995
30,000
Source: Dealogic Note: Emerging Market include Brazil, Russia, India, China, MENA and South
Africa
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U.S. IB industry
AC
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Tier 3 European IBs scale back, the first reduction in cost base and RWAs
will be in the U.S. given the high entry barriers. We expect a more European
focused approach with particular focus on their local markets. Hence, Tier I U.S.
IBs have the opportunity to gain more market share in the U.S triggered by
European IB exits. However, we believe the gain in market share would be
limited as most Tier II European IBs have not been successful in capturing
a large market share in the U.S. in the first place given the higher entry
barriers in terms of i) staff costs, and ii) technology spend.
4.) Regulatory arbitrage puts U.S. IBs at a relative disadvantage to Europe
We believe U.S. IBs are at a relative disadvantage to their European counterparts
based on our analysis of Section 716, Volcker, End-user clearing and NPR2
regulations. This regulatory arbitrage in our view limits to an extent the
expansion of U.S. IBs in the near-term until the final rules on different
regulations especially Dodd-Frank Act are finalized. We have discussed the
issue of regulatory arbitrage in our notes, Global Investment Banks: US Basel
2.5 NPR2 capital at risk analysis: yet another US IB disadvantage, downgrade
GS, MS to N published 25th Jan 2012 and Global Investment Banks:
Regulatory Arbitrage series: OW European over US IBs published 8th March
2011.
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Figure 15: Equity volume traded: Top 10 players account for 74% of
volume traded on NASDAQ in 2011
CSFB
11%
NITE
19%
Others
29%
NITE
11%
Others
26%
UBS
14%
MLCO
11%
GSET
3%
FCM
3%
JPM
3%
CDEL
3%
UBS
10%
GSET
4%
DBAB
5%
DBAB
4%
BCAP
4%
CITI
6%
BCAP
7%
CDEL
8%
CITI
5%
CSFB
6%
MLCO
8%
In IBD, looking at 2011 revenue data from Dealogic, JPM, BoA-ML, Citi, GS
and MS are the top players with highest revenues in ECM, DCM and M&A in
North America.
Top 10 players accounted for 54% of M&A revenues in 2011 in Europe while for
North America the Top 10 players accounted for 62% of revenues.
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Top 10 players accounted for 53% of DCM revenues in 2011 in Europe while for
North America the Top 10 players accounted for 67% of revenues.
Top 10 players accounted for 58% of ECM revenues in 2011 in Europe while for
North America the Top 10 players accounted for 62% of revenues.
This relative concentration of the U.S. market is reflected in margins/pricing in our
view, with revenue per unit deal volume higher across ECM, DCM and M&A in
North America compared to Europe, as shown in Figure 16 to Figure 18. As a result,
we believe it is difficult for new players to make inroads into the U.S. market
through pricing alone.
Figure 16: Revenues per unit of deal volume comparison in ECM
2011
4.0%
1.2%
ECM NORTH AMERICA
ECM EUROPE
1.1%
3.5%
DCM EUROPE
1.0%
3.0%
0.9%
0.8%
2.5%
0.7%
2.0%
0.6%
0.5%
1.5%
0.4%
1.0%
2011
2012ytd
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
0.2%
1995
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
Source: Dealogic
2012ytd
0.3%
0.5%
Source: Dealogic
M&A EUROPE
0.9%
0.8%
0.7%
0.6%
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
0.4%
2012ytd
0.5%
Source: Dealogic
29
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Amit Ranjan
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amit.x.ranjan@jpmorgan.com
$ millions, %
$ millions, %
Bank
JPMorgan
Morgan Stanley
BoA Merrill Lynch
Goldman Sachs
Citi
Credit Suisse
Barclays Capital
Deutsche Bank
RBC Capital Markets
Wells Fargo Securities
Subtotal
Total
Net Revenue
($m)
708
609
584
494
430
414
403
313
284
255
4494
7304
% share
10
8
8
7
6
6
6
4
4
3
62
100
Cumulative %
Share
10
18
26
33
39
44
50
54
58
62
62
100
Source: Dealogic
Bank
BoA Merrill Lynch
JPMorgan
Citi
Goldman Sachs
Morgan Stanley
Deutsche Bank
Barclays Capital
Credit Suisse
Wells Fargo Securities
UBS
Subtotal
Total
Net Revenue
($m)
971
951
638
575
567
562
539
508
396
321
6030
8950
% share
11
11
7
6
6
6
6
6
4
4
67
100
Cumulative %
Share
11
21
29
35
41
48
54
59
64
67
67
100
Source: Dealogic
Net Revenue
($m)
883
831
823
659
570
445
368
343
325
324
5574
9007
% share
10
9
9
7
6
5
4
4
4
4
62
100
Cumulative %
Share
10
19
28
35
42
47
51
55
58
62
62
100
Source: Dealogic
30
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amit.x.ranjan@jpmorgan.com
European IB industry
AC
Kian Abouhossein
(44-20) 7325-1523
kian.abouhossein@jpmorgan.com
Amit Ranjan
(44-20) 7325-4780
amit.x.ranjan@jpmorgan.com
Other
30%
Other
42%
Loans
6%
Bonds
64%
Loans
49%
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Developing Asia
9%
Developing
EMEA
4%
Asia
21%
North America
33%
Latin America
5%
Latin America
12%
EMEA
34%
Source: Citigroup FY 2011 results presentation
Non-U.S.
Developed
39%
U.S.
43%
Some larger Tier 1 U.S. IB players like GS view the ongoing de-leveraging
and macro concerns in Europe as a potential opportunity and see material
gaps to be filled due to the retrenchment of European IBs.
We view the ultimate winner in Europe as Deutsche Bank given that it
operates with i) FICC scale, ii) in a healthy regulatory environment for its IB
business, and iii) boasts a solid funding cost due to its implicit German guarantee.
32
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concentrated, with the French banks operating with very small market shares and
GS in particular in a very strong position.
Figure 23: Equity value traded: Top 10 players account for 70% of
value traded on London Stock exchange in 2011
CSFB
13%
Others
30%
CSFB
13%
Others
23%
DBK
13%
DBK
9%
CITI
8%
SG
4%
UBS
7%
MSCO
4%
MLCO
7%
GSCO
5%
Figure 24: Equity value traded: Top 10 players account for 77% of
value traded on German exchanges in 2011
NOMI
6%
JPM
7%
MSCO
4%
NOMI
5%
GSCO
5%
MLCO
6%
UBS
11%
CITI
6%
JPM
7%
SG
7%
In IBD, looking at 2011 revenue data from Dealogic, DBK was the top player with
highest revenues in ECM, DCM and M&A in Europe.
However, the European market is much more fragmented than the U.S. in our
view based on our analysis looking at Dealogic data as shown in Table 18 to Table
23.
Top 10 players accounted for 54% of M&A revenues in 2011 in Europe while for
North America the Top 10 players accounted for 62% of revenues.
Top 10 players accounted for 53% of DCM revenues in 2011 in Europe while for
North America the Top 10 players accounted for 67% of revenues.
Top 10 players accounted for 58% of ECM revenues in 2011 in Europe while for
North America the Top 10 players accounted for 62% of revenues.
This fragmentation of the European market is reflected in the margins/pricing
in our view with revenue per unit deal volume higher across ECM, DCM and
M&A in North America compared to Europe, as shown in Figure 25 to Figure 27.
Over time, we expect more consolidation within the industry in terms of market share
and hence an improving margin environment.
34
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4.0%
1.2%
ECM NORTH AMERICA
ECM EUROPE
1.1%
3.5%
DCM EUROPE
1.0%
3.0%
0.9%
0.8%
2.5%
0.7%
2.0%
0.6%
0.5%
1.5%
0.4%
1.0%
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
Source: Dealogic
2012ytd
0.2%
0.5%
2012ytd
0.3%
Source: Dealogic
M&A EUROPE
0.9%
0.8%
0.7%
0.6%
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
0.4%
2012ytd
0.5%
Source: Dealogic
35
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$ millions, %
$ millions, %
Bank
Deutsche Bank
Morgan Stanley
Credit Suisse
Goldman Sachs
JPMorgan
BoA Merrill Lynch
Citi
UBS
Barclays Capital
UniCredit
Subtotal
Total
Net Revenue
($m)
242
223
210
185
152
146
121
91
81
68
1,519
2,623
% share
9
8
8
7
6
6
5
3
3
3
58
100
Cumulative %
Share
9
18
26
33
39
44
49
52
55
58
58
100
Bank
JPMorgan
Morgan Stanley
BoA Merrill Lynch
Goldman Sachs
Citi
Credit Suisse
Barclays Capital
Deutsche Bank
RBC Capital Markets
Wells Fargo Securities
Subtotal
Total
Net Revenue
($m)
708
609
584
494
430
414
403
313
284
255
4494
7304
% share
10
8
8
7
6
6
6
4
4
3
62
100
Cumulative %
Share
10
18
26
33
39
44
50
54
58
62
62
100
Source: Dealogic
Source: Dealogic
$ millions, %
$ millions, %
Bank
Deutsche Bank
Barclays Capital
BNP Paribas
JPMorgan
HSBC
Credit Suisse
Citi
RBS
Goldman Sachs
UBS
Subtotal
Total
Net Revenue
($m)
411
333
311
281
278
252
236
236
217
186
2,740
5,126
% share
8
7
6
5
5
5
5
5
4
4
53
100
Cumulative %
Share
8
15
21
26
31
36
41
46
50
53
53
100
Bank
BoA Merrill Lynch
JPMorgan
Citi
Goldman Sachs
Morgan Stanley
Deutsche Bank
Barclays Capital
Credit Suisse
Wells Fargo Securities
UBS
Subtotal
Total
Net Revenue
($m)
971
951
638
575
567
562
539
508
396
321
6030
8950
% share
11
11
7
6
6
6
6
6
4
4
67
100
Cumulative %
Share
11
21
29
35
41
48
54
59
64
67
67
100
Source: Dealogic
Source: Dealogic
$ millions, %
$ millions, %
Net Revenue
($m)
484
435
402
350
339
319
312
274
238
188
3,339
6,172
% share
8
7
7
6
5
5
5
4
4
3
54
100
Cumulative %
Share
8
15
21
27
33
38
43
47
51
54
54
100
Net Revenue
($m)
883
831
823
659
570
445
368
343
325
324
5574
9007
% share
10
9
9
7
6
5
4
4
4
4
62
100
Cumulative %
Share
10
19
28
35
42
47
51
55
58
62
62
100
Source: Dealogic
36
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Amit Ranjan
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amit.x.ranjan@jpmorgan.com
Japanese IB industry
AC
Natsumu Tsujino
(81-3) 6736-8618
natsumu.tsujino@jpmorgan.com
trillion
700.0
6.0
4.0
2.0
Corporate bonds
600.0
500.0
0.0
-2.0
400.0
-4.0
-6.0
-8.0
-10.0
300.0
200.0
Source: J.P. Morgan from Bank of Japan Financial and Economic Statistics Monthly.
Note: Special factors such as (1) loan securitizations, (2) forex fluctuations, and (3) bad loan
claim write-offs are adjusted.
100.0
0.0
60
65
70
75
80
85
90
95
00
05
10
37
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Figure 30 includes both trade value for brokerage-related trades and other trades.
Profits from other trades depend a lot on the market environment. As noted earlier,
online brokers such as SBI and Rakuten account for a relatively large portion. We
estimate that a large part of others consists of several major global investment banks.
Figure 31 represents equity trading revenue by major Japanese securities firms. The
source of equity trading revenues is not just Japan but also includes other regions.
However, if we compare Nomura's Japan entitys equity trading revenue with the
others, other securities companies trading revenues are relatively small and fluctuate
significantly.
Figure 30: Equity Trading Value on Tokyo Stock Exchange: Japanese
major players account for around 50%
million, Apr-Dec 2011
Nomura
77,638,698
17%
Equity
Daiwa
37,045,685
8%
SMBC Nikko
31,812,000
7%
Others
269,867,208
58%
SBI
26,353,012
6%
Mizuho
Rakuten 11,761,000
2%
11,713,634
2%
Bonds
Total
Nomura
o/w Japanese brokerage unit
Daiwa
Mizuho
Mitsubishi UFJ Securities HD
Nomura
o/w Japanese brokerage unit
Daiwa
Mizuho
Mitsubishi UFJ Securities HD
Nomura
o/w Japanese brokerage unit
Daiwa
Mizuho
Mitsubishi UFJ Securities HD
90,900
25,979
27,500
4,582
-6,952
245,400
143,787
81,500
-1,628
-46,027
336,503
169,765
109,000
12,624
-27,195
3Q FY2011
(9 month cumulative)
1,500
1,334
11,000
-9,458
-1,624
173,147
119,849
47,000
9,105
89,100
173,631
121,183
58,000
12,870
58,712
38
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1.8%
0.7%
1.6%
0.6%
1.4%
0.5%
1.2%
1.0%
0.4%
0.8%
0.3%
0.6%
0.2%
0.4%
0.1%
0.2%
0.0%
0.0%
ECM Japan
Source: Dealogic
DCM Japan
Source: Dealogic
M&A Japan
Source: Dealogic
$ million
$ million
4,500
800,000
4,000
700,000
3,500
600,000
3,000
500,000
2,500
400,000
2,000
300,000
1,500
200,000
1,000
100,000
500
-
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
ECM
Source: Dealogic
DCM
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
ECM
M&A
DCM
M&A
Source: Dealogic
39
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$ millions, %
$ millions, %
Bank
Nomura
Daiwa Capital Markets
Mizuho
Morgan Stanley
Bank of America Merrill Lynch
Sumitomo Mitsui FG
Goldman Sachs
UBS
Deutsche Bank
Citi
Subtotal
Total
Net Revenue
($m)
254.60
187.27
86.53
73.49
72.63
67.08
28.75
10.47
7.02
6.20
794.05
835.31
No.
% Share
80
62
64
62
7
75
4
7
5
2
115
117
30.48
22.42
10.36
8.80
8.70
8.03
3.44
1.25
0.84
0.74
95.06
100.00
Source: Dealogic
Bank Parents
Mizuho
Morgan Stanley
Nomura
Daiwa Capital Markets
Sumitomo Mitsui FG
Goldman Sachs
Deutsche Bank
Bank of America Merrill Lynch
Barclays Capital
Citi
Subtotal
Total
Net Revenue
($m)
201.54
129.17
129.04
89.37
81.43
30.84
22.12
20.60
10.98
10.57
725.65
801.79
No.
% Share
521
442
449
458
393
183
105
156
84
49
794
841
25.14
16.11
16.09
11.15
10.16
3.85
2.76
2.57
1.37
1.32
90.50
100.00
Source: Dealogic
Net Revenue
($m)
127.14
61.71
44.76
43.08
33.37
30.45
19.28
17.09
14.62
13.36
404.87
513.08
No.
% Share
109
107
61
34
39
11
14
11
11
6
290
2,605
24.78
12.03
8.72
8.40
6.50
5.94
3.76
3.33
2.85
2.60
78.91
100.00
Source: Dealogic
40
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Joseph Leung
AC
(852) 2800-8517
joseph.mj.leung@jpmorgan.com
Suzy Tian
(852) 2800 8552
suzy.t.tian@jpmorgan.com
M&A
80%
70%
60%
DCM
50%
40%
30%
ECM
20%
10%
0%
Deal value
Revenue
Source: Dealogic
Commission rates in China are also higher than the rest of Asia ex Japan. In 2011,
overall commission rates in China (78bp) were 12bp higher than Asia ex Japan
(66bp), mainly because ECM commission rates were 38bp higher. DCM commission
rate were also 13bp higher, while M&A commission rates were 4bp lower.
100%
90%
M&A
80%
70%
60%
DCM
50%
40%
30%
We think the main reason for ECM and DCM commission rates being higher in
China is that the market share is tightly held by Chinese banks, and competition has
been focused on services quality rather than price. Among the top 10 banks in ECM
revenue, the top three were Chinese banks, with 4 out of the 10 being foreign banks
(UBS, MS, GS, and DB). For DCM, all top 10 were Chinese banks.
ECM
20%
10%
0%
Deal value
Revenue
Source: Dealogic
M&A commission rates were lower in China because foreign banks have been
establishing foothold and are competing on prices. Among the top 10 banks in M&A
revenue, 7 were foreign banks. This is also reflected in China M&A commission
rates being lower than average of Asia ex Japan.
As China is a major source of IBD revenue in Asia ex Japan, Chinese banks were
also large in Asia. Out of top 10 banks in terms of revenue, 5/ 9/ 1 were Chinese
banks for ECM/ DCM/ M&A activities, respectively.
M&A
80%
70%
60%
DCM
50%
40%
30%
ECM
20%
10%
0%
Deal value
Source: Dealogic
Revenue
Outside China, DCM represented a larger part of deal value. For Asia ex Japan
outside China, DCM on average comprised 51% of deal value for 2009-11, while
DCM was only 38% in China for the same period. Commission rates for DCM were
much lower than ECM in Asia ex Japan ex China, which is similar to China. M&A
commission rates were, however, higher than DCM outside China, while M&A
commission rates were worse than DCM in China. We attribute this to relatively less
competition in M&A activities outside China.
41
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2.50%
1.00%
2.00%
0.80%
1.50%
0.60%
1.00%
0.40%
0.50%
0.20%
0.00%
0.00%
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Asia ex Japan
China
Outside China
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Asia ex Japan
China
Outside China
Source: Dealogic
Source: Dealogic
Figure 43: Revenues per unit of deal volume comparison in total IBD
0.45%
1.00%
0.40%
0.90%
0.80%
0.35%
0.70%
0.30%
0.60%
0.25%
0.50%
0.20%
0.40%
0.15%
0.30%
0.10%
0.20%
0.05%
0.10%
0.00%
0.00%
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Asia ex Japan
China
Outside China
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Asia ex Japan
China
Outside China
Source: Dealogic
Source: Dealogic
90%
90%
80%
80%
70%
70%
60%
60%
50%
50%
40%
40%
30%
30%
20%
20%
10%
10%
0%
0%
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
ECM
DCM
M&A
Source: Dealogic
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
ECM
DCM
M&A
Source: Dealogic
42
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$ millions, %
$ millions, %
Bank
Ping An Securities
Goldman Sachs
Guosen Securities
Deutsche Bank
Morgan Stanley
UBS
CMB
CITIC Securities
CICC
Credit Suisse
Subtotal
Total
Net Revenue
($m)
201.11
171.52
168.47
146.31
130.24
128.86
120.25
100.02
97.25
96.30
1,360.33
3,286.16
% share
6.1
5.2
5.1
4.5
4.0
3.9
3.7
3.0
3.0
2.9
41.4
100.0
Cumulative %
Share
6.1
11.3
16.5
20.9
24.9
28.8
32.5
35.5
38.5
41.4
41.4
100.0
Bank
Ping An Securities
Guosen Securities
China Merchants Bank
UBS
Morgan Stanley
Haitong Securities Ltd
CICC
CITIC Securities
Goldman Sachs
Deutsche Bank
Subtotal
Total
Net Revenue
($m)
201.11
168.47
119.01
104.58
102.29
89.71
87.88
87.49
84.65
71.63
1,116.81
2,539.82
% share
7.9
6.6
4.7
4.1
4.0
3.5
3.5
3.4
3.3
2.8
44.0
100.0
Source: Dealogic
Source: Dealogic
$ millions, %
$ millions, %
Bank
Bank of China Ltd
ICBC
ABC
CCB
China Dev Bank
CITIC Securities
CMB
Deutsche Bank
BoCom
CICC
Subtotal
Total
Net Revenue
($m)
147.76
122.49
75.58
74.50
68.48
68.37
57.71
56.09
55.74
52.24
778.96
1,959.76
% share
7.5
6.3
3.9
3.8
3.5
3.5
2.9
2.9
2.8
2.7
39.8
100.0
Cumulative %
Share
7.5
13.8
17.7
21.5
24.9
28.4
31.4
34.2
37.1
39.7
39.7
100.0
Bank
Bank of China Ltd
ICBC
ABC
CCB
China Dev Bank
CITIC Securities
CMB
BoCom
CICC
China Everbright Bank
Subtotal
Total
Net Revenue
($m)
143.19
120.62
75.39
74.30
68.39
67.83
56.76
55.65
51.88
51.12
765.12
1,600.79
% share
8.9
7.5
4.7
4.6
4.3
4.2
3.6
3.5
3.2
3.2
47.8
100.0
Source: Dealogic
Source: Dealogic
$ millions, %
$ millions, %
Net Revenue
($m)
74.45
60.87
45.79
38.93
33.81
33.49
27.08
25.52
23.59
23.43
386.96
765.57
% share
9.7
8.0
6.0
5.1
4.4
4.4
3.5
3.3
3.1
3.1
50.6
100.0
Cumulative %
Share
9.7
17.7
23.7
28.7
33.2
37.5
41.1
44.4
47.5
50.5
50.5
100.0
Net Revenue
($m)
BoA Merrill Lynch
44.85
Goldman Sachs
29.84
Credit Suisse
27.51
CICC
25.57
JPMorgan
19.92
Deutsche Bank
18.87
CITIC Securities
14.66
Nomura
13.51
China Renaissance Cap Inv
13.29
UBS
13.13
Subtotal
221.15
Total
445.58
All Advisor Parent
% share
10.1
6.7
6.2
5.7
4.5
4.2
3.3
3.0
3.0
3.0
49.6
100.0
Cumulative %
Share
7.9
14.6
19.2
23.4
27.4
30.9
34.4
37.8
41.2
44.0
44.0
100.0
Cumulative %
Share
8.9
16.5
21.2
25.8
30.1
34.3
37.9
41.4
44.6
47.8
47.8
100.0
Cumulative %
Share
10.1
16.8
22.9
28.7
33.2
37.4
40.7
43.7
46.7
49.6
49.6
100.0
Source: Dealogic
43
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Scott Manning
AC
(61-2) 9220-1803
scott.r.manning@jpmorgan.com
James Nicholias
(61-2) 9220-1528
james.nicholias@jpmorgan.com
Bharat Anand
(61-2) 9220-1550
bharat.k.anand@jpmorgan.com
Australian IB Industry
Similar to other jurisdictions globally, the market is highly competitive and contested
predominantly by the global investment banks. Across Investment Banking
operations, the ECM market is dominated by secondary capital raisings (as opposed
to IPOs), DCM is dominated by the four domestic major banks (as corporate bond
issuance is relatively minor), and M&A broadly tracks global activity levels. On the
Equities side, cash market volumes remain the key driver, with electronic trading
only penetrating relatively recently.
ECM
ECM activity fell significantly through the GFC in 2008 (refer Figure 46). The solid
recovery through 2009 was largely a function of 1) substantial levels of re-caps
across REITS to address gearing relative to declining commercial property values, 2)
increasing capital levels for banks to meet new regulatory requirements, 3) rights
issues from industrials and resource companies as a vehicle for consolidation.
However, more recently through 2010 and 2011, volumes have been subdued.
Figure 46: Primary and Secondary ECM Volumes - Australia
A$'m
35,000
30,000
25,000
20,000
15,000
10,000
5,000
2012 Q1
2011 Q4
2011 Q3
2011 Q2
2011 Q1
2010 Q4
2010 Q3
2010 Q2
2010 Q1
2009 Q4
2009 Q3
2009 Q2
2009 Q1
2008 Q4
2008 Q3
2008 Q2
2008 Q1
2007 Q4
2007 Q3
2007 Q2
2007 Q1
2006 Q4
2006 Q3
2006 Q2
2006 Q1
2005 Q4
2005 Q3
Source: IRESS
DCM
Australian DCM activity is relative subdued due to the lack of a deep liquid
secondary market for corporate bonds, which results in the typical asset
management fixed income allocation of ~10% relative to more typical global
benchmark weightings of ~30%. In any event, the DCM market is dominated by the
four domestic major banks (ANZ, CBA, NAB, WBC) who account for the majority
of private bonds on issue (and typically act as arranger, etc for their own debt).
Accordingly, there is a relatively limited pool of DCM fees (and FICC trading
opportunities) for global investment banks in Australia.
M&A
Following a period of sustained growth in M&A up until the lead up of the GFC in
2008, domestic M&A activity followed global trends and sharply declined during
2009 (refer Figure 47). Improved performance during 2010 and 2011 can be largely
attributed to activity in resources, oil and gas, food and beverages, and financials.
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60,000
1,000,000
50,000
800,000
40,000
600,000
30,000
400,000
20,000
200,000
10,000
0
0
2002 Q1 2003 Q1 2004 Q1 2005 Q1 2006 Q1 2007 Q1 2008 Q1 2009 Q1 2010 Q1 2011 Q1 2012 Q1
Global
Australia (rhs)
Source: Bloomberg
Equities
As highlighted in Figure 48 below, equity volumes remained materially lower during
2011 averaging ~A$300bn versus the pre GFC peak of ~A$450bn in 2007. The
material decline in volumes and thus revenues as a whole for Australian cash equities
businesses has also been magnified by the emergence of several new players in the
market e.g. Nomura, CLSA, Commonwealth.
Figure 48: ASX Quarterly Traded Market Values
A$ in billions
450
400
350
300
250
200
150
100
50
0
2002 Q1 2003 Q1 2004 Q1 2005 Q1 2006 Q1 2007 Q1 2008 Q1 2009 Q1 2010 Q1 2011 Q1 2012 Q1
Source: AFMA
It is also worth noting that the Australian cash equities market is yet to see a material
shift towards of electronic trading (ie <10% vs US closer to ~60%). Commission
allocations are still largely dependent on Panel reviews and fundamental research.
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AC
(27-11) 507-0716
mervin.x.naidoo @jpmorgan.com
60,000
ECM
DCM
M&A
400
50,000
ECM
DCM
M&A
350
300
40,000
250
30,000
200
150
20,000
100
10,000
50
-
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Source: Dealogic.
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Source: Dealogic.
46
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Russian IB industry
Alex Kantarovich, CFA
+7 495 967 3172
alex.kantarovich@jpmorgan.com
Ekaterina Petrovich
+7 495 967 3103
ekaterina.a.petrovich@jpmorgan.com
47
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%
1.8%
2.6%
1.6%
2.5%
6.1%
21.9%
7.5%
8.8%
21.5%
9.7%
16.1%
DB
MS
VTB
GS
RC
CS
Citi
JPM
SBER
HSBC
Others
VTB
SBER
BC
BNP
GS
RBS
Citi
GPB
VEB
JPM
Others
15.7%
31.9%
9.6%
6.9%
5.8%
4.1%
4.1%
5.4% 5.4%
5.7%
5.2%
Source: Dealogic.
Source: Dealogic.
$ mn
1,800
12.1%
23.9%
12.1%
4.2%
10.6%
4.7%
4.8%
8.6%
5.1%
6.0% 7.7%
Source: Dealogic.
DB
CS
VTB
JPM
GPB
SBER
Rothschild
RC
UBS
BoA
Others
1,600
ECM
DCM
M&A
1,400
1,200
1,000
800
600
400
200
-
Source: Dealogic.
Outlook: improving after a tough 2H11. Meanwhile, given the limited issuance in
recent years, particularly through the 2008/09 crisis and the EU debt crisis triggering
the activity freeze, unsatisfied demand is likely to be high. We highlight that
revenues recovering to their 2007 peak would see them doubling from 2011 levels.
The pick up in activity looks set to take place in the absence of new shocks.
State connections and competitiveness. Given the steady decline in commission
rates in recent years (from ~50-60 bps 10 years ago to 10-20 bps at present),
participation in various deals has emerged as a key consideration for the
sustainability and development of business for the industry players. The statecontrolled duo should be in a position to participate in most deals, the role previously
enjoyed by RenCap, particularly given the sheer size of the government privatization
program.
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Sector
Government's
stake before
privatization
100%
Government's
stake after
privatization
90.0%
Rosnano
Nano-technology
Russian Railways
Transportation
100%
Uralvagonzavod
Machine manufacturing
100%
Shipbuilding
100%
Aircraft building
82.95%
FSK
Utilities
79.48%
Transneft
Oil&gas
78.10%
Sberbank
Financials
57.60%
MRSK
Utilities
53.69%
Zarubezhneft
100%
0% + a golden share
Agriculture
100%
0% + a golden share
Rosneft
75.16%
0% + a golden share
RusHydro
Utilities
57.97%
0% + a golden share
Sheremetyevo Airport
Transportation
100%
0%
Transportation
100%
0%
Sovkomflot
Transportation
100%
0%
Rosselkhozbank
Financials
100%
0%
Rosagroleasing
Agriculture
99.99%
0%
VTB
Financials
75.50%
0%
Aeroflot
Transportation
51.17%
0%
Alrosa
Mining
50.93%
0%
Inter RAO
Utilities
17.76%
0%
Rostelecom-Svyazinvest
TMT
not available
0%
49
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2012E
2013E
Comment
ECM
16%
12%
12%
DCM
16%
14%
12%
M&A
11%
17%
16%
ECM
37
40
43
DCM
38
50
47
M&A
30
54
55
105
143
145
ECM
230
323
355
DCM
242
363
399
M&A
280
322
354
752
1,007
1,108
ECM
14%
40%
10%
DCM
-5%
50%
10%
M&A
-25%
15%
10%
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AC
Seshadri K Sen
(91-22) 6157-3575
seshadri.k.sen@jpmorgan.com
Dibin Korath
(91-22) 6157-3576
dibin.m.korath@jpmorgan.com
Jan-12
Nov-11
Sep-11
22000
21000
20000
19000
18000
17000
16000
15000
Jul-11
May-11
Jan-11
Mar-11
Sep-10
Mar-10
Jan-10
10000
9000
8000
7000
6000
5000
4000
3000
2000
1000
0
Nov-10
Rs bn
Jul-10
$mn, Index
May-10
Figure 55: Daily turnover BSE and NSE has increased in 2012
Sensex - RHS
1,800
1,600
1,400
1,200
1,000
800
600
400
200
1Q 11
2Q 11
3Q 11
Options
4Q 11
Futures
1Q 12
2Q 12
3Q 12
Cash
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Rs bn
Rs bn
INR bn
Equity
INR bn
Jan-10
Feb-10
Mar-10
Apr-10
May-10
Jun-10
Jul-10
Aug-10
Sep-10
Oct-10
Nov-10
Dec-10
Jan-11
Feb-11
Mar-11
Apr-11
May-11
Jun-11
Jul-11
Aug-11
Sep-11
Oct-11
Nov-11
Dec-11
Jan-12
18
16
14
12
10
8
6
4
2
0
Jan-10
Feb-10
Mar-10
Apr-10
May-10
Jun-10
Jul-10
Aug-10
Sep-10
Oct-10
Nov-10
Dec-10
Jan-11
Feb-11
Mar-11
Apr-11
May-11
Jun-11
Jul-11
Aug-11
Sep-11
Oct-11
Nov-11
Dec-11
Jan-12
350
300
250
200
150
100
50
0
Debt
Equity
Source: CMI
Source: CMI
160,000
800
140,000
700
120,000
600
100,000
500
80,000
400
60,000
300
40,000
200
20,000
100
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
ECM
Source: Dealogic.
DCM
M&A
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
ECM DCM M&A
Source: Dealogic.
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$ millions, %
$ millions, %
Bank
DSP Merrill Lynch Ltd
Citigroup Global Markets India Pvt Ltd
Kotak Mahindra Capital Co Ltd
SBI Capital Markets Ltd
JM Financial Consultants Pvt Ltd
Cenkos Securities plc
Standard Chartered Bank
JP Morgan Securities Ltd
Deutsche Bank AG (London)
HSBC Securities & Capital Markets (India)
Pvt Ltd
Subtotal
Total
Net
Revenue
($m)
20.7
4.6
3.9
3.8
3.7
3.2
2.6
2.6
2.6
2.6
50.3
104.4
No.
%
Share
2.0
8.0
4.0
6.0
8.0
2.0
1.0
1.0
1.0
19.8
4.4
3.7
3.7
3.5
3.0
2.5
2.5
2.5
3.0
22.0
104.0
2.5
48.2
100.0
Bank Parent
AXIS Bank
ICICI Bank
Standard Chartered Bank
Citi
HSBC
RBS
Barclays Capital
Yes Bank Ltd
Deutsche Bank
AK Capital Services Ltd
Subtotal
Total
No.
168.0
126.0
80.0
20.0
71.0
12.0
67.0
72.0
50.0
92.0
350.0
382.0
% Share
12.4
10.6
10.2
10.1
6.8
4.7
4.7
4.7
4.6
3.6
72.3
100.0
Source: Dealogic
Source: Dealogic
Net Revenue
($m)
24.3
18.4
13.9
11.7
9.3
8.8
7.8
7.6
5.9
5.2
113.0
192.8
No.
% Share
8.0
6.0
6.0
18.0
4.0
6.0
2.0
6.0
1.0
8.0
53.0
1383.0
12.6
9.6
7.2
6.0
4.8
4.5
4.1
3.9
3.1
2.7
58.6
100.0
Source: Dealogic
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Brazilian IB industry
Saul Martinez
AC
(1-212) 622-3602
saul.martinez@jpmorgan.com
Thomas Strakos
(55-11) 4950-3474
thomas.f.strakos@jpmorgan.com
Christopher Delgado
(1-212) 622-6601
christopher.delgado@jpmorgan.com
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%
1.2%
4.0%
3.5%
ECM Brazil
1.0%
3.0%
DCM Brazil
0.8%
2.5%
0.6%
2.0%
1.5%
0.4%
1.0%
0.2%
0.5%
0.0%
0.0%
Source: Dealogic
Source: Dealogic
M&A Brazil
1.0%
0.8%
0.6%
0.4%
0.2%
0.0%
Source: Dealogic
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$ million
$ million
2,000
300,000
1,800
250,000
1,600
1,400
200,000
1,200
150,000
1,000
800
100,000
600
50,000
400
200
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
ECM
DCM
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
ECM DCM M&A
M&A
Source: Dealogic
Source: Dealogic
$ millions, %
$ millions, %
Bank
Itau BBA
BTG Pactual
Credit Suisse
Banco Bradesco BBI SA
Bank of America Merrill Lynch
Santander
Goldman Sachs
Morgan Stanley
JPMorgan
Banco do Brasil SA
Subtotal
Total
Net Revenue
($m)
81.60
60.67
51.40
22.91
21.16
14.45
11.97
11.05
6.26
3.78
285.25
298.98
No.
% Share
22
13
13
10
6
12
5
6
5
6
32
32
27.29
20.29
17.19
7.66
7.08
4.83
4.00
3.70
2.09
1.27
95.41
100.00
Source: Dealogic
Bank Parents
Itau BBA
HSBC
Santander
JPMorgan
Banco Bradesco BBI SA
Credit Suisse
Banco do Brasil SA
BTG Pactual
Citi
Bank of America Merrill Lynch
Subtotal
Total
Net Revenue
($m)
25.30
19.96
18.00
16.36
12.11
11.49
9.77
9.29
8.27
7.38
137.93
176.02
No.
% Share
47
41
28
12
45
10
31
31
14
14
125
137
14.37
11.34
10.23
9.30
6.88
6.53
5.55
5.28
4.70
4.19
78.36
100.00
Source: Dealogic
Net Revenue
($m)
70.12
59.37
56.00
54.75
41.80
36.63
34.32
27.28
26.06
20.85
427.18
588.94
No.
% Share
48
27
37
17
12
7
5
23
5
14
138
684
11.91
10.08
9.51
9.30
7.10
6.22
5.83
4.63
4.42
3.54
72.53
100.00
Source: Dealogic
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Naresh Bilandani
AC
(971) 4428-1763
naresh.n.bilandani@jpmorgan.com
MENA IB overview
Long-term opportunities for growth of the IB industry in MENA remain
attractive in our view; given nearly three quarters of businesses in the region
remain family or government-owned and hence reliant only on captive funding or
direct/indirect government backing, capital markets can potentially provide a more
efficient and cost-effective way of raising capital /financing.
Additionally it is broadly evident that MENA corporates have begun to realize:
a) the benefits of foreign capital in the shareholding/financing structure something
that can be sourced primarily by global IBs given the lack of scale of the domestic IB
industry; and b) diversity of product offering & solutions, b/s strength and
networking benefits that global IBs, which are increasingly penetrating the region,
bring to the table. A significant number of mega-corporates such as Qatar Petroleum,
Rasgas, National Commercial Bank, Saudi Aramco, Emirates Airlines, Etihad &
Qatar Airways, Jumeirah Hotels, larger Egyptian banks such as National Bank of
Egypt and Bank Misr, etc. remain unlisted, while an even greater number of large
corporates remain majority controlled by the governments (e.g. Abu Dhabi banks) - a
select number of large unlisted corporates have publicly announced plans for future
IPOs, which would be a sizeable ECM opportunity for the IB players.
Table 41: IPO statistics for MENA
No. of deals
Capital raised, $bn
Avg. deal size, $bn
#1 sector (no. of deals)
#2 sector (no. of deals)
#1 sector ($bn raised)
#2 sector ($bn raised)
2008
77
15.8
206
Financials (26)
Industrials (12)
Telecom ($4.3bn)
Materials ($4.0bn)
2009
22
2.4
110
Financials (12)
Telecom (4)
Telecom ($1.1bn)
Energy ($0.6bn)
2010
48
5
103
Financials (9)
Industrials (8)
Materials ($1.2bn)
Real estate ($1.0bn)
2011
31
2
58
Financials (9)
Consumer (5)
Financials ($0.8bn)
Consumer ($0.3bn)
MENA DCM opportunity. Scope for DCM activity in the region remains relatively
higher currently vs. the longer term potential opportunity in the MENA ECM space.
Roughly $125bn of conventional & Islamic debt has been printed by the
governments, quasi and private issuers since 2008 helped by: a) the implicit backing
of the highly rated GCC sovereigns; b) falling yields; c) evidence of strength of the
governing institutions to limit fallouts of Arab Spring in the GCC and d) currency
stability and fiscal surpluses of the GCC governments. This is notwithstanding the
preference of family businesses (a high proportion in MENA region) for debt capital
to avoid dilution while this mindset is gradually changing, it still remains largely
prevalent. UK and European IBs have primarily dominated the MENA DCM league
tables over the last three years.
2012 looks more promising for MENA M&A with political calm returning and
M&A activity could see a steady uptick as international investors return to the
region and regional investors set their sights in broader MENA and European
region. 2011 was an overall slow year for M&A advisory, which has historically
(over the past 10yrs) formed the highest mix (c.65%) of the fee pot. As per Allen &
Overy data, Saudi Arabia and UAE continued to attract deal flow in 2011 (e.g.
c.$1bn acquisition by Coca Cola of a 50% stake in Saudi Aujan Industries and
Hilong China taking 51% stake in Al Mansoori Pipes of UAE) with Dubai
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continuing to remain the hub of M&A activity in the region. M&A spending from
Qatar and Kuwait also rose in 2011 with Qatar continuing to invest in London prime
real estate and European financial services (KBL, Greek banks) and Kuwaiti private
investors investing into the Dubai hotel industry. Beyond GCC, Turkey and Egypt
are attracting interest from the GCC financials industry with QNB in talks with
Dexia to purchase Denizbank of Turkey and Burgan Bank Kuwait in talks to buy a
controlling stake in Eurobank Tekfen Turkey of Eurobank EFG Greece.
The contribution of IB revenues within the group bottom-line of most local
banks, though having grown YoY in FY11, still remains limited. Most of the
large banks in the region like ENBD, QNB, NBAD, etc. do not report IB segment
break-up of assets, revenues, equity, etc. separately but lump them together with the
corporate banking segment, which typically drives more than 2/3rd of GCC banking
business in our view. That said, some key banks in Saudi Arabia, Kuwait and Egypt
report IB segmental break-up and we list the Top-5 of these segments below (though,
potentially, the IB segment revenues & contribution of the likes of ENBD and QNB
would be relatively higher to the group income in our view).
Table 42: IB segment snapshot of key GCC banks
LCY mn
Origin
Al Rajhi Bank
Samba Finl. Group
Natnl. Bk of Kuwait
Bk Saudi Fransi
Comml Intnl Bk
Total assets
2011
% of group
828
0.4%
101
0.1%
57
0.4%
431
0.3%
1,534
1.8%
Saudi Arabia
Saudi Arabia
Kuwait
Saudi Arabia
Egypt
2011
46
113
-
Net equity
% of group
0.2%
0.6%
-
Net income
% of group
% of group, yr ago
2.5%
1.1%
8.2%
5.4%
4.6%
4.4%
2.9%
0.8%
-
2011
183
354
14
83
-101
ROA
2011
22%
415%
21%
32%
-
ROE
2011
753%
94%
-
250,000
1,600
1,400
200,000
1,200
1,000
150,000
800
100,000
600
400
50,000
200
1995
1996
1997
1998
1999
2000
2001
2002
ECM
Source: Dealogic
2003
DCM
2004
2005
2006
2007
2008
2009
2010
2011
1995
1996
M&A
1997
1998
1999
2000
2001
2002
ECM
2003
DCM
2004
2005
2006
2007
2008
2009
2010
2011
M&A
Source: Dealogic
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MENA ECM
Net Rev ($mn)
12
10
9
9
7
6
6
4
3
3
69
125
No.
3
2
3
1
1
2
1
4
1
1
13
55
%share
9.8
7.6
7.0
6.9
5.4
5.1
5.0
3.1
2.7
2.7
55.3
100.0
Bank
HSBC
StanC
JPM
Citi
GS
DB
RBS
MUFJ
Barclays
BNPP
Subtotal
Total
MENA DCM
Net Rev ($mn)
11
8
6
5
4
4
4
4
3
3
52
75
No.
28
19
16
16
13
11
6
11
12
13
50
59
%share
14.2
10.5
7.8
6.7
5.5
5.4
5.3
4.9
4.6
4.5
69.3
100.0
Bank
BofA-ML
CS
DB
GS
Citi
MS
RBS
BNPP
Nomura
Rothschild
Subtotal
Total
MENA M&A
Net Rev ($mn)
39
33
29
25
14
12
12
10
10
9
194
273
No.
11
8
3
9
7
6
3
4
2
5
41
727
%share
14.4
12.2
10.7
9.3
5.1
4.5
4.3
3.8
3.7
3.4
71.2
100.0
Source: Dealogic
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Table 44: Global Investment Banks 2013E ROE in the IB division pre and post regulation changes
%
IB ROE 2013E
1. Clearing via CCP1
2. Moving derivatives to exchange
3. OTC post trade transparency
4. Higher capital on non CCP clearing
Dodd Frank global
5. Ban on prop trading, limits on market making,
PE/HF Investments
6. Section 716 US reg - segregation IB
7. NPR2 RWA Increase
Dodd-Frank US/French Proposal only
8. Increase in cost of funding
ICB Impact (UK only)
9. Stressed VaR capital buffer
10. Incremental Risk Charge
11. Securitisation & correlation
Basel 2.5
12. CVA, CCR & other
13. Securitisation risk weighted 1250%
Basel 3 excluding mitigation
14. Mitigation
15. Group excess capital
Total impact
IB ROE pre mitigation
Decline in ROE
Resulting IB ROE
Decline in ROE
IB ROE post regulation (ex reg. arbitrage)
Decline in ROE
CS
13.9%
0.9%
-1.1%
-0.6%
-0.1%
-1.1%
UBS
12.7%
0.6%
-1.4%
-0.7%
-0.1%
-1.7%
DB
12.8%
1.4%
-1.3%
-0.6%
-0.1%
-0.9%
GS
15.7%
1.9%
-1.0%
-0.9%
-0.2%
-0.4%
MS
12.6%
1.0%
-0.8%
-0.5%
-0.1%
-0.4%
BNP
16.2%
-0.2%
-1.3%
-0.5%
0.0%
-2.0%
SG
14.6%
0.4%
-1.1%
-0.7%
-0.1%
-1.6%
BARC
14.1%
0.4%
-0.8%
-0.4%
-0.1%
-0.9%
RBS
10.0%
1.0%
-0.9%
-0.4%
0.0%
-0.5%
Avg.
13.6%
0.8%
-1.1%
-0.6%
-0.1%
-1.1%
-1.2%
-1.5%
-0.7%
-3.0%
-3.8%
-4.6%
-6.4%
13.7%
-1.9%
-7.0%
5.4%
-62%
6.9%
-50%
6.9%
-50%
-1.2%
-1.4%
-1.1%
-3.1%
-3.2%
-4.3%
-5.8%
66.8%1
-1.4%
-5.3%
4.6%
-64%
7.4%
-42%
7.4%
-42%
-1.6%
-0.6%
-1.1%
-2.9%
-3.3%
-5.0%
-6.4%
13.3%
0.0%
-6.4%
4.9%
-62%
6.4%
-50%
6.4%
-50%
-0.7%
-0.1%
-3.7%
-4.3%
-2.1%
-1.2%
-1.9%
-4.3%
-3.2%
-4.5%
-6.2%
7.9%
0.0%
-8.9%
5.8%
-63%
6.8%
-57%
8.6%
-45%
-0.7%
-0.1%
-1.7%
-2.3%
-0.9%
-1.2%
-0.9%
-2.6%
-1.6%
-2.3%
-3.4%
2.1%
0.0%
-5.9%
6.2%
-51%
6.7%
-46%
8.0%
-36%
-0.4%
-0.4%
-1.8%
-0.8%
-0.5%
-2.9%
-2.7%
0.0%
-2.7%
0.0%
0.0%
-6.5%
9.7%
-40%
9.7%
-40%
10.0%
-38%
-0.2%
-0.2%
-1.8%
-1.4%
-1.3%
-3.7%
-3.6%
-6.5%
-7.7%
3.8%
0.0%
-9.1%
5.0%
-66%
5.5%
-62%
5.6%
-62%
-2.7%
-2.7%
-0.7%
-0.7%
-0.7%
-2.0%
-3.4%
-2.5%
-4.9%
4.0%
0.0%
-7.2%
6.0%
-58%
6.9%
-51%
8.8%
-38%
-2.1%
-2.1%
-0.6%
-0.6%
-0.6%
-1.6%
-2.1%
-2.1%
-3.5%
3.1%
0.0%
-5.5%
3.9%
-61%
4.5%
-55%
6.1%
-39%
-0.2%
0.0%
-0.6%
-0.8%
-0.5%
-0.5%
-1.3%
-1.1%
-1.0%
-2.9%
-3.0%
-3.5%
-5.2%
12.7%
-0.4%
-6.9%
5.7%
-58%
6.8%
-50%
7.5%
-45%
Source: J.P. Morgan estimates, company data. Notes: i) Morgan Stanley Institutional Securities estimates ii) Goldman Sachs Institutional Client Services & Investment Banking estimates; iii) our
ROE estimates are based on JPMC allocated capital (10% of RWAs); iv) for the impact of Section 619, we have assumed the pure prop trading revenues would be impacted, partly offset by costs
savings note that we have assumed a ban on prop trading for French banks as well; v) note that percentages cannot be added up as both numerators and denominators are changing. 1. Includes
legacy assets transferred from IB to corporate center starting Q1 12. RBS: In 2013E, RBS GBM will be in transition phase of restructuring and hence we have not included the impact of reduction in
wholesale funding which in the longer term we estimate will add up to c.5% to the GBM ROE assuming minimal revenue generation from the reduced TPAs. Please note we do not include the
impact of Basel Liquidity rules in our calculations, and have discussed these in some of our other publications. Please note, the current proposed regulations on central clearing could imply that
risk weights will increase when activity moves from bilateral trades to centrally cleared trades. We have not included this potential negative impact in our calculations.
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Table 45: Expected Timeline of regulations to hit the IB industry: still an avalanche of regulation in the pipeline
July, 2012
January, 2013
US Basel 2.5
Capital rules
Basel III
Counterparty credit
risk
Basel III capital
deductions (phasedin)
CFTC swap-dealer
margin requirements
January, 2015
January, 2016
January, 2018
January, 2019
Net stable
funding ratio
LCR
Mifid II
ICB
Bank size
G SIFI
resolution
mechanisms
Affecting Globally
Affecting U.S.
G-SIFI
capital
charge
Affecting E.U.
Affecting U.K.
Source: SEC, CFTC, BIS, FSB, EC. Note: EMIR expected to be effective latest by 2012 end. G-SIFI resolution mechanisms to be implemented in second half of 2012
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Table 46: Global Investment Banks 2013E RWAs in the IB division pre and post regulatory changes
lcl currency millions
IB RWA 2013E
1. Clearing via CCP1
2. Moving derivatives to exchange
3. OTC post trade transparency
4. Higher capital on non CCP clearing
Dodd Frank global
5. Ban on prop trading, limits on market making,
PE/HF Investments
6. Section 716 US reg - segregation IB
7. NPR2 RWA Increase
Dodd-Frank US/French proposal only
8. Increase in cost of funding
ICB Impact (UK only)
8. Stressed VaR capital buffer
9. Incremental Risk Charge
10. Securitisation & correlation
Basel 2.5
11. CVA, CCR & other
12. Securitisation risk weighted 1250%
Basel 3 excluding mitigation
13. Mitigation
Total impact
Impact %
Resulting RWA
CS
112,993
-9,365
0
0
943
-8,423
0
UBS
119,100
-8,589
0
0
723
-7,866
0
DB
186,700
-21,796
0
0
1,830
-19,966
0
GS
298,474
-35,280
0
0
2,994
-32,286
0
MS
275,000
-23,818
0
0
2,112
-21,706
0
BNP
149,406
-1,840
0
0
398
-1,442
0
SG
72,647
-3,277
0
0
557
-2,720
0
BARC
180,834
-9,027
0
0
785
-8,241
0
RBS
111,092
-14,921
0
0
0
-14,921
0
0
0
0
0
0
11,000
14,000
6,154
31,154
42,000
55,000
97,000
-56,000
63,731
56%
176,724
0
0
0
0
0
12,500
15,000
11,000
38,500
40,300
60,000
100,300
-100,034
30,900
26%
150,000
0
0
0
0
0
27,000
9,000
18,300
54,300
65,000
120,000
185,000
-95,000
124,334
67%
311,034
100
93,000
93,100
0
0
45,000
25,000
42,000
112,000
75,000
120,000
195,000
-100,000
267,814
90%
566,288
100
43,000
43,100
0
0
20,000
30,000
20,000
70,000
40,000
60,000
100,000
-39,000
152,394
55%
427,394
0
0
0
0
0
19,000
8,000
5,000
32,000
30,000
0
30,000
0
60,558
41%
209,964
0
0
0
0
0
10,000
8,000
7,000
25,000
24,000
58,000
82,000
-15,000
89,280
123%
161,926
0
0
0
0
0
10,000
10,000
10,000
30,000
57,222
39,425
96,647
-40,000
78,406
43%
259,240
0
0
0
0
0
7,000
7,000
7,000
21,000
28,940
30,285
59,225
-26,225
39,079
35%
150,170
Source: J.P. Morgan estimates. Notes: i) Morgan Stanley Institutional Securities estimates ii) Goldman Sachs Institutional Client Services & Investment Banking estimates; iii) for the impact of
Section 619, we have assumed the pure prop trading revenues would be impacted, partly offset by costs savings note that we have assumed a ban on prop trading for French banks as well, iv)
UBS: Includes legacy assets transferred from IB to corporate center starting Q1 12, v) SG excluding 12bn of RWAs from legacy assets. Please note we do not include the impact of Basel Liquidity
rules in our calculations, and have discussed these in some of our other publications.1. Please note, the current proposed regulations on central clearing could imply that risk weights will increase
when activity moves from bilateral to centrally cleared trades. We have not included this potential negative impact in our calculations.
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Table 47: Global Investment Banks Impact on 2013E Net Income from regulatory changes
lcl currency millions
IB net Income 2013E
1. Clearing via CCP
2. Moving derivatives to exchange
3. OTC post trade transparency
4. Higher capital on non CCP clearing
Dodd Frank global
5. Ban on prop trading, limits on market making,
PE/HF Investments
6. Section 716 US reg - segregation IB
7. NPR2 RWA Increase
Dodd-Frank US/French proposal only
8. Increase in cost of funding
ICB Impact (UK only)
8. Stressed VaR capital buffer
9. Incremental Risk Charge
10. Securitisation & correlation
Basel 2.5
11. CVA, CCR & other
12. Securitisation risk weighted 1250%
Basel 3 excluding mitigation
12. Mitigation
Total impact
Resulting Net Income
CS
1,572
-2%
-8%
-4%
0%
-15%
-
UBS
1,516
-3%
-11%
-5%
0%
-19%
-
DB
2,392
-2%
-10%
-5%
0%
-17%
-
GS
4,687
-1%
-6%
-6%
0%
-13%
-4%
MS
3,467
-1%
-6%
-4%
0%
-11%
-5%
BNP
2,422
-2%
-8%
-3%
0%
-13%
-3%
SG
1,059
-2%
-8%
-5%
0%
-14%
-2%
BARC
2,548
-2%
-6%
-3%
0%
-11%
-
RBS
1,114
-5%
-9%
-4%
0%
-18%
-
Avg.
-2%
-8%
-4%
0%
-15%
-
-14.6%
1,343
-19.1%
1,226
-16.9%
1,988
0%
0%
-5%
-18.1%
3,841
0%
0%
-6%
-16.8%
2,884
0%
0%
-3%
-15.9%
2,037
0%
0%
-2%
-16.1%
889
-19%
-19%
-29.8%
1,788
-21%
-21%
-38.8%
682
-21%
-
Source: J.P. Morgan estimates. Notes: i) Morgan Stanley Institutional Securities estimates ii) Goldman Sachs Institutional Client Services & Investment Banking estimates; iii) for the impact of
Section 619, we have assumed the pure prop trading revenues would be impacted, partly offset by costs savings note that we have assumed a ban on prop trading for French banks as well in the
sensitivity analysis.
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For UK IBs Barclays and RBS, IB ROE declines to 6.9% and 4.5%,
respectively, in 2013E. UK banks are also impacted by increases in funding costs
from the ICB proposals, which we estimate would have -20% impact on 2013E net
income on average in our estimates. IB RWAs in 2013E for Barclays and RBS
increase by 39% on average due to the impact of different regulations. If we exclude
the impact of ICB proposals, IB ROE would have been 8.8% for Barclays and 6.1%
for RBS in 2013E. Also note that in 2013E, RBS GBM will be in a transition phase
of restructuring and hence we have not included the impact of reduction in wholesale
funding which in the longer term we estimate will add up to c.5% to the GBM ROE
assuming minimal revenue generation from the reduced TPAs.
French banks CIB ROE declines from 15.4% to 7.6% on average in our
sensitivity scenario on 2013e estimates, as a result of: a) Basel 3 RWAs inflation
accounting for close to half of the reduction in profitability, and b) Basel 2.5
accounting for about one third of the decline in ROE. OTC derivatives and the
potential ban on prop trading have a lower impact on French banks CIB ROE,
representing about one fifth of the decline. Note that our CIB ROE estimates are
based on JPMCe allocated capital of 10% of RWAs vs. 7% by French banks.
In our sensitivity analysis, we estimate that regulatory changes lower French banks
CIB returns by decreasing CIB net income -16% and increasing IB RWAs by 82%
on average in our estimates:
-16% negative impact on CIB net profits on average: the biggest impact
comes from moving derivatives to exchanges/SEF, with -8% impact, followed by
OTC post trade transparency requirements reducing earnings by -4% on average.
The impact from CCP-clearing of standardised OTC derivatives and the ban on
prop trading remains lower in comparison at 2% of earnings. Note that the ban on
prop trading is only hypothetical at this stage, and is our interpretation of the
measures announced by French presidential candidate F. Hollande.
82% increase in CIB RWAs on average: The main impact from regulatory
changes is the higher capital requirements, and more specifically, the RWAs
inflation. Similarly to IB peers, French banks should get some capital relief from
clearing "standardised" OTC derivatives through Central Counterparties (CCPs);
however, these benefits are insignificant at less than 5% of RWAs.
BNP Paribas is significantly less impacted than SG with only 61bn or 41%
increase in RWAs vs. 89bn or 123% for SG. The impact of Basel 2.5 and CVA
is lower for BNPP at 21% and 20%, respectively, compared to 33-34% for SG.
More importantly, SG largest impact on RWAs comes from the securitization risk
weighted at 1250% increasing RWAs by 58bn pre mitigation, which BNPP does
not have.
In our sensitivity analysis, BNP Paribas fares better than SG, with CIB ROE
declining to 9.7% vs. 5.5% for SG in 2013e.
BNP Paribas would be the least impacted within French banks and IB peers
with CIB ROE declining to 9.7% from 16.2% in 2013e, as: a) the group
benefits from one of the lowest cost/income ratio at 61% vs. 73% for SG and
72% industry average; b) lower impact from Basel 2.5 with a net RWAs increase
of 21% vs. 34% for SG and industry average of 30%; and c) the lowest impact
from Basel 3 with an increase of RWAs of 30bn only, CVA and CCR related,
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equivalent to a 20% increase vs. 92% for SG and 40% industry average. Basel 3
impact is significantly lower due to securitization the group already currently
risk weights lower rated tranches at 1250% and hence is not impacted by the rule
change.
Socit Gnrale would be one of the most impacted by regulatory changes,
with CIB ROE decline from 14.6% to 5.5% in our sensitivity scenario on
2013e estimates. This is mainly driven by the RWAs increase from Basel 3 of
89bn net of mitigation equivalent to 92% increase vs. 40% industry average. SG
is the most impacted by the change in securitization risk weighted at 1250% with
58bn pre-mitigation or 80% vs. 44% for peers. Most of SG mitigation impact of
15bn is targeted at the CDOs of RMBS, which are the main driver for the 58bn
of RWAs inflation from securitization the group expects to release 1.3bn of
capital from unwinding CDOs of RMBS and selling the underlying assets.
However, overall RWAs reduction/mitigation is lower for SG at 15bn or 21% of
RWAs vs. 33% industry average and 55% for European peers.
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Eligible in the EU, as yet to be defined by European Securities and Markets Authorities
ESMA
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that CVA charges may also apply to CCP-cleared OTC derivatives, if the Clearing
Member bank is clearing the trade on behalf of a Client (with whom they have a
bilateral trade).
5. Dodd-Frank: Section 619 ban on prop trading and limits on market making,
investments in HFs and PE funds
Section 619 of the Dodd-Frank Act prohibits banking entities from engaging in
proprietary trading, investing in or sponsoring hedge funds or private equity funds
and proposes limits on market-making activities. Finalisation, initially due on July
21st 2012 will to be delayed according to 29th Feb 2012 testimony to the House
Financial Services Committee in Washington given by the Federal Reserve Chairman
Ben Bernanke .Banks will have a two-year implementation period with a 1 year
extension potential on a case-by-case basis; therefore we would expect
implementation in 2014 at the earliest.
In addition, the US Commodity Futures Trade Commission has proposed imposing
position limits on certain commodities to curb levels of speculation in the energy,
agriculture and certain other OTC derivative markets, in response to the price
volatility the markets experienced in 2008.
6. Dodd-Frank: Section 716
Section 716 of the Dodd-Frank Act will require banks to separate their derivative
business from those banking entities that are able to tap Federal Reserve credit
facility or discount window. It will require creation of a swap entity (or use of a
current non-bank entity such as e.g. broker-dealer) that will need to be capitalized
and equity funded outside of the US bank entity (although the new entity can still be
debt financed by the group holding company). The rule will only apply to new
business executed after the effective date of July 16th 2012, and there is a two year
implementation deadline. The rules apply to a limited range of activities including
equity derivatives and high yield or non CCP cleared credit interest rates, FX,
centrally cleared CDS on investment grade names, bullion and base (physical)
commodities are exempt.
7. US Basel 2.5: Market Specific RWAs for US entities
In efforts to comply with Section 919A in the Dodd Frank act which states that credit
rating agency ratings can no longer be used as references due to conflicts of interest,
in the NPR2 document release in December 2011 the US agencies proposed
alternatives for calculating market specific risk for sovereigns and related exposures,
bank exposures, financial and non-financial corporate exposures and securitizations.
Whilst the ambition of the legislation was to deliver rating equivalence, the current
proposals do not appear equivalent. We highlight the following
Securitization risk weighting ratings, now based on cumulative losses, will
essentially double the over risk weighing of securitization exposures, with the
highest rated tranches being the most significantly impacted e.g. the minimum
risk weighting would be 20% in the US compared to 7% in the EU.
Sovereign ratings based on OECD Country Risk Ratings would lead to all EU
countries being rated with the same 0% risk weighting, and the US and US
Government S Entities would maintain a 0% risk weighting in all circumstances.
In the event of a default elsewhere (at any time over the past five years) this
weight would jump to 150%.
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Corporate risk weightings would not fall below100% on the current calibration of
the key indicators, and industry responses suggest that the same 100% rating
could apply to entities ranging from AAA to C
We would not expect finalization of the rules before H2 2012and final
implementation before H2 2014.
The US Agencies also propose consistent treatment in the banking book as well as
the trading book, in due course. Please see our note Global Investment Banks: US
Basel 2.5 NPR2 capital at risk analysis: yet another US IB disadvantage, downgrade
GS, MS to N published 25th Jan 2012 for details
8. Basel 2.5: Mitigating procyclicality through the use of stressed VaR capital
buffer
The Basel Committee has, amongst several proposed reforms to market risk
calculations, suggested that a separate buffer that accounts for potential losses in
adverse circumstances be added to the market risk charge so that banks are better
able to absorb losses during stress conditions, to reduce pro-cyclicality. In addition to
the existing capital requirement, an additional capital buffer will be required of at
least 3 times the 10-day 99% stressed-VAR. Basel 2.5 was effective for the EU banks
from Q4 2011.The US Version (see point 7. above) is unlikely to be finalized before
the end of 2012.
9. Basel 2.5: Incremental risk charge to the standardized market risk
methodology
In July 2009 the Basel Committee introduced a new 'incremental risk charge' (IRC)
for credit trading book positions, excluding securitizations. This charge has been
introduced to account for liquidity risk and credit migration risk, neither of which
was previously incorporated in the value-at-risk calculation used to measure trading
book market risk. Basel 2.5 implementation was effective for the EU banks from Q4
2011.The US Version (see point 7. above) is unlikely to be finalized before the end
of 2012.
10. Basel 2.5: Increased capital requirements for securitization exposures and
re-securitizations
In addition to applying a stressed VAR capital charge (8) and an incremental risk
charges(9), the revisions include an increase in capital charges for securitization
exposures within the trading book. More specifically, the Basel Committee has
revised Pillar I, which prescribes minimum regulatory capital requirements, and
Pillar 3, which stipulates disclosure requirements from banks intended to
complement capital requirements. Basel 2.5 implementation was effective for the EU
banks from Q4 2011. The US Version (see point 7. above) is unlikely to be finalized
before the end of 2012.
11. ICB
The UK Treasury indicated its intent to consult on finalising the ICB proposed strong
but flexible ringfence of legally and economically separate subsidiaries, to include
EEA Retail and SME deposits and overdraft lending at a minimum, and to exclude
prohibited services which would expose the bank to financial market risk and
counterparty credit risk exposures. The ringfenced entity should hold a minimum
17% Primary Loss Absorbing Capital (including a10% minimum B3 ratio) with
back-stop limits on the proportion of wholesale funding allowed to support the entity.
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The proposals are due for implementation as soon as practically possible after
2015and no later than 2019.
Whilst there are no parallel EU proposals at present, Commissioner Barnier of the
EC has appointed an expert group under the chairmanship of Erkki Liikanen to
review and report upon the structure of EU banking generally.
This list of regulatory implications is not exhaustive, and we have covered key
aspects of other upcoming regulations (eg. Liquidity Coverage Ratios) in other
documents.
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$ 000
729,535
672,212
602,283
317,511
631,139
332,058
318,750
UBS
BNP
286,351
SG
6,420
12%
584,390
268,234
CS
Variable Comp
5,343
3,812
7,770
12%
17%
17%
88%
88%
83%
83%
CS
BNP
SG
Barcap
5,369
29%
71%
UBS
Barcap
Source: J.P. Morgan estimates, Company data, exchange rates from Bloomberg. Note: exchange
Source: J.P. Morgan estimates, Company data, exchange rates from Bloomberg. Note: exchange
rates used CHFUSD=1.0984, GBPUSD = 1.5835 and EURUSD=1.4018. Note: BNPP accounting
rates used CHFUSD=1.0984, GBPUSD = 1.5835 and EURUSD=1.4018.
different vs. peers with deferred comp costs including deferred comp to be paid in future years.
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Swiss Banks: Increased fixed costs unsustainable at 7188% could lead to further staff cuts
Overview Swiss banks, best in class disclosure but a worrying picture
We have analysed in detail the split of compensation expense for both UBS and CS
in Table 48 to Table 49 below, splitting the compensation expense into a fixed
component, which includes the salaries and also deferred portion of compensation
from previous years and a variable compensation expense component. We
appreciate the excellent disclosure provided by both CS and UBS on group
compensation expense which enables us to analyse the compensation expense
split at the group level, while we make our own assumptions regarding IB comp
expense breakdown into fixed and variable components.
Swiss IBs: IB division compensation analysis
For our calculations, we assume 65-80% of deferred compensation expensed in a
year to be attributable to the IB division for both CS and UBS. We estimate most of
the variable compensation of the group would be attributable to the IB division.
From our analysis of the compensation expense split for both CS and UBS in the
IB, a few things which stand out are:
1. Fixed compensation in 2011 in the form of salaries has gone up to c.38% of
total IB compensation expense for UBS and c.41% of total IB compensation
expense for CS. We expect salaries to remain at these elevated levels given the
higher deferral rates in variable compensation expense. UBS following an annual
salary review increased base salaries for 2011 at the group level, with effect from
March 2011, by a total of SF 350 million or 5% over the previous year.
2. Fixed component of compensation in the form of deferrals from previous
years has gone up substantially to 21% of IB comp expense in 2011 from
17% in 2010 and 2% in 2009 for UBS, and to 34% in 2011 from 36% in 2010
and 33% in 2009 for CS in our estimates. The ratio for CS is much higher
given its higher bonus pool compared to UBS in 2009-10.
3. We estimate c.71% of 2013E compensation costs for UBS and c.84% of
2013E compensation costs for CSG in the IB division to be fixed in the form
of salaries and deferred compensation expenses.
4. Variable component of compensation has come down due to higher level of
deferrals, thus limiting management ability to control costs in our view.
Based on these observations, we see limited scope to limit costs in the IB division
by IBs, putting Tier 2 IBs lacking revenue scale in Fixed Income at a
disadvantage compared to Top Tier Fixed Income players.
Given the current regulations its likely that a significant portion of 2012E and
2013E compensation will also consist of deferred compensation expenses from
previous years which would in turn push up the fixed costs. Increasing fixed costs
intensifies pressure on the cost base; offers limited cushion in the form of variable
cost to absorb the impact of revenue downturns.
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2010
3,396
2011
1,925
2012E
1,779
2013E
1,668
10/09
0%
11/10
-43%
12E/11
-8%
13E/12E
-6%
1,879
126
2,006
2,089
1,177
3,266
1,355
1,201
2,555
1,156
770
1,926
1,051
736
1,787
11%
831%
63%
-35%
2%
-22%
-15%
-36%
-25%
-9%
-4%
-7%
Salaries
Other Variable Compensation
Variable Compensation discretionary bonus
Salaries and variable compensation
Social Security
Pension and other post-employment benefit plans
Other personnel expenses
Contractors
2,253
593
2,006
4,851
198
244
84
68
2,344
248
3,266
5,858
214
188
423
60
2,204
281
2,555
5,041
201
212
307
58
2,105
257
1,926
4,289
192
203
156
48
1,927
222
1,787
3,936
166
189
106
39
4%
-58%
63%
21%
8%
-23%
-6%
13%
-22%
-14%
-6%
13%
-27%
-3%
-4%
-9%
-25%
-15%
-4%
-4%
-49%
-17%
-8%
-14%
-7%
-8%
-13%
-7%
-32%
-19%
Fixed Costs
Deferred expense from previous years expensed in current year
Salaries
Social Security
Pension and other post-employment benefit plans
Other personnel expenses
Contractors
2,973
126
2,253
198
244
84
68
4,406
1,177
2,344
214
188
423
60
4,183
1,201
2,204
201
212
307
58
3,474
770
2,105
192
203
156
48
3,162
736
1,927
166
189
106
39
48%
4%
8%
-23%
-11%
-5%
2%
-6%
-6%
13%
-27%
-3%
-17%
-36%
-4%
-4%
-4%
-49%
-17%
-9%
-4%
-8%
-13%
-7%
-32%
-19%
Variable Costs
Other Variable Compensation
Variable Compensation discretionary bonus
2,472
593
1,879
2,337
248
2,089
1,636
281
1,355
1,414
257
1,156
1,273
222
1,051
-5%
-58%
11%
-30%
13%
-35%
-14%
-9%
-15%
-10%
-14%
-9%
5,445
6,743
5,819
4,888
4,436
24%
-14%
-16%
-9%
55%
45%
65%
35%
72%
28%
71%
29%
71%
29%
Bonus Pool
PVTR and Others
-11%
2009
2,194
2,856
648
5,698
2010
2,991
2,868
713
6,572
2011
2,746
2,289
730
5,766
2012E
2,628
1,800
699
5,127
2013E
2,523
1,426
671
4,621
2,954
1,461
901
717
877
8,652
19,075
149,725
154,862
34%
8,033
20,625
139,055
70,836
18%
6,667
21,125
108,355
42,670
14%
5,845
20,219
89,026
35,468
12%
5,497
19,410
73,475
45,165
16%
66%
20,537
82%
16,214
86%
11,496
88%
12,374
84%
12,374
42%
58%
50%
57%
58%
52%
47%
54%
44%
51%
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Table 50: BNP Paribas: Breakdown of Corporate & Investment Banking compensation expenses
million
2009
12,194
12,493
2010
11,998
11,998
2011
9,731
10,751
2012E
8,968
9,618
2013E
9,548
9,548
2010
-2%
-4%
2011
-19%
-10%
2012E
-8%
-11%
2013E
6%
-1%
2,080
3,373
1,797
1,074
502
5,453
0
5,453
2,243
4,199
2,337
1,000
863
6,442
0
6,442
2,287
3,655
2,453
770
432
5,942
184
6,126
2,334
3,703
2,503
770
430
6,037
200
6,237
2,345
3,437
2,302
740
395
5,782
0
5,782
8%
24%
30%
2%
-13%
5%
2%
1%
2%
0%
-7%
-8%
72%
18%
-50%
-8%
0%
2%
-8%
-4%
18%
-5%
2%
-7%
43.6%
27.0%
16.6%
53.7%
35.0%
18.7%
55.3%
34.0%
21.3%
62.8%
38.5%
24.3%
60.6%
36.0%
24.6%
CIB staff
CIB comp cost/staff (thousands)
16,139
111,368
19,919
117,307
20,716
118,435
20,198
123,901
19,592
117,514
23%
5%
4%
1%
-2%
5%
-3%
-5%
27.0%
2,871
502
85%
35.0%
3,337
863
79%
34.0%
3,223
432
88%
38.5%
3,273
430
88%
36.0%
3,042
395
89%
16%
72%
-3%
-50%
2%
0%
-7%
-8%
CIB revenues
CIB revenues (clean)
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Table 51: Socit Gnrale: Breakdown of Corporate & Investment Banking compensation expenses
million
CIB revenues
CIB revenues (clean)
2009
6,867
9,848
2010
7,836
7,665
2011
5,981
6,696
2012E
5,550
6,200
2013E
6,200
6,200
2010
14%
-22%
2011
-24%
-13%
2012E
-7%
-7%
2013E
12%
0%
1,218
2,659
1,471
700
488
3,877
0
3,877
1,410
3,296
1,913
850
533
4,706
0
4,706
1,386
3,147
2,066
780
301
4,533
215
4,748
1,424
3,069
2,045
740
284
4,493
100
4,593
1,464
3,038
2,025
735
278
4,502
0
4,502
16%
24%
30%
21%
9%
21%
-2%
-5%
8%
-8%
-43%
-4%
3%
-2%
-1%
-5%
-6%
-1%
3%
-1%
-1%
-1%
-2%
0%
21%
1%
-3%
-2%
39.4%
27.0%
12.4%
61.4%
43.0%
18.4%
67.7%
47.0%
20.7%
72.5%
49.5%
23.0%
72.6%
49.0%
23.6%
CIB staff
CIB comp cost/staff (thousands)
12,134
121,251
13,313
143,667
13,979
147,772
13,839
147,772
13,562
149,280
10%
18%
5%
3%
-1%
0%
-2%
1%
27.0%
2,171
488
82%
43.0%
2,763
533
84%
47.0%
2,846
301
90%
49.5%
2,785
284
91%
49.0%
2,760
278
91%
27%
9%
3%
-43%
-2%
-6%
-1%
-2%
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2010
2,261
2011
1,536
2012E
1,659
2013E
1,792
11/10
-32%
12E/11
8%
13E/12E
8%
Fixed Costs
Deferred expense from previous years expensed in current year
Salaries
Social Security
Pension and other post-employment benefit plans
Other personnel expenses and share based payments
Bank Payroll tax
3,872
717
2,686
122
89
181
76
4,021
711
2,833
120
121
181
54
4,073
814
2,780
120
128
182
49
4,090
868
2,754
116
130
176
45
4%
-1%
5%
-2%
36%
0%
-29%
1%
14%
-2%
0%
5%
0%
-9%
0%
7%
-1%
-3%
2%
-3%
-9%
Variable Costs
Other Variable Compensation incl sales commissions, commitments &
other incentives
Variable Compensation discretionary bonus
1,808
612
837
453
834
412
839
375
-54%
-26%
0%
-9%
1%
-9%
1,196
384
422
465
-68%
10%
10%
68%
32%
83%
17%
83%
17%
83%
17%
RBS: In Q3 2011, RBS indicated that it did not accrue any discretionary
compensation, implying that the high proportion of fixed costs has resulted in limited
flexibility to manage profitability in a weak revenue environment. We believe that
individual business lines within GBM have significantly different cost/ income
ratios. Strongly positioned businesses within Rates, FX and Mortgages are well
below the average C/I ratio for the division, whereas businesses with market shares
outside the Top 5 and Top 10 are operating with C/I ratios even above 100% in some
cases. Ongoing restructuring in our view will help GBM and the group compensation
structure in the long term.
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2010
1,375
937
438
2011
785
390
395
2012E
750
363
387
2013E
717
337
379
11/10
-43%
-58%
-10%
12E/11
-4%
-7%
-2%
13E/12E
-4%
-7%
-2%
863
1,246
483
502
985
461
408
869
441
321
762
-44%
31%
-21%
-4%
-19%
-12%
-4%
-21%
-12%
238
512
750
37%
248
302
550
38%
142
288
430
38%
110
276
385
38%
4%
-41%
-27%
-43%
-4%
-22%
-23%
-4%
-10%
8,093
5,473
700
661
569
923
99
-715
7,680
502
5,423
846
640
447
310
27
-515
7,378
408
5,152
863
627
447
295
24
-438
6,731
321
4,637
820
577
447
280
22
-372
-5%
31%
-1%
21%
-3%
-21%
-66%
-73%
-28%
-4%
-19%
-5%
2%
-2%
0%
-5%
-10%
-15%
-9%
-21%
-10%
-5%
-8%
0%
-5%
-10%
-15%
863
863
483
483
461
461
441
441
-44%
-44%
-4%
-4%
-4%
-4%
8,956
8,163
7,839
7,172
-9%
-4%
-9%
90%
61%
4%
10%
94%
66%
6%
6%
94%
66%
5%
6%
94%
65%
4%
6%
2010
82%
18%
2011
91%
9%
2012E
91%
9%
2013E
91%
9%
In 2011, some IBs like DB, Barclays and MS increased their deferrals to higher
levels in our view, while Swiss IBs UBS and CS seemed to have managed to reduce
their level of deferred compensation expense vesting in future periods.
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2010
7.0
UBS
2011
6.8
4.2
2.6
1.6
37%
2.6
1.8
0.7
28%
1.5
2.8
1.0
1.7
0.3
Fixed Cost
Deferred expense from previous years expensed in current year
Salaries and other compensation
Others
1.5
7.0
2.9
Variable Cost
Variable Compensation recognized in Income Statement for current year
Other Variable Compensation
Total Compensation expense
Fixed Costs as % of Total Compensation expense
o.w. Deferred comp from previous year as % of Total comp. expense
Variable Costs as % of Total Compensation expense
Deferred bonus vesting plans
in 2012E
2013 and beyond
YoY
-3%
2010
8.2
CSG
2011
8.1
-40%
5.8
2.3
3.6
61%
3.2
1.7
1.5
47%
2.3
5.9
2.2
3.7
1.5
6.8
2.5
3.6
8.2
2.6
2.9
16.9
1.8
2.9
15.6
67%
9%
33%
70%
10%
30%
1.1
0.9
-39%
-8%
YoY
-2%
Barclays
2010 2011
6.2
6.3
2.9
1.7
1.2
41%
2.2
0.9
1.3
58%
0.4
1.6
0.8
2.0
3.1
8.1
0.9
6.2
1.4
1.0
6.3
1.61
2.3
14.1
1.7
12.8
1.7
0.8
10.9
0.9
0.6
10.4
84%
25%
16%
87%
24%
13%
78%
8%
22%
85%
10%
15%
2.4
1.3
-45%
-36%
-9%
YoY
2%
2010
DB
2011
-25%
4.3
2.2
2.1
49%
3.6
1.4
2.2
61%
-17%
12.7
13.1
3%
YoY
27%
-5%
1.1
0.9
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FICC becoming more like cash-equity post regulations winning formula: scale institutional, captive agency-only, or
boutique
Our definition of Agency and
Institutional Players
Agency Players: Run mainly on
execution model for their universal
bank captive corporate, retail or
private client relationships for
revenues. Advice is focused on the
captive client base rather than
institutional global clients. Business is
focused following clients. Staffing sits
mainly within country headquarters
rather than New York and London to
minimize staff costs.
Institutional Players: Run a full-scale,
global business, providing complex
solutions to clients, capital, market
makers and liquidity providers. They
compete for global asset gatherers,
sovereigns, and corporates. Financial
institutions will be a large part of the
revenue mix. Staff levels sit mainly in
the financial hubs New York and
London.
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Figure 71: NYSE Arca (All Electronic U.S. Trading Platform) Volume as % of NYSE Composite
Volume
150%
130%
110%
90%
70%
50%
30%
10%
Jan-06
Mar-06
May-06
Jul-06
Sep-06
Nov-06
Jan-07
Mar-07
May-07
Jul-07
Sep-07
Nov-07
Jan-08
Mar-08
May-08
Jul-08
Sep-08
Nov-08
Jan-09
Mar-09
May-09
Jul-09
Sep-09
Nov-09
Jan-10
Mar-10
May-10
Jul-10
Sep-10
Nov-10
Jan-11
Mar-11
May-11
Jul-11
Sep-11
Nov-11
Jan-12
Mar-12
-10%
Source: Bloomberg. Note: Total volume of shares traded for NYSE stocks traded on NYSE ARCA. NYSE Arca is an all-electronic U.S.
trading platform owned by NYSE Euronext. *Index value is calculated internally by Bloomberg and is an approximation.
MS
2.2
UBS
1.5
CS
2.2
DB
1.2
BNP
0.1
SG
0.2
BARC
0.5
HSBC
0.7
RBS
0.2
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execution-only model, and ii) and the willingness to commit capital in low ROE
business under Basel 3 while still delivering meaningful revenues/profitability they
will not be able to compete in the new fixed income world.
Hence, we do not see Tier II FI being able to compete with FI Tier I houses
generating half of the revenues in some instances. Yet again, an agency model rather
than an institutional is seen as a more likely outcome for the Tier II IBs.
We believe that i) the revenue starting point, and ii) liquidity providers will
determine which banks are able to gain revenue market shares in the future.
Therefore we see a scenario where the Tier II players will (and are in the case of
UBS and CSG) exit Basel 3 low ROE business and therefore only have access to
limited execution-only pools of revenue which are shrinking. At the same time, we
expect the Tier I players to accept low ROE Basel 3 ROEs in certain business
segments such as credit structuring and equity derivative structuring in order to
maximize the client revenue share across all parts of the Fixed Income offering,
leaving them with a larger revenue market share overall. In short, in a more
transparent cash equity like world, clients will expect technology driven
execution and commitment in capital to get more of the revenue pool within
FICC. We illustrate this in the table below.
Table 57: Revenue market share to depend on capital/liquidity providing capabilities
$ million
Revenue Pool paid by client
Assumed Block Loss (%)
Block Loss
Revenue Net of Block Loss
Tier I player
5
25%
1.25
3.75
Tier II player
1
10%
0.1
0.9
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Market
Share
9.3%
8.1%
7.8%
7.6%
7.1%
6.4%
5.6%
5.1%
5.0%
4.1%
3.4%
3.3%
3.3%
2.4%
2.2%
1.6%
1.5%
1.3%
1.2%
1.0%
0.7%
0.5%
0.5%
0.4%
0.4%
0.3%
100%
90%
UBS
80%
70%
CS
HSBC
60%
RBS
RBC
NOM.
SG
STAN
UCG
CASA MQG
BNP
MS
BARC
Citi
BofA
DB
GS
50%
40%
30%
20%
10%
JPM*
0%
0
10
12
14
16
18
20
22
24
26
28
Source: J.P. Morgan estimates. Note:*JPM on clean revenues for 2011 based on published numbers. JPM FICC revenues adjusted for
DVA gain of $70m in 2Q, $529m in Q3 and DVA loss of $135m in 4Q 2011. Q2 2011 DVA gains of $140m in trading equally divided
between FICC & Equity Markets. JPM Equities revenues adjusted for DVA gains of $70m in 2Q, $377m in Q3 and DVA loss of $27m in
Q4 2011. Q2 2011 DVA gains of $140m in trading equally divided between FICC & Equity Markets.
Total FICC revenue wallet: c.$122bn in 2013E: Top 6 players account for
c.57% market share pre any market share movement estimates
We estimate the FICC revenue wallet in 2013E for 26 global IB players to be
c.$122bn with Top 5 players accounting for 48% of the market share.
Tier I FICC players Citi, GS, DB, BofA and Barclays each account for 810% of market share in 2013E in our estimates with total FICC revenues of
$55bn in 2013E.
Next 5 players which are HSBC, MS, CS, RBS and UBS account for 24% of the
market share with $29bn in revenues in our estimates in 2013E i.e. close to half
the revenues of the Tier I FICC players.
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Market
Share
9.7%
9.6%
9.2%
8.4%
8.2%
5.6%
4.7%
4.3%
4.0%
3.9%
3.5%
3.4%
2.9%
1.8%
1.7%
1.5%
1.2%
1.0%
0.9%
0.6%
0.5%
0.4%
0.4%
0.2%
0.1%
We believe Tier II FICC Institutional players like RBS, CS, UBS and MS
have not been successful in breaking into the Tier I league and we see further
restructuring as inevitable for the Tier II institutional players as lack of revenue
scale implies unsustainable ROEs for these banks. We expect to see market
share movement away from these Tier II players and see Tier I FICC players
benefiting from these market share movements.
Tier II Agency players like STAN and HSBC run on a different FICC
revenue model in our view based more on corporate relationships and we do not
estimate much market share movement for Tier II Agency players.
Bottom 12 players only account for 10% of 2013E FICC market share in our
estimates. While we need to differentiate between players in Emerging markets
as well as players which concentrate only on their domestic markets, we think the
market share concentration curve reflects the highly consolidated nature of the
business.
Figure 73: FICC revenue Market share concentration curve 2013E
%
100%
SG UCG
90%
80%
70%
HSBC
60%
40%
BARC
BofA
Citi
30%
DB
50%
20%
GS
10%
JPM*
NOM.
STAN
RBS
BNPP
CS
UBS
MS
SEB
MQG. ING KN
INP MB
CASA JEF VTB
RBC
0%
0
10
12
14
16
18
20
22
24
26
28
Source: J.P. Morgan estimates. Note:*JPM on clean revenues for 2011 based on published numbers. JPM FICC revenues adjusted for
DVA gain of $70m in 2Q, $529m in Q3 and DVA loss of $135m in 4Q 2011. Q2 2011 DVA gains of $140m in trading equally divided
between FICC & Equity Markets.
Total Equities revenue wallet: c.$60bn in 2013E: Top 6 players account for 48%
market share
We estimate the Equity revenue wallet in 2013E for 26 global IB players to be
c.$60bn with Top 6 players accounting for 48% of the market share.
GS is the Number 1 player by revenues in our estimates with c.12% market
share and $7bn in revenues in 2013E. GS has established a proven track record
as a flow giant with best in class liquid execution and electronic trading
platforms. MS follows next with c.9% market share in our estimates in
2013E.
Tier I Equities players CS, UBS and BofA each account for 6-7% of market
share in 2013E in our estimates with total Equities revenues of $12bn in 2013E.
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French IBs SG, BNP along with DB, Nomura, Barclays and Citi follow next
with 4-5% market share each. Each of these players is good in a particular
product or geography with both the French IBs strong in equity derivatives in
Europe but not a Tier I cash equities house. DB on the other hand maintains a
strong presence in Europe, but has struggled in the U.S. cash equities in our view.
Table 60: Equity revenue Market
share 2013E
%
Bank
GS
MS
CS
UBS
BofA
SG
DB
NOM
HSBC
BARC
Citi
BNPP
RBC
MQG.
UCG
RBS
CASA
JEF
KN
MB
VTB
STAN
ING
SEB
INP
Market
Share
11.6%
9.4%
7.2%
6.3%
6.2%
5.6%
5.4%
5.2%
5.0%
5.0%
4.9%
4.4%
4.3%
2.3%
1.7%
1.4%
1.3%
1.0%
0.9%
0.8%
0.7%
0.6%
0.6%
0.5%
0.4%
We believe Tier III equity houses with only flow businesses primarily related
to cash equities have struggled to remain profitable and we see the trend to
scale down or close as seen in recent announcements by RBS, UCG to
continue.
We expect to see much lower market share movement in equities compared to
FICC and expect the market to remain more fragmented and accommodative of
more players.
We believe more domestic focused players will continue to hold on to their
market shares as they are more dependent on domestic and corporate
relationships.
Bottom 10 players account for 8% of market share in 2013E in our estimates.
Figure 74: Equity revenue Market share concentration curve 2013E
%
100%
MB ING STAN
SEB INP
MQG.
KN VTB
UCG CASA
HSBC
RBC
RBS JEF
90%
BNPP
80%
BARC
NOM
70%
60%
SG
50%
DB
BofA
40%
UBS
CS
30%
Citi
JPM*
MS
20%
GS
10%
0%
0
10
12
14
16
18
20
22
24
26
28
Source: J.P. Morgan estimates. Note:*JPM on clean revenues for 2011 based on published numbers. JPM Equities revenues adjusted
for DVA gains of $70m in 2Q, $377m in Q3 and DVA loss of $27m in Q4 2011. Q2 2011 DVA gains of $140m in trading equally divided
between FICC & Equity Markets.
Total IBD revenue wallet: c.$50bn in 2013E: Top 5 players account for 49% of
market share
We estimate 2013E IBD revenue wallet of $50bn for 27 players globally in our
analysis with Top 5 players accounting for 49% of the revenue wallet.
BofA, MS, GS and Barclays are in the Top 5 IBD players in 2013E in our
estimates, with $19bn of revenues which represents 37% market share.
Next 5 players (HSBC, Citi, CS, DB and UBS) account for 30% of IBD market
share in our estimates.
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Market
Share
11.2%
9.0%
8.8%
8.1%
7.8%
6.7%
6.2%
5.9%
3.1%
2.9%
2.5%
2.2%
2.1%
2.0%
1.6%
1.6%
1.4%
1.3%
1.1%
0.6%
0.5%
0.5%
0.5%
0.3%
0.2%
0.2%
100%
MQG SG
JEF
INP
BNP
RBC
Lazard
NOM.
DB
UBS
CS
Citi
HSBC
BARC
GS
RBS
90%
80%
70%
60%
50%
40%
SEBSTANUCG MB
CASA ING VTB
MS
30%
BofA
20%
JPM*
10%
0%
0
10
12
14
16
18
20
22
24
26
28
Source: J.P. Morgan estimates. Note:*JPM on clean revenues for 2011 based on published numbers.
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4.0%
ECM NORTH AMERICA
ECM EUROPE
1.1%
3.5%
DCM EUROPE
1.0%
3.0%
0.9%
0.8%
2.5%
0.7%
2.0%
0.6%
0.5%
1.5%
0.4%
1.0%
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
Source: Dealogic
2012ytd
0.2%
2012ytd
0.3%
0.5%
Source: Dealogic
M&A EUROPE
0.9%
0.8%
0.7%
0.6%
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
0.4%
2012ytd
0.5%
Source: Dealogic
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$ millions, %
$ millions, %
Bank
Deutsche Bank
Morgan Stanley
Credit Suisse
Goldman Sachs
JPMorgan
BoA Merrill Lynch
Citi
UBS
Barclays Capital
UniCredit
Subtotal
Total
Net Revenue
($m)
242
223
210
185
152
146
121
91
81
68
1,519
2,623
% share
9
8
8
7
6
6
5
3
3
3
58
100
Cumulative %
Share
9
18
26
33
39
44
49
52
55
58
58
100
Bank
JPMorgan
Morgan Stanley
BoA Merrill Lynch
Goldman Sachs
Citi
Credit Suisse
Barclays Capital
Deutsche Bank
RBC Capital Markets
Wells Fargo Securities
Subtotal
Total
Net Revenue
($m)
708
609
584
494
430
414
403
313
284
255
4494
7304
% share
10
8
8
7
6
6
6
4
4
3
62
100
Cumulative %
Share
10
18
26
33
39
44
50
54
58
62
62
100
Source: Dealogic
Source: Dealogic
$ millions, %
$ millions, %
Bank
Deutsche Bank
Barclays Capital
BNP Paribas
JPMorgan
HSBC
Credit Suisse
Citi
RBS
Goldman Sachs
UBS
Subtotal
Total
Net Revenue
($m)
411
333
311
281
278
252
236
236
217
186
2,740
5,126
% share
8
7
6
5
5
5
5
5
4
4
53
100
Cumulative %
Share
8
15
21
26
31
36
41
46
50
53
53
100
Bank
BoA Merrill Lynch
JPMorgan
Citi
Goldman Sachs
Morgan Stanley
Deutsche Bank
Barclays Capital
Credit Suisse
Wells Fargo Securities
UBS
Subtotal
Total
Net Revenue
($m)
971
951
638
575
567
562
539
508
396
321
6030
8950
% share
11
11
7
6
6
6
6
6
4
4
67
100
Cumulative %
Share
11
21
29
35
41
48
54
59
64
67
67
100
Source: Dealogic
Source: Dealogic
$ millions, %
$ millions, %
Net Revenue
($m)
484
435
402
350
339
319
312
274
238
188
3,339
6,172
% share
8
7
7
6
5
5
5
4
4
3
54
100
Cumulative %
Share
8
15
21
27
33
38
43
47
51
54
54
100
Net Revenue
($m)
883
831
823
659
570
445
368
343
325
324
5574
9007
% share
10
9
9
7
6
5
4
4
4
4
62
100
Cumulative %
Share
10
19
28
35
42
47
51
55
58
62
62
100
Source: Dealogic
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Autonomous
31-Mar-11
Redburn Partners
31-May-11
KBW group
31-Dec-11
Turnover
Variable Expense
Net Revenues
Operating Expense
o/w staff costs
Operating profit
Interest Income/Expense
Profit for financial year before Member's remuneration and profit shares
Taxation
Member's remuneration charges as an expense
Profit for financial year
21,635
(15,659)
(9,179)
5,976
5,976
(1,912)
4,064
93.0
(15.2)
77.9
(42.2)
(23.7)
35.7
0.2
35.8
(0.4)
(4.3)
31.1
264.5
264.5
(315.6)
(183.4)
(51.1)
(51.1)
19.4
(31.7)
(9,179)1
(9,179)1
22.6
22.6
(4.7)
(1.0)
17.8
0.0
17.8
(3.0)
14.8
(1.0)
(3.0)
(4.0)
(23.7)
(4.3)
(28.1)
(183.4)
(183.4)
14.8
31.1
22,490**
85
45
130
585
22,490**
8
19
27
42.4%
42.4%
4.5%
13.2%
17.6%
30.5%
5.6%
36.1%
69.3%
69.3%
961,983
867,625
598,880
452,156
Year ended
Profit for financial year available for discretionary division among Members
Average no. of staff
Average no. of members
Total employees
Comp Ratio for staff
Comp Ratio for Members
Comp Ratio for total employees*
Net rev per total employee
585
Source: Company reports, J.P. Morgan estimates. Note. KBW operating expense includes restructuring charge of $15mn of which $7mn severance cost. Severance cost is not reported as a part of
comp expense and hence not adjusted. GBUSD rate used = 1.5817.*Investment Banking and Institutional client services. **estimated assuming 65% of total staff in IB. ***Average comp/employee
for GS.1. estimated assuming group comp ratio. *The compensation does not include profit paid out to the members.
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Additional RWA reductions from legacy asset reductions and further RWA
mitigation
2.
Market Share movements in FICC which should benefit Tier I FICC players
at the expense of Tier II institutional players
3.
A last step which the IBs would look at in our view could be further staff
reductions, non-comp cost cuts and if the revenue environment does not
improve or deteriorates further, IBs could use comp adjustment as a final
measure to reach 13% ROE for Tier I IBs and 10% ROE for Tier II IBs. We
believe IB managements need to demonstrate their ability to generate
adequate returns in the business.
Our starting point for this sensitivity analysis is the IB ROE post regulation as
discussed on page 62. We estimate IB ROE to decline from 13.6% pre regulation to
6.8% post regulation in 2013E.
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Table 69: Global Investment Banks 2013E ROE in the IB division pre and post regulation changes
%
IB ROE 2013E
1. Clearing via CCP
2. Moving derivatives to exchange
3. OTC post trade transparency
4. Higher capital on non CCP clearing
Dodd Frank global
5. Ban on prop trading, limits on market making,
PE/HF Investments
6. Section 716 US reg - segregation IB
7. NPR2 RWA Increase
Dodd-Frank US/French Proposal only
8. Increase in cost of funding
ICB Impact (UK only)
9. Stressed VaR capital buffer
10. Incremental Risk Charge
11. Securitisation & correlation
Basel 2.5
12. CVA, CCR & other
13. Securitisation risk weighted 1250%
Basel 3 excluding mitigation
14. Mitigation
15. Group excess capital
Total impact
IB ROE pre mitigation
Decline in ROE
Resulting IB ROE
Decline in ROE
IB ROE post regulation (ex reg. arbitrage)
Decline in ROE
CS
13.9%
0.9%
-1.1%
-0.6%
-0.1%
-1.1%
UBS
12.7%
0.6%
-1.4%
-0.7%
-0.1%
-1.7%
DB
12.8%
1.4%
-1.3%
-0.6%
-0.1%
-0.9%
GS
15.7%
1.9%
-1.0%
-0.9%
-0.2%
-0.4%
MS
12.6%
1.0%
-0.8%
-0.5%
-0.1%
-0.4%
BNP
16.2%
-0.2%
-1.3%
-0.5%
0.0%
-2.0%
SG
14.6%
0.4%
-1.1%
-0.7%
-0.1%
-1.6%
BARC
14.1%
0.4%
-0.8%
-0.4%
-0.1%
-0.9%
RBS
10.0%
1.0%
-0.9%
-0.4%
0.0%
-0.5%
Avg.
13.6%
0.8%
-1.1%
-0.6%
-0.1%
-1.1%
-1.2%
-1.5%
-0.7%
-3.0%
-3.8%
-4.6%
-6.4%
13.7%
-1.9%
-7.0%
5.4%
-62%
6.9%
-50%
6.9%
-50%
-1.2%
-1.4%
-1.1%
-3.1%
-3.2%
-4.3%
-5.8%
66.8%1
-1.4%
-5.3%
4.6%
-64%
7.4%
-42%
7.4%
-42%
-1.6%
-0.6%
-1.1%
-2.9%
-3.3%
-5.0%
-6.4%
13.3%
0.0%
-6.4%
4.9%
-62%
6.4%
-50%
6.4%
-50%
-0.7%
-0.1%
-3.7%
-4.3%
-2.1%
-1.2%
-1.9%
-4.3%
-3.2%
-4.5%
-6.2%
7.9%
0.0%
-8.9%
5.8%
-63%
6.8%
-57%
8.6%
-45%
-0.7%
-0.1%
-1.7%
-2.3%
-0.9%
-1.2%
-0.9%
-2.6%
-1.6%
-2.3%
-3.4%
2.1%
0.0%
-5.9%
6.2%
-51%
6.7%
-46%
8.0%
-36%
-0.4%
-0.4%
-1.8%
-0.8%
-0.5%
-2.9%
-2.7%
0.0%
-2.7%
0.0%
0.0%
-6.5%
9.7%
-40%
9.7%
-40%
10.0%
-38%
-0.2%
-0.2%
-1.8%
-1.4%
-1.3%
-3.7%
-3.6%
-6.5%
-7.7%
3.8%
0.0%
-9.1%
5.0%
-66%
5.5%
-62%
5.6%
-62%
-2.7%
-2.7%
-0.7%
-0.7%
-0.7%
-2.0%
-3.4%
-2.5%
-4.9%
4.0%
0.0%
-7.2%
6.0%
-58%
6.9%
-51%
8.8%
-38%
-2.1%
-2.1%
-0.6%
-0.6%
-0.6%
-1.6%
-2.1%
-2.1%
-3.5%
3.1%
0.0%
-5.5%
3.9%
-61%
4.5%
-55%
6.1%
-39%
-0.2%
0.0%
-0.6%
-0.8%
-0.5%
-0.5%
-1.3%
-1.1%
-1.0%
-2.9%
-3.0%
-3.5%
-5.2%
12.7%
-0.4%
-6.9%
5.7%
-58%
6.8%
-50%
7.5%
-45%
Source: J.P. Morgan estimates, company data. Notes: i) Morgan Stanley Institutional Securities estimates ii) Goldman Sachs Institutional Client Services & Investment Banking estimates; iii) our
ROE estimates are based on JPMC allocated capital (10% of RWAs); iv) for the impact of Section 619, we have assumed the pure prop trading revenues would be impacted, partly offset by costs
savings note that we have assumed a ban on prop trading for French banks as well; v) note that percentages cannot be added up as both numerators and denominators are changing. 1. Includes
legacy assets transferred from IB to corporate center starting Q1 12. RBS: In 2013E, RBS GBM will be in transition phase of restructuring and hence we have not included the impact of reduction in
wholesale funding which in the longer term we estimate will add up to c.5% to the GBM ROE assuming minimal revenue generation from the reduced TPAs. Please note we do not include the
impact of Basel Liquidity rules in our calculations, and have discussed these in some of our other publications. Please note, the current proposed regulations on central clearing could imply that risk
weights will increase when activity moves from bilateral to centrally cleared trades. We have not included this potential negative impact in our calculations.
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Table 70: Global Investment Banking ROE 2013E: Average IB ROE to improve 90bps to 7.7% post legacy asset reduction/passive roll-off
%, local currency
Pre regulation
IB ROE
IB comp ratio
IB comp/head ($ thousands)
IB comp differential vs. best in class
Post regulation
IB ROE post regulation
IB ROE post regulation (ex regulatory
arbitrage)
IB comp ratio
IB comp/head ($ thousands)
IB comp differential vs. best in class
Impact from legacy asset/ additional
RWA reduction
Legacy asset/ additional RWA reduction
IB ROE post legacy asset/ additional
RWA reduction
IB ROE post legacy asset/ additional
RWA reduction (ex reg. arbitrage)
CS
UBS
DB
GS
MS
BNP
SG
BARC
RBS
Avg./
Total
Avg.
Tier I
Avg.
Tier II
13.9%
44%
267
-42%
12.7%
47%
254
-45%
12.8%
40%
393
-14%
15.7%
40%
459
0%
12.6%
40%
333
-27%
16.2%
35%
218
-52%
14.6%
43%
259
-42%
14.1%
44%
358
-22%
10.0%
37%
218
-53%
13.6%
41%
306
-33%
14.2%
41%
403
13.3%
41%
258
6.9%
6.9%
7.4%
7.4%
6.4%
6.4%
6.8%
8.6%
6.7%
8.0%
9.7%
10.0%
5.5%
5.6%
6.9%
8.8%
4.5%
6.1%
6.8%
7.5%
6.7%
7.9%
6.8%
7.3%
44%
257
-40%
47%
238
-45%
40%
370
-14%
40%
428
0%
41%
314
-27%
35%
201
-53%
43%
244
-43%
47%
340
-21%
40%
205
-52%
42%
288
-33%
43%
380
-11%
42%
243
-43%
15,147
7.5%
0
7.4%
55,000
7.8%
90,000
8.1%
20,000
7.1%
15,000
10.4%
57,000
8.5%
14,000
7.3%
15,000
5.1%
7.7%
7.7%
7.6%
7.5%
7.4%
7.8%
10.6%
8.5%
10.7%
8.6%
9.3%
6.8%
8.6%
9.2%
8.2%
Source: J.P. Morgan estimates. Notes: i) Morgan Stanley Institutional Securities estimates ii) Goldman Sachs Institutional Client Services & Investment Banking estimates; iii) our ROE estimates
are based on JPMC allocated capital (10% of RWAs. RBS: In 2013E, RBS GBM will be in transition phase of restructuring and hence we have not included the impact of reduction in wholesale
funding which in the longer term we estimate will add up to c.5% to the GBM ROE assuming minimal revenue generation from the reduced TPAs.
Table 71: Global Investment Banks: Key ratios post legacy asset/ additional RWA reduction
%
CS
UBS
DB
GS
MS
BNP
SG
BARC
RBS
Avg.
13.9%
44%
267
38%
82%
12.7%
47%
254
33%
80%
12.8%
40%
393
34%
74%
15.7%
40%
459
32%
72%
12.6%
40%
333
30%
70%
16.2%
35%
218
26%
61%
14.6%
43%
259
30%
73%
14.1%
44%
358
22%
66%
10.0%
37%
218
32%
69%
6.9%
6.9%
7.4%
7.4%
6.4%
6.4%
6.8%
8.6%
6.7%
8.0%
9.7%
10.0%
5.5%
5.6%
6.9%
8.8%
44%
257
40%
84%
47%
238
35%
83%
40%
370
37%
77%
40%
428
35%
75%
41%
314
32%
73%
35%
201
29%
63%
43%
244
32%
75%
7.5%
7.4%
7.8%
8.1%
7.1%
10.4%
44%
257
40%
84%
47%
238
35%
83%
40%
370
37%
77%
40%
428
35%
75%
41%
314
32%
73%
35%
201
29%
63%
13.6%
41%
306
31%
72%
Avg.
Tier I
14.2%
41%
403
30%
71%
Avg.
Tier II
13.3%
41%
258
31%
72%
4.5%
6.1%
6.8%
7.5%
6.7%
7.9%
6.8%
7.3%
47%
340
26%
73%
40%
205
38%
78%
42%
288
34%
76%
43%
380
33%
75%
42%
243
34%
76%
8.5%
7.3%
5.1%
7.7%
7.7%
7.6%
43%
244
32%
75%
47%
340
26%
73%
40%
205
38%
78%
42%
288
34%
76%
43%
380
33%
75%
42%
243
34%
76%
Source: J.P. Morgan estimates. Notes: i) Morgan Stanley Institutional Securities estimates ii) Goldman Sachs Institutional Client Services & Investment Banking estimates; iii) our ROE estimates
are based on JPMC allocated capital (10% of RWAs). RBS: In 2013E, RBS GBM will be in transition phase of restructuring and hence we have not included the impact of reduction in wholesale
funding which in the longer term we estimate will add up to c.5% to the GBM ROE assuming minimal revenue generation from the reduced TPAs.
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Notes
2013-2014
Credit correlation
15
33
16
17
Source: Company reports and J.P. Morgan estimates. *TCD indicates total capital demand: Total Capital Demand (TCD) = RWA + 12.5 x Tier 1 impact of Capital Deduction Items (CDI)
Goldman Sachs: GS indicated $89bn (split $39bn market risk RWAs and $50bn
credit risk RWAs) in RWA reduction by 2013E and additional $45bn (split $10bn
market risk RWAs and $35bn credit risk RWAs) in RWA reduction by 2015E from
passive roll-off of mortgage securitization and credit correlation portfolios. GS had in
June 2011 also indicated the potential for active significant mitigation well in excess
of conservative scenario as Credit correlation and mortgage securitization positions
represent $12bn in Basel III market risk capital requirements. Hence, we estimate
potential for additional $90bn RWA mitigation from active steps by management in
our forecasted low IB revenue environment scenario.
BNP Paribas: The group's legacy assets portfolio amounted to 12.7bn (of which
12.5bn in the banking book), mostly in CIB with the remaining in other businesses
(e.g. BancWest). 72% of the assets in that portfolio are AAA-rated, and most of the
assets are Dutch RMBS - 8.1bn out of total 12.7bn. This excludes 9.2bn of legacy
assets inherited from Fortis (IN portfolio) in the corporate center. We estimate the
legacy assets portfolio in CIB had RWAs of 15bn end 2012e under Basel 3
standards, or 7% of total CIB RWAs post regulatory changes.
Socit Gnrale: The legacy assets portfolio of SG CIB amounted to 17bn end
2011, down from 33bn end 2010, as the group accelerated the disposals with 13bn
of sales achieved in 2011 with limited impact from disposals (116m or about 1% of
assets). The 17bn of legacy assets of which 12.4bn of reclassified assets
includes: 2.4bn of US CDOs of RMBS, 0.8bn of US RMBS, 3.1bn of US CLOs,
2bn of other US ABS and CDOs, 3bn of Euro ABS and CLOs. We estimate the
legacy assets portfolio in CIB had RWAs of 20bn under Basel 2.5 and close to
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85bn under Basel 3 pre mitigation and 70bn post mitigation of 15bn. SG is
focusing on the dismantling of CDOs of RMBS which would be the most capital
intensive under Basel 3, and the group has already achieved 1.3bn of capital savings
by 2013, of which 0.9bn already freed up at end 2011.
UK Banks: Barclays targets Credit market assets Basel 3 RWAs to be 14bn by
2013E which in our view will be eventually reduced to zero and hence we estimate
additional 14bn RWA reduction in our calculation of post legacy asset reduction
ROE. For RBS the 15bn RWAs relates to GBM restructuring where the Group
targets 150bn RWAs (ex Dodd Frank reduction in our view) in the medium term.
We estimate 165bn RWAs by 2013E, hence the additional 15bn RWA reduction in
our numbers.
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%
100%
90%
80%
70%
HSBC
60%
40%
BARC
BofA
Citi
30%
DB
50%
100%
90%
80%
MS
70%
CS
HSBC
BARC
60%
BofA
50%
Citi
40%
DB
30%
20%
GS
20%
GS
10%
JPM*
10%
JPM*
0%
SG MQG. ING
VTB MB
BNPP STAN
INP
CASA JEF KN SEB
UCG RBC
RBS
NOM.
UBS
0%
0
10
12
14
16
18
20
22
24
26
28
Source: J.P. Morgan estimates. Note:*JPM clean revenues for 2011 based on published
numbers. JPM FICC revenues adjusted for DVA gain of $70m in 2Q, $529m in Q3 and DVA
loss of $135m in 4Q 2011. Q2 2011 DVA gains of $140m in trading equally divided between
FICC & Equity Markets.
10
12
14
16
18
20
22
24
26
Source: J.P. Morgan estimates. Note:*JPM clean revenues for 2011 based on published
numbers. JPM FICC revenues adjusted for DVA gain of $70m in 2Q, $529m in Q3 and DVA
loss of $135m in 4Q 2011. Q2 2011 DVA gains of $140m in trading equally divided between
FICC & Equity Markets.
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Table 73: Global Investment Banking ROE Sensitivity 2013E: Tier I IB ROE to improve 150bps to 9.2% post sensitivity on market share
movements
%, local currency
Pre regulation
IB ROE
IB comp ratio
IB comp/head ($ thousands)
IB comp differential vs. best in class
Post regulation
IB ROE post regulation
IB ROE post regulation (ex regulatory
arbitrage)
IB comp ratio
IB comp/head ($ thousands)
IB comp differential vs. best in class
Impact from legacy asset/ additional
RWA reduction
Legacy asset/ additional RWA reduction
IB ROE post legacy asset/ additional
RWA reduction
IB ROE post legacy asset/ additional
RWA reduction (ex regulatory
arbitrage)
Post Market Share movements
Movement in market share
IB ROE post market share movements
IB ROE post market share movements
(ex reg arbitrage)
CS
UBS
DB
GS
MS
BNP
SG
BARC
RBS
Avg./
Total
Avg.
Tier I
Avg.
Tier II
13.9%
44%
267
-42%
12.7%
47%
254
-45%
12.8%
40%
393
-14%
15.7%
40%
459
0%
12.6%
40%
333
-27%
16.2%
35%
218
-52%
14.6%
43%
259
-44%
14.1%
44%
358
-22%
10.0%
37%
218
-53%
13.6%
41%
306
-33%
14.2%
41%
403
-12%
13.3%
41%
258
-44%
6.9%
6.9%
7.4%
7.4%
6.4%
6.4%
6.8%
8.6%
6.7%
8.0%
9.7%
10.0%
5.5%
5.6%
6.9%
8.8%
4.5%
6.1%
6.8%
7.5%
6.7%
7.9%
6.8%
7.3%
44%
257
-40%
47%
238
-45%
40%
370
-14%
40%
428
0%
41%
314
-27%
35%
201
-53%
43%
244
-42%
47%
340
-21%
40%
205
-52%
42%
288
-33%
43%
380
-11%
42%
243
-43%
15,147
7.5%
0
7.4%
55,000
7.8%
90,000
8.1%
20,000
7.1%
15,000
10.4%
57,000
8.5%
14,000
7.3%
15,000
5.1%
7.7%
7.7%
7.6%
7.5%
7.4%
7.8%
10.6%
8.5%
10.7%
8.6%
9.3%
6.8%
8.6%
9.2%
8.2%
-0.6%
6.9%
-0.6%
6.7%
0.8%
9.5%
0.8%
9.0%
-0.7%
6.6%
-0.5%
9.5%
-0.3%
7.9%
0.7%
9.0%
-0.6%
3.9%
7.7%
9.2%
6.9%
6.9%
6.7%
9.5%
11.8%
8.0%
9.8%
8.0%
10.9%
5.6%
8.6%
10.8%
7.5%
Source: J.P. Morgan estimates. RBS: In 2013E, RBS GBM will be in transition phase of restructuring and hence we have not included the impact of reduction in wholesale funding which in the
longer term we estimate will add up to c.5% to the GBM ROE assuming minimal revenue generation from the reduced TPAs.
102
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Table 74: Global Investment Banks: Sensitivity of key ratios to market share movements
%
CS
UBS
DB
GS
MS
BNP
SG
BARC
RBS
Avg.
13.6%
41%
306
31%
72%
Avg.
Tier I
14.2%
41%
403
30%
71%
Avg.
Tier II
13.3%
41%
258
31%
72%
13.9%
44%
267
38%
82%
12.7%
47%
254
33%
80%
12.8%
40%
393
34%
74%
15.7%
40%
459
32%
72%
12.6%
40%
333
30%
70%
16.2%
35%
218
26%
61%
14.6%
43%
259
30%
73%
14.1%
44%
358
22%
66%
10.0%
37%
218
32%
69%
6.9%
44%
257
40%
84%
7.4%
47%
238
35%
83%
6.4%
40%
370
37%
77%
6.8%
40%
428
35%
75%
6.7%
41%
314
32%
73%
9.7%
35%
201
29%
63%
5.5%
43%
244
32%
75%
6.9%
47%
340
26%
73%
4.5%
40%
205
38%
78%
6.8%
42%
288
34%
76%
6.7%
43%
380
33%
75%
6.8%
42%
243
34%
76%
7.5%
7.4%
7.8%
8.1%
7.1%
10.4%
8.5%
7.3%
5.1%
7.7%
7.7%
7.6%
44%
257
40%
84%
47%
238
35%
83%
40%
370
37%
77%
40%
428
35%
75%
41%
314
32%
73%
35%
201
29%
63%
43%
244
32%
75%
47%
340
26%
73%
40%
205
38%
78%
42%
288
34%
76%
43%
380
33%
75%
42%
243
34%
76%
6.9%
6.7%
9.5%
9.0%
6.6%
9.5%
7.9%
9.0%
3.9%
7.7%
9.2%
6.9%
44%
240
40%
84%
47%
218
36%
83%
38%
370
36%
74%
39%
428
35%
74%
41%
297
33%
73%
35%
186
29%
64%
43%
231
32%
75%
44%
340
26%
70%
40%
173
40%
80%
41%
276
34%
75%
40%
380
32%
72%
42%
224
35%
76%
Source: J.P. Morgan estimates. RBS: In 2013E, RBS GBM will be in transition phase of restructuring and hence we have not included the impact of reduction in wholesale funding which in the
longer term we estimate will add up to c.5% to the GBM ROE assuming minimal revenue generation from the reduced TPAs.
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New
10.5%
10.4%
10.0%
9.1%
8.9%
5.6%
4.0%
3.7%
3.4%
3.4%
3.4%
3.0%
2.9%
1.6%
1.5%
1.3%
1.2%
1.0%
0.9%
0.6%
0.5%
0.4%
0.4%
0.2%
0.1%
Old
9.7%
9.6%
9.2%
8.4%
8.2%
5.6%
4.7%
4.3%
3.4%
4.0%
3.9%
3.5%
2.9%
1.7%
1.8%
1.5%
1.2%
1.0%
0.9%
0.6%
0.5%
0.4%
0.4%
0.2%
0.1%
Delta
0.8%
0.8%
0.8%
0.7%
0.7%
0.0%
-0.7%
-0.6%
0.0%
-0.6%
-0.6%
-0.5%
0.0%
-0.1%
-0.3%
-0.2%
0.0%
-0.1%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
104
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Source: Bloomberg. Diamond, Jain Say Investor Confidence Increased in January 26th Jan
2012
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securities firms. Post the global settlement on April 2003, staff levels remained flat
owing to the fact that banks had started restructuring months before the actual
settlement because of mounting pressure from the regulators.
On April 28, 2003, a global settlement was reached between SEC, NASAA,
NASD, NYSE, New York Attorney General Eliot Spitzer and ten large brokerage
firms found to have conflicts of interest between research and investment banking
departments. The ten brokerage firms were required to pay $1.4 billion as a part of
the Global Settlement The objective throughout the investigation and negotiations
was to protect small investors and restore integrity to the marketplace. The settlement
prompted brokerage firms to restructure and reduce costs as Analyst compensation
couldnt be drawn from banking revenues.
Overall, based on our analysis, staff levels within cash equity were reduced
within the equity business by 35% in the period July 2001 to end 2003. In
addition post Spitzer the bonus compensation pool was reduced by 45% for the
industry in one year. In respect to FICC, the business most impacted by Basel 3 as
well as Dodd-Frank, we expect a similar reaction in terms of staff reductions as well
as compensation adjustments. In our view, the new regulatory environment is more
likely to drive FICC staff cuts rather than compensation cuts considering the material
fixed cost base within the industry as discussed Swiss Banks: Increased fixed costs
unsustainable at 71-88% could lead to further staff cuts (see page 74) post salary
increases within the industry. In addition, with more trading automation driven by
Dodd-Frank it is likely that: i) less human capital, and ii) cheaper staffing is required
in the long-term.
Hence, based on our analysis, we could witness an additional 14% staff
reductions post only 5% reduction so far and -10% compensation adjustments
in order to generate adequate returns for shareholders at net ROE of 13% for
Tier I IBs and 10% for Tier II IBs. However, the Spitzer settlement was well
anticipated and IB firms were able to react before the final Spitzer settlement and
rules were introduced. It is much less clear in the current environment how to
interpret regulator proposals in the final rule making and market impact- hence, we
assume restructuring will be post regulatory changes rather than in the Spitzer
investigation pre-settlement and new rule decisions.
Figure 81: US Security Brokerage Industry equity regulatory
environment change Number of employees (000s)
106
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Final Impact on ROE: the path to get back to 13% for Tier I IBs and 10% ROE
for Tier II Institutional IBs
In our view, Tier II Institutional IBs could end up targeting 10% ROE as an
acceptable level of return to shareholders. We believe it is not possible for Tier II
IBs in the restructuring mode to generate 13% ROE as it would mean unviable levels
of compensation or staff reductions. Tier II IBs, in our view, could run their
Investment Banks to support their Private Banking franchise, corporate clients or
their retail client base i.e. a more agency-like structure over time. This may lead to
lower ROE but we believe more predictable IB earnings and lower staff costs
from employees in execution type businesses with lower compensation levels. Hence
we believe even with 10% ROE, it could become 1x BV business for Tier II IBs.
For Tier I IBs, however, we believe 13% ROE is the cost of equity plus a
premium to shareholders for running a full-scale Investment Bank, with greater
volatility in earnings compared to the Tier II Agency-like model and for taking on
higher amounts of risk. Most importantly, a ROE of 13% over time will, we
estimate, lead to 1.2-1.3x tangible BV in the new world.
We do not expect material intellectual talent to leave the IB industry as the
payout on average remains highly attractive. We see some staff moving to the
hedge fund and private banking segments however, the staffing levels required
in our view are pretty limited. IBs will, we expect, also make more significant
differentiation in pay to keep key staffing levels within the IB, in our view.
Overall, we see an ongoing shift of top performers moving to the Tier I firms,
We run our sensitivity analysis on further restructuring in two steps:
5. Fixed cost reduction through staff cuts which will drive Tier II Institutional
IB ROE towards 10%. We estimate total potential IB staff cuts of maximum
20% in our analysis across players as in a more cash equity like FICC world; we
think it would be difficult to reduce the level of staff further as most of these cuts
will be in FICC and imply a reduction of about 25-35%. We also assume -5%
reduction in non-comp costs, further reduction in our view is difficult as
investment in technology driven execution facilities would increase non-comp
costs for the IBs.
6. As a result we run the next step in our sensitivity analysis assuming
reduction in comp costs for Tier II FICC players who are not able to reach 10%
ROE and Tier I FICC players who are not able to reach 13% ROE.
1. Sensitivity on staff cuts and non-comp reduction: average Tier II IB ROE
improves to 9.0% in 2013E; Tier I IBs ROE improves to 12.2%
Based on our sensitivity analysis, we estimate average ROEs for Tier II Institutional
IBs to improve to 9.0% post further staff cuts and a 5% reduction in non-comp
expenses. We assume only 5% reduction in non-comp expenses as we do not
estimate significant declines in costs as FICC becomes more electronic as well as
increased regulatory requirements force IBs to devote additional resources to
technology/reporting platforms.
We believe both Swiss IBs have limited flexibility to reduce comp expenses
because of the high fixed cost base, as discussed on page 74. Both Swiss IBs
have already announced material restructuring, hence we run the sensitivity
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UBS
DB
GS
MS
BNP
SG
BARC
RBS
Avg./
Total
Avg.
Tier I
Avg.
Tier II
13.9%
44%
267
-42%
12.7%
47%
254
-45%
12.8%
40%
393
-14%
15.7%
40%
459
0%
12.6%
40%
333
-27%
16.2%
35%
218
-52%
14.6%
43%
259
-44%
14.1%
44%
358
-22%
10.0%
37%
218
-53%
13.6%
41%
306
-33%
14.2%
41%
403
-12%
13.3%
41%
258
-44%
6.9%
6.9%
7.4%
7.4%
6.4%
6.4%
6.8%
8.6%
6.7%
8.0%
9.7%
10.0%
5.5%
5.6%
6.9%
8.8%
4.5%
6.1%
6.8%
7.5%
6.7%
7.9%
6.8%
7.3%
44%
257
-40%
47%
238
-45%
40%
370
-14%
40%
428
0%
41%
314
-27%
35%
201
-53%
43%
244
-43%
47%
340
-21%
40%
205
-52%
42%
288
-33%
43%
380
-11%
42%
243
-43%
15,147
7.5%
0
7.4%
55,000
7.8%
90,000
8.1%
20,000
7.1%
15,000
10.4%
57,000
8.5%
14,000
7.3%
15,000
5.1%
7.7%
7.7%
7.7%
7.5%
7.4%
7.8%
10.6%
8.5%
10.7%
8.6%
9.3%
6.8%
8.6%
9.2%
8.2%
-0.6%
6.9%
-0.6%
6.7%
0.8%
9.5%
0.8%
9.0%
-0.7%
6.6%
-0.5%
9.5%
-0.3%
7.9%
0.7%
9.0%
-0.6%
3.9%
7.7%
9.2%
6.9%
6.9%
6.7%
9.5%
11.8%
8.0%
9.8%
8.0%
10.9%
5.6%
8.6%
10.8%
7.5%
-11%
-2,078
-217
-14%
-2,243
-143
-20%
-4,156
-348
-20%
-4,329
-405
-20%
-3,980
-248
0%
0
-166
-9%
-1,221
-123
-20%
-4,320
-201
-10%
-1,400
-137
-23,726
Resulting IB ROE
Resulting IB ROE (ex reg arbitrage)
IB comp ratio
IB non comp ratio
IB cost/income
10.0%
10.0%
39.4%
37.9%
77.2%
10.0%
10.0%
40.2%
34.0%
74.3%
12.9%
12.9%
30.6%
34.8%
65.3%
11.9%
15.4%
31.2%
33.6%
64.9%
9.0%
10.6%
32.5%
31.1%
63.6%
10.0%
10.3%
34.9%
27.3%
62.2%
10.0%
10.2%
39.1%
30.5%
69.6%
11.8%
13.8%
35.2%
25.2%
60.3%
5.2%
7.0%
35.5%
37.8%
73.2%
10.7%
11.6%
35.4%
31.8%
67.2%
12.2%
14.0%
32.3%
31.2%
63.5%
9.0%
9.7%
36.9%
33.1%
70.0%
Pre regulation
IB ROE
IB comp ratio
IB comp/head ($ thousands)
IB comp differential vs. best in class
Post regulation
IB ROE post regulation
IB ROE post regulation (ex regulatory
arbitrage)
IB comp ratio
IB comp/head ($ thousands)
IB comp differential vs. best in class
Impact from legacy asset/ additional
RWA reduction
Legacy asset/ additional RWA reduction
IB ROE post legacy asset/ additional
RWA reduction
IB ROE post legacy asset/ additional
RWA reduction (ex regulatory
arbitrage)
Post Market Share movements
Movement in market share
IB ROE post market share movements
IB ROE post market share movements
(ex reg arbitrage)
-14%
-1,988
Source: J.P. Morgan estimates. RBS: In 2013E, RBS GBM will be in transition phase of restructuring and hence we have not included the impact of reduction in wholesale funding which in the
longer term we estimate will add up to c.5% to the GBM ROE assuming minimal revenue generation from the reduced TPAs.
108
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Table 77: Global Investment Banks: Sensitivity on Key ratios post further staff cuts and non-comp cost adjustments
%
CS
UBS
DB
GS
MS
BNP
SG
BARC
RBS
Avg.
13.9%
44%
267
38%
82%
12.7%
47%
254
33%
80%
12.8%
40%
393
34%
74%
15.7%
40%
459
32%
72%
12.6%
40%
333
30%
70%
16.2%
35%
218
26%
61%
14.6%
43%
259
30%
73%
14.1%
44%
358
22%
66%
10.0%
37%
218
32%
69%
6.9%
44%
257
40%
84%
7.4%
47%
238
35%
83%
6.4%
40%
370
37%
77%
6.8%
40%
428
35%
75%
6.7%
41%
314
32%
73%
9.7%
35%
201
29%
63%
5.5%
43%
244
32%
75%
6.9%
47%
340
26%
73%
7.5%
7.4%
7.8%
8.1%
7.1%
10.4%
8.5%
44%
257
40%
84%
47%
238
35%
83%
40%
370
37%
77%
40%
428
35%
75%
41%
314
32%
73%
35%
201
29%
63%
6.9%
6.7%
9.5%
9.0%
6.6%
44%
240
40%
84%
47%
218
36%
83%
38%
370
36%
74%
39%
428
35%
74%
10.0%
10.0%
12.9%
39%
238
38%
77%
40%
215
34%
74%
31%
370
35%
65%
13.6%
41%
306
31%
72%
Avg.
Tier I
14.2%
41%
403
30%
71%
Avg.
Tier II
13.3%
41%
258
31%
72%
4.5%
40%
205
38%
78%
6.8%
42%
288
34%
76%
6.7%
43%
380
33%
75%
6.8%
42%
243
34%
76%
7.3%
5.1%
7.7%
7.7%
7.6%
43%
244
32%
75%
47%
340
26%
73%
40%
205
38%
78%
42%
288
34%
76%
43%
380
33%
75%
42%
243
34%
76%
9.5%
7.9%
9.0%
3.9%
7.7%
9.2%
6.9%
41%
296
33%
73%
35%
186
29%
64%
43%
231
32%
75%
44%
340
26%
70%
40%
173
40%
80%
41%
276
34%
75%
40%
380
32%
72%
42%
224
35%
76%
11.9%
9.0%
10.0%
10.0%
11.8%
5.2%
10.7%
12.2%
9.0%
31%
428
34%
65%
32%
293
31%
64%
35%
186
27%
62%
39%
230
31%
70%
35%
340
25%
60%
35%
169
38%
73%
35%
274
32%
67%
32%
380
31%
64%
37%
222
33%
70%
Source: J.P. Morgan estimates. RBS: In 2013E, RBS GBM will be in transition phase of restructuring and hence we have not included the impact of reduction in wholesale funding which in the
longer term we estimate will add up to c.5% to the GBM ROE assuming minimal revenue generation from the reduced TPAs.
2.Further comp reductions required for some Tier II IBs to reach 10.0% and
Tier I IBs to reach 13.0% ROE
In our sensitivity, we also estimate further -7% reduction in comp costs on average
for Tier I IBs (GS, BARC and DBK) to reach 13% ROE in 2013E.
GS remains the best in class IB paymaster in the industry with estimated
$386k in comp/head post the comp reductions, down -16% from estimated $459k
pre-regulation.
DBK and Barclays follow next with $366k and $303k in estimated
comp/head, down -7% and -15%, respectively, from our current estimate for
2013E of average $375k in comp/head.
Tier II Institutional IBs CS, UBS and MS would have average comp/head of
$251k in our sensitivity analysis, down -9% on average from our current estimate
for 2013E of average $285k in comp/head.
French IBs BNP and SG should continue to operate with low comp/head
with BNP comp/head declining -8% to $201k in our sensitivity analysis while
SG comp/head declines to $244k from $259k per head pre regulations.
109
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UBS
DB
GS
MS
BNP
SG
BARC
RBS
Avg./
Total
Avg.
Tier I
Avg.
Tier II
13.9%
44%
267
-42%
12.7%
47%
254
-45%
12.8%
40%
393
-14%
15.7%
40%
459
0%
12.6%
40%
333
-27%
16.2%
35%
218
-52%
14.6%
43%
259
-44%
14.1%
44%
358
-22%
10.0%
37%
218
-53%
13.6%
41%
306
-33%
14.2%
41%
403
-12%
13.3%
41%
258
-44%
6.9%
6.9%
7.4%
7.4%
6.4%
6.4%
6.8%
8.6%
6.7%
8.0%
9.7%
10.0%
5.5%
5.6%
6.9%
8.8%
4.5%
6.1%
6.8%
7.5%
6.7%
7.9%
6.8%
7.3%
44%
257
-40%
47%
238
-45%
40%
370
-14%
40%
428
0%
41%
314
-27%
35%
201
-53%
43%
244
-42%
47%
340
-21%
40%
205
-52%
42%
288
-33%
43%
380
-11%
42%
243
-43%
15,147
7.5%
0
7.4%
55,000
7.8%
90,000
8.1%
20,000
7.1%
15,000
10.4%
57,000
8.5%
14,000
7.3%
15,000
5.1%
7.7%
7.7%
7.6%
7.5%
7.4%
7.8%
10.6%
8.5%
10.7%
8.6%
9.3%
6.8%
8.6%
9.2%
8.2%
-0.6%
6.9%
-0.6%
6.7%
0.8%
9.5%
0.8%
9.0%
-0.7%
6.6%
-0.5%
9.5%
-0.3%
7.9%
0.7%
9.0%
-0.6%
3.9%
7.7%
9.2%
6.9%
6.9%
6.7%
9.5%
11.8%
8.0%
9.8%
8.0%
10.9%
5.6%
8.6%
10.8%
7.5%
-11%
-2,078
-217
-14%
-2,243
-143
-20%
-4,156
-348
-20%
-4,329
-405
-20%
-3,980
-248
0%
0
-166
-9%
-1,221
-123
-20%
-4,320
-201
-10%
-1,400
-137
-23,726
Resulting IB ROE
Resulting IB ROE (ex reg arbitrage)
IB comp ratio
IB non comp ratio
IB cost/income
10.0%
10.0%
39.4%
37.9%
77.2%
10.0%
10.0%
40.2%
34.0%
74.3%
12.9%
12.9%
30.6%
34.8%
65.3%
11.9%
15.4%
31.2%
33.6%
64.9%
9.0%
10.6%
32.5%
31.1%
63.6%
10.0%
10.3%
34.9%
27.3%
62.2%
10.0%
10.2%
39.1%
30.5%
69.6%
11.8%
13.8%
35.2%
25.2%
60.3%
5.2%
7.0%
35.5%
37.8%
73.2%
10.7%
11.6%
35.4%
31.8%
67.2%
12.2%
14.0%
32.3%
31.2%
63.5%
9.0%
9.7%
36.9%
33.1%
70.0%
0%
10.0%
39.4%
257
-33%
0%
10.0%
40.2%
238
-38%
-1%
13.0%
30.2%
366
-5%
-10%
13.0%
28.1%
386
0%
-12%
10.0%
28.3%
276
-28%
0%
10.0%
34.9%
201
-48%
0%
10.0%
39.1%
244
-37%
-11%
13.0%
31.3%
303
-21%
nm
-
-10%
11.0%
31.4%
262
-32%
-7%
13.0%
29.9%
352
-9%
-4%
10.0%
32.2%
243
-44%
Pre regulation
IB ROE
IB comp ratio
IB comp/head ($ thousands)
IB comp differential vs. best in class
Post regulation
IB ROE post regulation
IB ROE post regulation (ex regulatory
arbitrage)
IB comp ratio
IB comp/head ($ thousands)
IB comp differential vs. best in class
Impact from legacy asset/ additional
RWA reduction
Legacy asset/ additional RWA reduction
IB ROE post legacy asset/ additional
RWA reduction
IB ROE post legacy asset/ additional
RWA reduction (ex regulatory
arbitrage)
Post Market Share movements
Movement in market share
IB ROE post market share movements
IB ROE post market share movements
(ex reg arbitrage)
-14%
-1,988
Source: J.P. Morgan estimates. RBS: In 2013E, RBS GBM will be in transition phase of restructuring and hence we have not included the impact of reduction in wholesale funding which in the
longer term we estimate will add up to c.5% to the GBM ROE assuming minimal revenue generation from the reduced TPAs.
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Table 79: Global Investment Banks: Key ratios: Sensitivity on roadmap to attaining 13% and 10% ROE in 2013E for Tier I and Tier II IBs
%
CS
UBS
DB
GS
MS
BNP
SG
BARC
RBS
Avg.
13.9%
44%
267
38%
82%
12.7%
47%
254
33%
80%
12.8%
40%
393
34%
74%
15.7%
40%
459
32%
72%
12.6%
40%
333
30%
70%
16.2%
35%
218
26%
61%
14.6%
43%
259
30%
73%
14.1%
44%
358
22%
66%
10.0%
37%
218
32%
69%
6.9%
44%
257
40%
84%
7.4%
47%
238
35%
83%
6.4%
40%
370
37%
77%
6.8%
40%
428
35%
75%
6.7%
41%
314
32%
73%
9.7%
35%
201
29%
63%
5.5%
43%
244
32%
75%
6.9%
47%
340
26%
73%
7.5%
7.4%
7.8%
8.1%
7.1%
10.4%
8.5%
44%
257
40%
84%
47%
238
35%
83%
40%
370
37%
77%
40%
428
35%
75%
41%
314
32%
73%
35%
201
29%
63%
6.9%
6.7%
9.5%
9.0%
6.6%
44%
240
40%
84%
47%
218
36%
83%
38%
370
36%
74%
39%
428
35%
74%
10.0%
10.0%
12.9%
39%
238
38%
77%
40%
215
34%
74%
44%
267
38%
82%
13.6%
41%
306
31%
72%
Avg.
Tier I
14.2%
41%
403
30%
71%
Avg.
Tier II
13.3%
41%
258
31%
72%
4.5%
40%
205
38%
78%
6.8%
42%
288
34%
76%
6.7%
43%
380
33%
75%
6.8%
42%
243
34%
76%
7.3%
5.1%
7.7%
7.7%
7.6%
43%
244
32%
75%
47%
340
26%
73%
40%
205
38%
78%
42%
288
34%
76%
43%
380
33%
75%
42%
243
34%
76%
9.5%
7.9%
9.0%
3.9%
7.7%
9.2%
6.9%
41%
297
33%
73%
35%
186
29%
64%
43%
231
32%
75%
44%
340
26%
70%
40%
173
40%
80%
41%
276
34%
75%
40%
380
32%
72%
42%
224
35%
76%
11.9%
9.0%
10.0%
10.0%
11.8%
5.2%
10.7%
12.2%
9.0%
31%
370
35%
65%
31%
428
34%
65%
32%
293
31%
64%
35%
186
27%
62%
39%
230
31%
70%
35%
340
25%
60%
35%
169
38%
73%
35%
274
32%
67%
32%
380
31%
64%
37%
222
33%
70%
47%
254
33%
80%
40%
393
34%
74%
40%
459
32%
72%
40%
333
30%
70%
35%
218
26%
61%
43%
259
30%
73%
44%
358
22%
66%
37%
218
32%
69%
41%
306
31%
72%
41%
403
30%
71%
41%
258
31%
72%
39%
257
38%
77%
40%
238
34%
74%
30%
366
35%
65%
28%
386
34%
62%
28%
276
31%
59%
35%
201
27%
62%
39%
244
31%
70%
31%
303
25%
56%
nm
-
31%
262
32%
66%
30%
352
31%
61%
32%
243
33%
65%
-4%
-6%
-6%
-7%
-7%
-12%
-16%
-15%
-17%
-15%
-8%
3%
-6%
-4%
-15%
-15%
-15%
-9%
-13%
-14%
-6%
-10%
Source: J.P. Morgan estimates. RBS: In 2013E, RBS GBM will be in transition phase of restructuring and hence we have not included the impact of reduction in wholesale funding which in the
longer term we estimate will add up to c.5% to the GBM ROE assuming minimal revenue generation from the reduced TPAs.
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Bank
GS
Staff
1,000 heads
globally over the
course of 2011 as
a part of the cost
savings initiative
Announced in
August 11: 3,500
job cuts across
the firm, 45% to
come from IB
CS
Announced in Q2
11-Q3 11: 2,000
job cuts
announced in July
and 1,500
additional in
November
DB
500
Barclays
Capital
release
expected
Cost Saving
expected
Comment
Legacy Assets
Revenue Impact
guidance
SF28bn of
financial assets
and SF 23bn of
positive
replacement
values,
accounting for
SF80bn Basel 3
RWAs
$1.4Bn
Dec 2011:
announced plans
to cut 1,600 jobs
globally in Q1
2012
MS
UBS
RWAs reduction
target
Total of
approximately SF2
billion reduction
from annual costs
by the end of 2013
IB RWA reduction
target of SF100bn
from 270bn to 170bn
by 2014, of which:
40Bn in Macro rates &
Fx, 30Bn in securitised
products and 10 Bn in
Credit
Credit Market
portfolio of
15.2bn
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Bank
BNP
SocGen
Unicredit
Staff
About 1,400 FTEs
880 FTEs in
France
RWAs reduction
target
45bn of RWAs by
end 2012, of which
22bn had been
achieved already end
2011
30-40bn of RWAs by
2013
35bn
Capital
release
expected
57bp of
Basel 3
Common
Equity
capital
Dismantlin
g of CDOs
of RMBS:
1.3bn of
Basel 3
capital
savings
secured by
2013.
Cost Saving
expected
Legacy Assets
Revenue Impact
guidance
450m of cost
savings
Reclassified
legacy assets:
only 4.8bn end
June 2011
0.8bn losses on
disposals and 1.4bn
on a recurring FY
basis
Initial guidance
was about 5% of
cost base or
250m
Legacy assets
net book value:
17bn end 2011,
of which
reclassified
legacy assets
12.4bn.
0.5-0.7bn losses on
disposals and 750m
on a recurring FY
basis
Comment
1.5bn
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6,186
14,738
15,025
4,583
4,763
GS
MS
UBS
CS
DB
BNPP
SG
BARC
HSBC
RBS
STAN
CHAR
Citi
BofA
CASA
2,062
1,462
1,286
1,470
1,454
1,371
761
867
887
1,135
938
2,100
754
929
1,578
158
100
691
60
90
350
713
570
1,569
408
326
898
97
54
70
720
937
2,171
1,018
1,329
3,059
107
100
184
4,810
4,295
2,515
4,173
3,262
949
500
842
549
1,917
353
3,661
2,852
1,632
222
3,828
5,406
392
619
4,083
6,033
1,702
4,331
510
2,631
-379
13,497
210
13,707
578
1,386
2,513
877
1,636
360
1,752
0
6,589
-704
5,885
266
2,135
2,195
1,315
880
543
147
144
5,430
481
5,912
2,613
1,669
2,071
650
1,422
822
268
-251
7,192
-477
6,715
918
3,156
6,479
3,049
3,431
1,513
899
477
13,441
-619
12,823
284
344
4,280
1,259
3,021
326
205
989
6,428
6,428
99
323
2,070
737
1,333
148
105
487
3,232
132
3,364
808
1,886
5,968
853
5,115
1,462
959
218
11,301
112
11,413
2,052
577
1,922
1,101
821
2,814
0
645
8,010
452
8,462
490
1,307
2,800
834
1,965
1,555
0
443
6,594
205
6,799
157
2,037
1,200
837
206
2,400
12,528
423
12,951
92
99
1,234
507
727
64
111
177
1,777
-43
1,734
3,501
3,226
1,432
0
-1,711
6,448
70
6,518
1,311
1,575
1,663
414
-644
4,318
-122
4,196
1,645
1,846
1,079
22
1,462
1,133
835
647
2,363
80
162
63
2,903
208
136
1,105
414
1,260
230
264
378
1,649
113
482
550
138
206
206
-
4,592
64
4,655
1,860
2,491
1,383
538
-900
5,371
-142
5,229
4,077
14
4,092
2,668
2,668
3,246
3,246
3,009
3,009
2,404
2,404
1,376
1,376
206
24,755
-439
-439
14,763
12,537
16,736
2,848
2,848
23,629
5,750
5,750
15,795
3,112
3,112
10,091
1,400
1,400
19,371
495
495
13,761
2,068
2,068
11,670
2,400
14,263
-189
14,074
444
622
0
176
206
3,708
-207
3,501
4,144
4,144
1,242
1,242
962
962
3,272
3272
3,580
3,580
2,827
23,515
27,611
6,991
Source: J.P. Morgan estimates, Company data. Note: Credit Portfolio for French banks includes financing activities revenues (e.g. corporate lending, structured finance, energy & commodities), French banks disclosures differ from IB peers, as a result, revenues
estimates are not entirely comparable.*GS only institutional Client services revenues for Fixed Income and equities. Barc clean revenues is adjusted for 200mn gain on gilts. JPM FICC revenues adjusted for $287m DVA gains in FICC, Equities revenues adjusted for
$181m DVA gains in Equities.
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Nomura
20
25
30
75
0
36
487
197
290
33
132
82
769
70
839
1,269
2,874
2,874
416
217
0
121
Macquarie
Group
ING
VTB
RBC
53
0
15
4
10
17
133
97
661
38
53
108
31
24
43
893
270
268
68
31
891
199
98
0
0
326
43
283
0
471
401
1,197
1,197
24
16
346
330
16
0
0
0
386
386
124
371
1,359
865
494
494
124
0
2,471
7
22
81
52
30
30
7
1
148
111
28
28
329
1,119
560
560
2,471
254
1,017
0
0
77
106
106
0
288
288
754
2,761
1,271
3,892
Investec
55
57
156
1,271
EFG
Hermes
MB
72
99
99
2,761
2,293
2,293
UCG
518
251
125
754
Credit Portfolio
Underlying
CVA
Other
SEB
1,199
ICICI
BANK7
29
186
745
1,136
204
932
204
139
1,448
30
2,272
45
148
139
1,448
30
2,272
45
771
302
59
36
48
26
4
9
47
47
221
1,164
87
315
377
455
3,152
1,164
87
315
377
455
3,152
3,903
303
1,344
2,024
6,623
204
0
0
0
6,904
3,361
944
Source: J.P. Morgan estimates, Company data. Note: 7. ICICI Bank equity revenues exclude broking revenues of $123mn (mostly retail broking.) ING revenues Estimated from 9M-11 disclosure with Investor day 2011 using average IB universe growth rates.
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MS
UBS
CS
DB
BNPP
SG
BARC
HSBC
RBS
STAN
CHAR
Citi
BofA
CASA
1,987
1,085
1,283
1,737
1,132
1,359
441
725
395
976
819
1,641
874
788
1,485
145
130
517
80
100
370
645
548
2,030
189
189
882
54
44
102
684
672
1,954
1,246
1,303
2,693
144
100
217
5,859
4,355
4,228
1,562
3,437
3,147
793
550
792
516
1,762
373
3,443
3,223
1,260
200
3,310
5,242
461
14,873
495
2,450
1,617
3,586
459
2,105
-1,994
8,718
376
901
921
1,751
288
1,314
-220
5,330
177
1,588
1,510
1,469
450
153
-42
5,305
1,359
1,149
518
1,606
939
321
-1,028
4,864
785
2,361
3,194
3,301
1,585
1,018
-582
11,662
243
239
1,144
2,584
331
198
941
5,679
95
259
709
1,211
150
107
72
2,604
617
1,439
607
3,642
2,253
683
342
9,583
1,436
144
1,156
503
2,781
0
443
6,464
628
879
977
1,521
1,176
0
312
5,493
126
1,560
921
288
2,894
10,896
8,103
99
84
488
661
69
118
55
1,573
15,337
0
8,718
3,672
9,002
-174
5,131
-437
4,427
299
11,961
-1,227
4,452
-122
2,481
-116
9,467
6,464
635
6,128
2,894
1,367
12,263
765
8,868
1,573
3,326
3,188
1,598
0
1,665
2,016
2,062
429
1,178
1,687
1,149
198
1,615
2,233
1,312
-12
1,188
1,235
928
-55
2,223
81
168
162
3,010
178
0
160
1,132
424
1,033
226
370
529
577
159
498
569
142
213
0
288
0
0
-1,847
6,265
150
6,415
-743
5,428
599
6,027
4,212
-2,106
2,106
-625
4,524
248
4,772
3,296
111
3,407
2,634
0
2,634
3,348
0
3,348
2,815
1,634
1,422
288
2,815
1,634
1,422
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
2,404
2,404
0
0
6,025
6,025
0
0
2,922
2,922
0
0
700
700
0
0
124
124
0
0
19,338
19,488
14,986
19,257
11,079
8,799
12,824
12,635
20,509
20,919
15,130
13,903
9,424
9,301
16,541
16,425
11,444
11,444
JPM
IB Fees
Advisory
Equity Underwriting
Debt Underwriting
Other
Total
Fixed Income Markets
SPG
Credit Trading
FX
Rates
GEM
Commodities
Prop trading/hedge gains/others
Total Fixed Income Markets Clean
Gains on own debt/writedowns/other
fixed income
Total Fixed Income Markets
Equity Markets
Equity Derivatives
Cash equities
Prime brokerage
Prop trading/other equity-related
Brokerage, Clearing, exchange and
distribution fees
Total equities clean
Gains/losses on own debt
Total equities
Credit Portfolio
Underlying
CVA
Other
Total Revenue Clean
Total Revenue
4,412
4,832
332
698
23
288
2,400
356
2,756
3,744
224
3,968
1,054
0
1,054
2,013
2,013
0
0
1,802
1202
3,092
3,092
3,520
3,520
10,187
10,822
3,381
3,381
22,629
23,618
6,608
6,608
600
19,035
21,417
Source: J.P. Morgan estimates, Company data. Note: Credit Portfolio for French banks includes financing activities revenues (e.g. corporate lending, structured finance, energy & commodities), French banks disclosures differ from IB peers, as a result, revenues
estimates are not entirely comparable.*GS only institutional Client services revenues for Fixed Income and equities. JPM FICC revenues adjusted for DVA gain of $70m in 2Q, $529m in Q3 and DVA loss of $135m in 4Q 2011. Q2 2011 DVA gains of $140m in trading
equally divided between FICC & Equity Markets. JPM Equities revenues adjusted for DVA gains of $70m in 2Q, $377m in Q3 and DVA loss of $27m in Q4 2011. Q2 2011 DVA gains of $140m in trading equally divided between FICC & Equity Markets.
118
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Amit Ranjan
(44-20) 7325-4780
amit.x.ranjan@jpmorgan.com
Nomura
Macquarie
Group
SEB
UCG
MB
Investec
ING
VTB
RBC
Jefferies*
Lazard
ICICI
BANK7
20
25
30
372
234
248
388
214
65
55
68
123
35
36
15
134
92
504
100
52
100
51
37
43
667
75
103
103
0
280
246
86
731
253
1,123
1,088
33
3,193
0
0
55
58
0
648
449
1,210
26
16
368
16
0
0
0
427
103
309
721
412
412
103
0
2,059
2
5
12
7
7
2
1
35
169
42
211
33
519
519
1,071
131
627
1,496
75
854
0
0
169
232
32
120
13
565
120
481
175
601
1,553
715
35
Equity Markets
Equity Derivatives
Cash equities
Prime brokerage
Prop trading/other equity-related
Total equities clean
324
186
0
40
550
2,427
238
954
0
0
1,192
78
107
107
0
292
877
344
67
37
1,325
250
136
23
45
454
161
230
2440
594
350
-502
Credit Portfolio
Underlying
CVA
Other
2,253
2,253
3,444
6,473
3,069
999
3,629
575
1,172
1,673
256
5489
2431
1088
180
IB Fees
Advisory
Equity Underwriting
Debt Underwriting
Other
Total
35
35
175
Source: J.P. Morgan estimates, Company data. Note. 7. ICICI Bank equity revenues exclude broking revenues of $111mn (mostly retail broking). * Year ending November for Jefferies. ING revenues estimated from 9M-11 disclosure with Investor day 2011 using
average IB universe growth rates.
119
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amit.x.ranjan@jpmorgan.com
IB Fees
Advisory
Equity Underwriting
Debt Underwriting
Other
Total
Fixed Income Markets
SPG
Credit Trading
FX & Rates
FX
Rates
GEM
Commodities
Prop trading/hedge gains/others
Total Fixed Income Markets
Equity Markets
Equity Derivatives
Cash equities
Prime brokerage
Prop trading/other equity-related
Brokerage, Clearing, exchange and
distribution fees
Total equities
Credit Portfolio
Underlying
CVA
Other
Total Revenue
GS
MS
UBS
CS
DB
BNPP
SG
BARC
HSBC
RBS
STAN
CHAR
Citi
BofA
CASA
1,722
893
1,500
1,890
1,188
1,223
415
681
372
1,019
681
1,272
841
661
1,304
97
170
502
110
130
400
728
692
2,221
125
125
999
59
49
113
445
505
2,041
1,218
1,292
2,296
159
100
220
4,115
4,301
1,467
2,972
2,806
769
640
837
546
1,869
388
3,641
3,641
1,249
222
2,992
4,806
480
549
3,429
4,591
1,471
3,120
482
2,126
283
11,461
368
919
2,614
875
1,739
291
1,353
0
5,546
134
1,332
2,759
1,440
1,318
418
146
0
4,789
1,181
1,106
1,734
445
1,289
860
273
342
5,496
682
2,030
5,990
2,982
3,008
1,480
951
315
11,448
202
177
3,154
1,005
2,150
321
192
395
4,441
83
191
1,564
590
974
139
99
167
2,244
587
1,391
4,107
602
3,505
2,508
690
262
9,545
1,896
296
2,133
1,361
773
3,106
554
7,984
361
1,082
2,402
854
1,548
1,140
300
5,284
0
141
2,704
1,700
1,004
0
302
0
3,147
10,200
91
74
978
428
550
67
0
114
1,324
3,459
3,296
1,662
0
1,732
2,097
2,123
107
1,244
1,505
931
0
1,583
2,107
1,259
0
1,120
1,165
870
0
2,158
78
160
101
2,922
169
0
161
1,166
450
1,027
230
452
646
594
194
726
363
145
218
0
302
0
0
-1,847
6,570
-743
5,315
3,678
-650
4,298
3,155
2,497
3,252
2,873
1,886
1,451
302
2,637
3,400
795
2,257
2,257
-
4,804
4,804
-
1,929
1,929
-
650
650
-
253
253
-
1,970
1,970
-
0
0
-
1,357
1,457
-100
-
N/A
-650
-
2,767
2,767
22,145
15,162
9,935
12,766
19,666
12,512
8,066
16,709
13,763
9,954
3,670
18,931
5,365
10,533
0
678
0
117
Source: J.P. Morgan estimates. Note: Credit Portfolio for French banks includes financing activities revenues (e.g. corporate lending, structured finance, energy & commodities), French banks disclosures differ from IB peers, as a result, revenues estimates are not
entirely comparable.*GS only institutional Client services revenues for Fixed Income and equities.
120
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Amit Ranjan
(44-20) 7325-4780
amit.x.ranjan@jpmorgan.com
Nomura
Macquarie
Group
20
25
30
75
462
397
256
1,115
427
235
72
734
0
0
140
182
29
111
6
469
3,517
Equity Markets
Equity Derivatives
Cash equities
Prime brokerage
Prop trading/other equity-related
Total equities
307
177
0
37
521
1,942
1,942
3,006
IB Fees
Advisory
Equity Underwriting
Debt Underwriting
Other
Total
Credit Portfolio
Underlying
CVA
Other
Total Revenue
SEB
UCG
MB
Investec
ING*
VTB
RBC*
Jefferies*
Lazard*
70
96
96
52
64
116
33
34
14
126
87
475
95
49
95
262
232
81
689
238
54
40
50
143
1,410
1,058
1,025
0
0
59
62
0
700
485
1,307
26
22
362
22
0
0
0
432
99
298
695
397
397
99
0
1,986
6
18
41
24
24
6
1
118
169
42
71
532
532
202
730
170
557
2,776
257
1,030
1,287
81
111
111
0
303
798
120
60
20
997
333
24
71
48
476
7,408
3,328
997
3,215
1,135
528
1,842
758
163
233
2,467
600
353
366
674
1,132
1,727
1,038
5,719
2,416
1,025
211
35
35
177
Source: J.P. Morgan estimates. Note: *Forecasts using 2011 reported numbers and average growth rate for the sector. Year ending November for Jefferies. ING revenues estimated from 9M-11 disclosure with Investor day 2011 using average IB universe growth
rates.
121
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Amit Ranjan
(44-20) 7325-4780
amit.x.ranjan@jpmorgan.com
IB Fees
Advisory
Equity Underwriting
Debt Underwriting
Other
Total
Fixed Income Markets
SPG
Credit Trading
FX
Rates
GEM
Commodities
Prop trading/hedge gains/others
Total Fixed Income Markets
Equity Markets
Equity Derivatives
Cash equities
Prime brokerage
Prop trading/other equity-related
Brokerage, Clearing, exchange and
distribution fees
Total equities
Credit Portfolio
Underlying
CVA
Other
Total Revenue
GS
MS
UBS
CS
DB
BNPP
SG
BARC
HSBC
RBS
STAN
CHAR
Citi
BofA
CASA
1,825
947
1,590
1,941
1,260
1,284
435
715
390
1,060
708
1,323
883
694
1,370
111
170
527
110
130
400
801
801
2,403
88
88
1,085
66
54
126
553
591
2,184
1,552
1,550
2,526
185
100
242
4,362
4,485
1,541
3,090
2,947
808
640
947
631
1,952
415
3,944
4,005
1,262
246
3,328
5,628
528
549
3,429
1,545
3,097
511
2,188
302
11,621
368
919
888
1,722
297
1,373
0
5,568
129
1,287
1,455
1,331
439
147
0
4,789
1,145
1,106
454
1,292
885
280
0
5,162
669
2,030
3,041
3,008
1,508
989
260
11,505
202
159
954
1,935
353
221
332
4,156
83
163
561
877
153
114
164
2,114
570
1,349
626
3,575
2,734
725
221
9,799
1,915
331
1,497
837
3,341
0
606
8,527
361
1,082
812
1,497
1,101
0
293
5,145
0
156
1,870
1,104
0
302
0
3,433
10,500
91
70
407
495
70
0
107
1,240
0
3,701
3,398
1,745
0
0
1,835
2,222
2,251
111
1,281
1,550
960
0
1,617
2,234
1,311
0
1,154
1,204
891
0
2,266
82
165
134
3,068
174
0
173
1,248
495
1,033
242
506
723
600
217
897
224
149
224
0
302
0
0
-1,847
6,997
-743
5,676
3,791
-650
4,513
3,249
2,646
3,415
3,016
2,046
1,495
302
2,769
3,550
771
2,275
2,275
-
4,811
4,811
-
1,897
1,897
-
600
600
-
284
284
-
1,983
1,983
-
1,559
1,559
-
2,797
2,797
22,980
15,729
10,121
12,766
19,976
12,421
8,066
17,360
14,862
9,884
3,981
20,157
5,335
11,059
0
712
59
Source: J.P. Morgan estimates. Note: Credit Portfolio for French banks includes financing activities revenues (e.g. corporate lending, structured finance, energy & commodities), French banks disclosures differ from IB peers, as a result, revenues estimates are not
entirely comparable.*GS only institutional Client services revenues for Fixed Income and equities.
122
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Kian Abouhossein
(44-20) 7325-1523
kian.abouhossein@jpmorgan.com
Amit Ranjan
(44-20) 7325-4780
amit.x.ranjan@jpmorgan.com
Nomura
Macquarie
Group
SEB
UCG
MB
Investec
ING*
VTB
20
25
30
462
487
308
469
259
79
76
105
105
54
67
120
34
35
15
131
90
492
98
51
98
55
43
47
75
1,256
807
285
241
84
714
247
0
0
133
173
32
116
6
461
4,074
0
0
64
67
0
756
524
1,411
28
28
377
28
0
0
0
460
99
297
693
396
396
99
0
1,979
6
18
41
24
24
6
1
118
169
42
211
Equity Markets
Equity Derivatives
Cash equities
Prime brokerage
Prop trading/other equity-related
Total equities
321
184
0
37
542
3,136
0
278
1,112
0
1,390
82
112
112
349
25
75
50
498
37
37
307
833
125
63
21
1,042
Credit Portfolio
Underlying
CVA
Other
1,811
1,811
Total Revenue
2,889
8,466
3,609
1,052
3,261
IB Fees
Advisory
Equity Underwriting
Debt Underwriting
Other
Total
RBC*
Jefferies*
Lazard*
145
1,461
1,096
1,062
71
529
529
1,129
550
198
721
172
548
1,828
754
171
244
370
450
2,584
629
700
1,168
1,746
1,145
5,873
2,478
1,062
183
Source: J.P. Morgan estimates. Note: *Forecasts using 2011 reported numbers and average growth rate for the sector. Year ending November for Jefferies. ING revenues estimated from 9M-11 disclosure with Investor day 2011 using average IB universe growth
rates.
123
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Amit Ranjan
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amit.x.ranjan@jpmorgan.com
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125
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Amit Ranjan
(44-20) 7325-4780
amit.x.ranjan@jpmorgan.com
Q1 10
2,569
1,764
5,614
5,352
5,088
2,723
5,917
2,593
1,078
736
151
4,255
3,223
1,901
595
398
94
833
50
30
31,637
Q2 10
1,572
1,302
3,012
2,203
3,488
1,743
3,027
1,539
694
442
214
3,367
1,686
1,827
464
280
121
519
30
40
19,769
Q3 10
1,591
986
3,162
3,247
3,385
1,310
2,827
1,647
892
502
155
3,061
1,583
1,453
931
269
78
646
55
40
18,512
Q4 10
971
977
1,800
1,726
2,302
813
1,726
1,402
596
300
275
2,645
1,479
1,109
884
250
93
474
13
30
13,518
Q1 11
2,786
1,949
4,920
3,996
3,986
1,929
4,325
2,313
1,009
748
198
3,387
2,834
2,152
835
617
102
1062
27
30
22,618
Q2 11
825
1,409
3,327
2,565
2,922
1,430
1,599
1,596
753
534
233
2,615
1,619
1,528
839
260
95
667
-20
60
13,554
Q3 11
755
823
2,061
324
2,271
1,367
1,431
1,137
348
318
99
2,675
666
592
593
155
112
172
14
60
10,598
Q4 11
409
1,108
1,419
1,218
1,717
604
1,363
1,165
501
201
69
1,621
1,179
1,397
926
178
118
158
14
60
8,189
Q1 12E
2,393
1,506
4,293
1,650
3,800
1,821
813
462
3,373
99
19,649
Q2 12E
1,345
1,280
2,797
1,452
3,040
1,171
520
393
2,429
103
14,033
Q3 12E
898
1,032
2,146
1,234
2,432
1,041
488
353
2,283
110
11,555
Q4 12E
860
970
2,212
1,210
2,189
911
423
336
2,111
120
10,885
2011
4,864
5,353
11,662
8,103
10,896
5,330
8,718
6,197
2,604
1,573
565
9,583
5,338
6,464
3,193
1,210
427
2,059
35
211
627
99,994
2012E
5,496
4,789
11,448
10,200
10,533
5,546
11,461
4,441
2,244
1,324
469
9,545
5,003
7,984
3,517
1,307
432
1,986
118
211
528
96,752
2013E
5,162
4,789
11,505
10,500
11,059
5,568
11,621
4,156
2,114
1,240
461
9,799
4,724
8,527
4,074
1,412
460
1,979
119
211
550
98,164
Source: J.P. Morgan estimates, Company data. Notes: i) GS restated Q1 10 onwards FICC client execution from Institutional Client Services, ii) Barc revenues adjusted for credit market revenues & Barc Q410 FICC revenues adjusted for 200mn gain on gilts; iii)
BNP and SG Q3 11 Fixed Income revenues include 362m and 87m of losses on sales of government bonds. 1. Macquarie Group do not disclose quarterly earnings. Quarterly revenue numbers are JPM estimates, derived using half-yearly MQG divisional
disclosures and quarterly trends in global fee pools; 2. Estimated as not disclosed and Q411 not reported, 3.quarterly total for CS, UBS, DB, MS, GS, BNP, Socgen, CASA & Barclays. **Q4 11 estimate
126
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(44-20) 7325-4780
amit.x.ranjan@jpmorgan.com
Q1 10
1,608
1,187
1,306
1,514
1,218
1,371
2,390
1,169
1,088
523
682
778
496
273
818
349
72
186
30
84
Q2 10
1,605
1,210
740
882
620
1,286
1,554
328
437
493
689
841
356
206
524
300
86
369
20
77
Q3 10
1,225
920
934
967
1,062
1,121
2,042
710
869
481
488
564
311
116
661
322
59
316
17
77
Q4 10
1,440
984
1,134
781
808
1,184
2,033
773
900
519
823
964
282
160
758
300
71
293
20
77
Q1 11
1,740
1,425
1,250
1,256
1,103
1,732
2,322
980
1,252
559
772
874
441
346
773
386
66
307
445
77
Q2 11
1,428
1,209
799
1,092
776
1,801
1,916
976
886
504
811
924
384
266
704
300
75
409
13
51
Q3 11
1,113
766
516
756
289
1,341
2,181
413
667
486
478
544
184
261
433
241
81
440
-17
51
Q4 11
841
778
733
640
232
1,277
1,693
551
555
414
415
481
412
184
516
265
70
169
13
51
Q1 12E
1,345
1,076
911
Q2 12E
1,237
938
781
Q3 12E
1,183
825
715
Q4 12E
1,183
839
748
1,575
2,157
781
976
1,638
2,108
683
846
1,409
2,025
618
650
1,437
2,127
683
781
739
731
717
686
74
77
75
76
11,667
8,563
8,813
9,854
11,574
9,939
7,540
6,909
9,558
8,962
8,143
8,484
2011
5,149
4,212
3,296
3,744
2,400
6,171
8,112
2,909
3,348
1,054
550
2,815
1,255
1,634
2,427
1,192
292
1,325
454
230
-502
53,068
2012E
4,948
3,678
3,155
3,400
2,637
6,059
8,417
2,497
3,252
795
521
2,873
915
1,886
2,776
1,287
303
997
476
233
366
52,402
2013E
5,163
3,791
3,249
3,550
2,769
5,676
8,845
2,646
3,415
771
542
3,016
869
2,046
3,136
1,390
307
1,042
498
244
450
54,398
Source: J.P. Morgan estimates, Company data. Note: GS restated from Q1 10. Including prime services for Barclays. GS institutional client services revenues. . 1.Macquarie Group do not disclose quarterly earnings. Quarterly revenue numbers are JPM estimates,
derived using half-yearly MQG divisional disclosures and quarterly trends in global fee pools; 2. Estimated as not disclosed. Q4 11 not reported; 3.quarterly total for CS, UBS, DB, MS, GS, BNP, Socgen, CASA & Barclays. **Q4 11 estimate
127
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(44-20) 7325-4780
amit.x.ranjan@jpmorgan.com
Q1 10
839
887
1,203
779
591
1,037
1,057
1,216
741
1,118
335
239
58
208
5,337
Q2 10
917
885
941
663
444
695
674
1,301
868
1,020
230
170
81
212
4,545
Q3 10
906
1,008
1,159
766
429
817
930
1,306
548
1,023
293
194
67
212
5,085
Q4 10
1,293
1,515
1,507
1,065
948
1,295
1,167
1,583
686
1,202
412
290
64
258
7,623
Q1 11
1,012
1,008
1,269
1,015
507
994
851
1,511
540
1,185
301
256
86
258
5,805
Q2 11
1,107
1,473
1,448
1,028
470
1,016
1,085
1,637
540
1,333
166
150
73
160
6,542
Q3 11
737
864
781
530
261
769
736
1,048
175
1,234
175
116
51
156
3,943
Q4 11
570
883
857
585
309
855
638
1,046
521
1,163
211
145
70
156
4,059
Q1 12E
706
1,060
1,000
753
376
981
65
4,877
Q2 12E
730
1,077
1,005
716
358
947
67
4,833
Q3 12E
739
1,055
1,022
658
358
922
60
4,754
Q4 12E
796
1,109
1,088
679
376
927
71
4,974
2011
3,437
4,228
4,355
3,147
1,562
3,443
3,310
5,242
1,260
3,223
854
667
280
731
131
36,084
2012E
2,972
4,301
4,115
2,806
1,467
3,641
2,991
4,806
1,249
3,641
1,115
734
262
689
143
35,013
2013E
3,090
4,485
4,362
2,947
1,541
3,944
3,328
5,598
1,262
4,005
1,256
807
285
714
145
37,707
Source: J.P. Morgan estimates, Company data. Note: GS restated from Q1 10. 1.Macquarie group do not disclose quarterly earnings. Quarterly revenue numbers are JPM estimates, derived using half-yearly MQG divisional disclosures and quarterly trends in global
fee pools ;2.quarterly total for CS, UBS, DB, MS, GS & Barclays. Barclays revenues include Principal Investments
Q1 10
5,016
3,543
7,699
4,981
9,510
7,725
9,558
6,071
4,459
3,292
1,748
986
224
322
Q2 10
4,094
2,956
4,415
3,914
5,522
5,708
5,877
4,903
2,910
3,053
1,217
750
288
328
Q3 10
3,722
2,336
4,862
3,439
6,028
5,502
6,843
4,443
2,442
2,592
1,886
785
205
329
Q4 10
3,703
2,909
3,998
3,512
5,266
4,580
5,333
4,904
2,447
2,471
2,054
840
227
365
Q1 11
5,537
3,881
7,185
4,669
7,916
6,249
8,239
5,254
3,815
3,683
1,909
1,259
254
365
Q2 11
3,360
3,088
5,154
4,704
4,963
5,334
6,671
4,555
2,543
3,127
1,709
710
243
271
Q3 11
2,605
1,851
3,107
3,572
4,393
4,785
3,522
3,989
1,025
2,087
1,202
512
244
268
Q4 11
1,820
2,196
2,737
2,764
3,913
3,267
4,197
2,956
2,112
2,744
1,656
588
257
268
36,821
25,805
24,829
24,293
34,443
25,824
19,517
16,386
Q1 12E
4,444
2,958
5,956
4,285
6,957
5,093
238
29,693
Q2 12E
3,311
2,576
4,294
4,167
6,153
4,107
247
24,608
Q3 12E
2,820
2,215
3,520
3,698
5,479
3,922
244
21,654
Q4 12E
2,840
2,185
3,639
3,755
5,403
3,723
267
21,546
2011
13,449
11,127
18,106
15,729
21,185
19,035
22,629
15,841
8,175
11,321
6,476
3,069
999
1,172
256
168,220
2012E
13,416
9,935
17,409
15,905
23,993
18,931
18,406
16,059
7,984
13,510
7,235
3,328
997
1,132
1,038
167,403
2013E
13,416
10,121
17,701
15,729
24,827
20,157
19,648
16,760
7,901
14,578
7,617
3,609
1,052
1,168
1,145
173,196
Source: J.P. Morgan estimates, Company data. Note: *GS includes Institutional client services. GS restated Q1 10 onwards. Including principal investments for Barclays. Barc Q410 revenues adjusted for 200mn gain on gilts.1. MQG do not disclose quarterly
earnings. Quarterly revenue numbers are JPM estimates, derived using half-yearly MQG divisional disclosures and quarterly trends in global fee pools; 2. Quarterly Total for CS, UBS, DB, MS, GS & Barclays; 3. Securities and Banking division revenues for Citi, 4.
Global Banking and Markets Segment Revenues for BofA
128
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Amit Ranjan
(44-20) 7325-4780
amit.x.ranjan@jpmorgan.com
Q1 10
37%
44%
48%
44%
53%
32%
35%
35%
34%
38%
32%
32%
47%
40%
27%
31%
33%
36%
41%
Q2 10
46%
34%
49%
46%
56%
36%
44%
39%
32%
35%
33%
31%
46%
47%
24%
37%
27%
38%
43%
Q3 10
42%
42%
52%
51%
65%
35%
37%
39%
37%
43%
40%
33%
48%
47%
26%
35%
32%
40%
46%
Q4 10
47%
46%
26%
52%
45%
38%
45%
45%
39%
58%
34%
37%
42%
41%
30%
32%
30%
40%
45%
Q1 11
45%
44%
44%
48%
52%
31%
39%
39%
34%
45%
36%
29%
42%
41%
26%
28%
26%
41%
44%
Q2 11
47%
50%
44%
50%
56%
33%
43%
42%
35%
48%
39%
31%
52%
55%
26%
33%
29%
41%
47%
Q3 11
54%
47%
50%
70%
78%
32%
48%
45%
47%
44%
48%
41%
58%
55%
25%
44%
42%
53%
Q4 11
53%
51%
37%
86%
55%
41%
65%
72%
45%
50%
30%
36%
37%
60%
26%
42%
55%
Q1 12E
42%
43%
44%
46%
55%
37%
43%
48%
45%
45%
Q2 12E
46%
40%
44%
48%
55%
39%
47%
49%
45%
46%
Q3 12E
44%
41%
44%
48%
53%
38%
53%
50%
46%
46%
Q4 12E
42%
40%
29%
48%
46%
41%
59%
43%
46%
44%
2011
48%
51%
43%
57%
61%
34%
47%
43%
39%
47%
39%
29%
50%
50%
27%
49%
2012E
43%
41%
40%
47%
53%
39%
50%
48%
45%
46%
34%
31%
33%
45%
28%
45%
2013E
42%
40%
40%
44%
47%
36%
49%
45%
44%
44%
31%
32%
32%
45%
28%
43%
Source: J.P. Morgan estimates, Company data. Note: We estimate CB&S comp ratio for DB as compensation expense not disclosed; Institutional securities compensation ratio for MS; GS group level; Assumed 65% of CIB expenses attributable to Investment Banking
for BNP and SocGen. Barc Q110 and Q210 comp ratio back calculated using Comp:total income (not adjusted for own credit and credit market losses) of 38% and 37%. Barc Q310 and Q410 comp ratio back calculated using Comp:total income (excluding own credit)
of 43% in Q310 and 43% in FY10. Barc Q111 ratio back calculated using 44% Comp:total income( excluding own credit). 2. Average for DB, MS, GS, CS, UBS, BNP, Socgen & Barclays.1.MQG do not disclose quarterly earnings. Quarterly revenue numbers are JPM
estimates, derived using half-yearly MQG divisional disclosures and quarterly trends in global fee pools
129
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Amit Ranjan
(44-20) 7325-4780
amit.x.ranjan@jpmorgan.com
Q1 10
16%
22%
20%
22%
19%
17%
19%
19%
18%
15%
14%
17%
47%
20%
32%
18%
10%
22%
19%
Q2 10
24%
34%
43%
29%
25%
19%
24%
21%
17%
31%
20%
18%
52%
33%
26%
22%
7%
22%
29%
Q3 10
26%
38%
30%
32%
33%
19%
20%
21%
20%
24%
25%
18%
43%
35%
33%
21%
8%
21%
28%
Q4 10
36%
36%
35%
32%
29%
20%
24%
24%
21%
11%
33%
21%
44%
33%
35%
21%
9%
21%
28%
Q1 11
18%
29%
25%
25%
20%
18%
21%
21%
19%
18%
19%
16%
46%
23%
32%
16%
6%
21%
22%
Q2 11
25%
32%
37%
39%
26%
20%
23%
23%
19%
24%
30%
17%
47%
31%
36%
19%
9%
16%
28%
Q3 11
29%
44%
74%
56%
42%
19%
25%
24%
25%
27%
45%
27%
71%
69%
32%
26%
10%
11%
40%
Q4 11
43%
46%
43%
74%
45%
24%
18%
39%
24%
28%
26%
19%
63%
40%
34%
11%
42%
Q1 12E
21%
31%
29%
29%
28%
22%
26%
26%
19%
36%
25%
Q2 12E
31%
27%
35%
38%
31%
23%
48%
26%
22%
35%
29%
Q3 12E
34%
29%
41%
44%
36%
22%
41%
27%
22%
36%
32%
Q4 12E
38%
33%
41%
46%
39%
24%
29%
23%
24%
35%
35%
2011
31%
35%
39%
40%
32%
21%
21%
28%
21%
20%
34%
2012E
30%
30%
36%
38%
33%
24%
23%
26%
24%
18%
35%
2013E
32%
30%
34%
38%
33%
25%
24%
24%
24%
17%
35%
61%
36%
34%
60%
41%
36%
57%
40%
35%
15%
30%
29%
29%
Source: J.P. Morgan estimates, Company data. Note: We estimate CB&S non-comp ratio for DB as compensation expense not disclosed; Institutional securities compensation ratio for MS; GS at group level; Assumed 35% of CIB expenses attributable to Investment
Banking for BNP and SocGen.Barclays implied non-compensation ratio based on disclosed costs and compensation expense. **Average for DB, MS, GS, CS, UBS, BNP, Socgen & Barclays. *MQG do not disclose quarterly earnings. Quarterly revenue numbers are
JPM estimates, derived using half-yearly MQG divisional disclosures and quarterly trends in global fee pools
130
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Kian Abouhossein
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kian.abouhossein@jpmorgan.com
Amit Ranjan
(44-20) 7325-4780
amit.x.ranjan@jpmorgan.com
Q1 10
3,711
2,019
3,799
1,753
1,359
1,566
1,096
962
387
4,350
5,030
2,703
2,416
1,541
327
401
91
284
203
81
520
235
Q2 10
1,383
839
636
971
667
509
442
691
443
1,925
1,277
1,813
1,366
1,418
-424
150
142
236
187
130
323
7
Q3 10
1,514
900
1,972
635
83
713
1,009
763
356
1,613
2,689
1,495
863
1,117
115
146
85
246
65
130
303
343
Q4 10
689
1,382
2,117
622
633
646
392
540
355
958
1,124
1,940
805
874
196
220
78
106
119
196
72
254
Q1 11
2,966
586
2,409
1,610
1,042
1,356
1,120
895
544
2,631
3,737
1,691
1,721
1,871
112
459
103
446
189
114
542
304
Q2 11
1,414
872
942
380
416
910
786
686
485
1,373
2,045
1,350
792
1,487
-89
100
89
361
206
80
272
222
Q3 11
584
297
1,321
(727)
(393)
541
283
538
155
1,029
(973)
985
129
523
-886
-126
103
(91)
(10)
80
(240)
14
Q4 11E
(57)
(711)
954
(1,019)
(206)
192
(103)
(147)
207
(542)
(63)
511
934
1,091
49
0
122
200
100
80
131
108
Q1 12E
2,380
1,114
1,815
1,086
480
933
744
Q2 12E
1,090
1,384
1,363
445
341
350
439
Q3 12E
850
1,109
917
226
240
376
165
Q4 12E
796
1,014
2,028
169
332
135
(23)
1,762
-
1,261
-
1,159
-
1,004
-
100
104
97
116
2011
4,853
780
5,526
331
935
2,975
2,056
2,416
1,391
3,891
4,746
4,537
3,576
4,972
-814
433
417
88
702
648
2012E
4,601
4,621
6,124
1,830
1,393
1,794
1,326
1,618
2013E
4,541
4,953
6,893
2,285
2,039
2,000
1,717
1,876
6,366
N/A
5,186
2,590
6,077
655
476
418
7,136
N/A
5,961
2,700
7,145
854
524
456
1,397
1,795
Source: J.P. Morgan estimates Company data. Note: Clean pre-tax pre-provisions income; CB&S pre-tax income for DB including loan products. Institutional client services pre-tax income for MS. Advisory and capital markets for BNP. HSBC IB pretax estimated using
HSBC IB revenue estimates, IB cost estimates and estimated provisions, also quarterly breakup is estimated.*MQG do not disclose quarterly earnings. Quarterly revenue numbers are JPM estimates, derived using half-yearly MQG divisional disclosures and quarterly
trends in global fee pools. 1. Securities and Banking division for Citi, 2. Global Banking and Markets Segment for BofA.**Q4 11 estimate as not reported yet
131
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Amit Ranjan
(44-20) 7325-4780
amit.x.ranjan@jpmorgan.com
Q1 10
263,378
331,913
455,790
143,708
117,884
282,670
152,207
191,919
135,430
296,378
223,902
260,733
123,309
64,286
17,730
95,400
38,020
36,832
49,279
11,596
Q2 10
234,099
325,174
451,247
142,058
114,071
246,486
138,277
178,047
113,558
290,381
211,173
267,812
132,297
64,286
17,285
95,850
36,120
37,940
46,011
19,962
Q3 10
239,137
326,000
444,000
150,157
128,434
273,943
157,080
175,576
101,184
303,004
225,839
266,356
140,512
64,286
17,460
92,385
38,230
39,048
44,698
15,262
Q4 10
244,869
329,560
444,290
142,591
124,275
261,419
148,106
163,114
95,973
295,004
226,534
264,900
139,645
64,286
17,415
89,367
37,258
40,273
41,231
15,064
Q1 11
239,174
301,482
455,811
167,856
210,547
279,115
158,286
166,923
99,106
305,574
234,810
276,975
139,889
64,286
17,415
85,575
36,454
41,499
44,133
30,076
Q2 11
240,125
304,759
451,010
170,808
223,340
277,753
157,126
168,503
93,613
311,733
228,057
289,050
162,599
64,286
16,875
84,388
35,444
40,462
42,627
34,059
Q3 11
251,506
346,790
456,204
184,709
240,078
268,451
156,408
172,515
94,099
305,862
216,196
294,831
167,337
64,286
16,605
83,947
33,254
39,425
46,390
32,768
Q4 11E
311,555
316,000
457,027
15,929
172,049
267,311
166,933
190,606
102,854
294,370
245,598
332,722
206,593
64,286
17,299
39,425
57,148
38,297
Q1 12E
312,405
316,000
461,597
156,595
167,471
243,380
150,522
Q2 12E
313,967
316,000
459,289
158,161
165,796
237,202
145,254
Q3 12E
315,536
316,000
456,993
159,743
164,967
236,028
142,639
Q4 12E
444,908
446,000
668,993
191,691
204,385
235,991
142,639
17,114
16,943
17,324
17,818
2011
2012E
444,908
446,000
668,993
191,691
208,666
235,991
142,639
149,554
322,969
219,567
346,998
2013E
428,891
446,000
665,648
191,691
161,340
275,018
236,304
212,949
417,939
257,956
512,639
52,857
17,818
52,857
18,352
53,516
67,556
Source: J.P. Morgan estimates, Company data. Note: Group RWAs for GS and MS. CB&S RWA for DB, CIB RWAs for BNP and SocGen. Note: HSBC IB RWAs throughout are estimated (75% of GBM RWAs).* *MQG do not disclose quarterly earnings. Quarterly
revenue numbers are JPM estimates, derived using half-yearly MQG divisional disclosures and quarterly trends in global fee pools
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Q1 10
20,637
16,300
41,007
19,115
22,706
19,787
11,341
14,114
7,381
53,131
29,638
22,390
26,073
17,566
4,500
1,436
9,540
3,802
1,792
4,928
1,502
Q2 10
20,846
17,500
41,493
19,658
22,276
17,254
10,667
13,216
7,186
51,245
29,038
21,117
26,781
18,412
4,500
1,431
9,585
3,612
1,859
4,601
1,455
Q3 10
24,385
17,200
42,564
19,375
26,460
19,176
13,091
13,056
8,752
50,173
30,300
22,584
26,636
18,838
4,500
1,411
9,239
3,823
1,926
4,470
1,389
Q4 10
24,257
18,600
43,149
19,346
28,126
18,299
13,140
12,638
7,858
46,935
29,500
22,653
26,490
19,632
4,500
1,269
8,937
3,726
1,969
4,123
1,267
Q1 11
26,577
20,700
42,847
21,881
31,555
19,538
13,943
12,459
7,164
41,491
30,557
23,481
27,698
19,474
4,500
1,267
8,558
3,645
2,012
4,413
2,006
Q2 11
26,353
22,100
43,704
21,158
36,707
19,443
13,849
12,674
7,057
37,458
31,173
22,806
28,905
20,417
4,500
1,317
8,439
3,544
1,957
4,263
2,153
Q3 11
25,363
29,300
44,578
23,990
38,918
18,792
13,011
12,999
6,358
36,372
30,586
21,620
29,483
20,690
4,500
1,317
8,395
3,325
1,903
4,639
3,064
Q4 11E
24,167
27,500
53,199
23,040
35,360
17,959
12,266
14,149
10,285
33,575
29,437
24,560
33,272
21,545
4,500
1,342
1,903
5,715
3,152
Q1 12E
23,108
28,188
63,488
22,427
34,419
17,037
14,732
Q2 12E
23,108
28,751
75,767
22,427
34,419
16,604
14,049
Q3 12E
23,108
28,818
90,420
22,427
34,419
16,522
13,675
Q4 12E
23,108
37,962
107,907
22,652
35,452
16,519
13,551
1,356
1,369
1,383
2,138
2011
2012E
23,108
41,687
58,295
22,652
35,452
16,519
14,739
14,955
32,297
21,957
34,700
2013E
23,108
41,687
63,673
22,878
35,806
19,251
18,947
21,295
41,794
25,796
51,264
3,700
2,138
3,700
2,294
4,522
5,959
Source: J.P. Morgan estimates, Company data. Note: Assumed allocated equity for GS ICS and investment banking divisions; Institutional securities allocated equity for MS. Global Banking & Markets allocated equity for BofA. Average allocated equity per company for
JPM, DB; Regulatory Equity allocated for UBS; CIB allocated equity for BNP & Socgen JPM allocated equity for Barclays. Barclays and RBS Allocated capital is 10% of IB RWAs during that period end. *MQG do not disclose quarterly earnings. Quarterly revenue
numbers are JPM estimates, derived using half-yearly MQG divisional disclosures and quarterly trends in global fee pools.
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Q1 10
44%
43%
27%
25%
16%
51%
26%
2%
4%
25%
25%
31%
19%
7%
25%
19%
13%
34%
52%
Q2 10
14%
31%
7%
13%
19%
19%
19%
3%
4%
7%
16%
14%
17%
-9%
9%
30%
11%
23%
1%
Q3 10
28%
9%
11%
7%
-13%
25%
19%
2%
3%
12%
14%
12%
13%
2%
9%
18%
10%
20%
77%
Q4 10
12%
12%
13%
9%
2%
27%
12%
3%
3%
6%
22%
10%
11%
4%
14%
17%
13%
12%
62%
Q1 11
32%
15%
15%
20%
12%
51%
24%
4%
5%
21%
21%
21%
22%
2%
29%
25%
16%
38%
50%
Q2 11
15%
20%
6%
4%
4%
34%
19%
4%
5%
17%
15%
9%
16%
-2%
6%
20%
13%
20%
33%
Q3 11
1%
28%
10%
-3%
-8%
22%
3%
5%
2%
NM
5%
2%
6%
-17%
-8%
24%
9%
-16%
1%
Q4 11E
11%
-5%
5%
-19%
-2%
15%
-21%
-13%
1%
NM
5%
1%
10%
1%
0%
26%
9%
9%
11%
Q1 12E
26%
11%
8%
14%
4%
31%
6%
Q2 12E
12%
13%
5%
6%
3%
12%
4%
Q3 12E
9%
11%
3%
3%
2%
13%
1%
Q4 12E
8%
7%
5%
2%
3%
5%
-1%
21%
22%
20%
16%
2011
2012E
14%
8%
7%
6%
3%
11%
2%
2%
2013E
13%
8%
7%
7%
5%
14%
7%
7%
12%
8%
14%
3%
9%
14%
10%
8%
11%
3%
10%
14%
29%
27%
Source: J.P. Morgan estimates, Company data. Note: CB&S ROE for DB; ICS and investing banking ROE for GS. Institutional Securities ROE for MS; Global Banking and Markets Segment ROE for BofA,RBS. IB RoE estimated for HSBC, Standard Chartered and
Barclays
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UBS
AC
Kian Abouhossein
(44-20) 7325-1523
kian.abouhossein@jpmorgan.com
Amit Ranjan
(44-20) 7325-4780
amit.x.ranjan@jpmorgan.com
Please see our notes:
UBS: Investor Day Feedback: bank
utility with potential for 50% payout
and Sfr4bn buyback published 18th
Nov 2011
UBS-CSG Investment Bank: IB
Joint-Venture Scenario: Self-funded
16% ROE entity, published 8th Nov
2011
UBS: Strategic review: Roadmap to
creating a stable cashflow giant: Top
global IB pick, published 20th
October 2011
IB
23%
WM&SB
59%
WM&SB
14%
AM
2%
RWA
reduction
~70-90
~35
~30
~5
~0-10
~0-10
~18
~45
~145
~20
Source: Company reports. Note: 1 Basel 3 RWAs on a pro forma basis, 2 Credit valuation adjustment, 3 Over-the-counter to central
counterparty, 4 Student loan auction rate securities 5 Factors that will affect the timing of the exercise of our option to buy the SNB
StabFunds equity include the Funds progress in repaying the loan to SNB and the RWAs associated with assets owned by the Fund
WM
Americas
9%
IB
53%
UBS had in Aug-2011 updated on its SF2bn in Group cost reduction target with
planned headcount reduction of 3,500, with 55% of the reduction coming
from the Investment Bank.
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Source: UBS Investor day presentation. Note: 1. Basel 3 future RWAs expectations compared to the 9M11 average on a pro forma basis
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P/E
B3 Common
Equity T1 Capital
P/BV
Value
per share
As % of
total
Valuation
ROE
2,181
1,625
3,806
10.0
8.0
9.1
2,000
2,000
4,000
10.9
6.5
8.7
6
3
9
37%
22%
58%
21,814
12,999
34,813
109%
81%
95%
529
8.0
450
9.4
7%
4,232
118%
Investment Bank
1,516
6.0
15,000
0.6
15%
9,097
10%
665
(154)
6,363
7.5
8.0
8.2
2,725
1.8
2.3
8%
-2%
87%
4,991
-1,229
51,904
24%
22,175
1
-0.3
14
Corporate Functions/other
Of which excess capital
(284)
17
8.0
8.0
6,339
3,407
1.0
1.0
1
1
7%
6%
4,070
3,542
Total Banking
6,097
9.8
31,920
1.9
16
100%
59,515
Wealth Management
Retail & Corporate
Wealth Management and Swiss Bank
Global Asset Management
29%
19%
Valuation Methodology
Our Dec 2012 SOP valuation based Price Target for UBS is SF16. Note that our SOP
multiples are differentiated by business and franchise quality. Taking these factors
into account, we value Wealth Management on a 2013E P/E of 10x and Retail and
Corporate on 8x, resulting in a total Wealth Management and Swiss Bank P/E of
9.1x. We value Global Asset management on an 8x 2013E P/E, Investment Bank on
6x and Wealth Management Americas on 7.5x. Our PT implies a Total Banking P/E
of 9.8x.
Risks to Our View
Risks that could prevent the stock from achieving our target price and OW rating
include:
The performance of the capital markets, impacting both the investment banking
capital markets business as well as the performance of UBS assets under
management.
Potential risk of further markdowns in remaining legacy credit assets, and potential
risk of further balance sheet assets becoming impaired, although greatly reduced post
transaction with SNB.
The US, as well as global, economies could experience a sharper slowdown with a
corresponding deterioration in credit quality and weaker revenues.
Legal risk in part from the structured credit and financial market crisis, could become
an issue in particular for banks with material capital markets activities as well as
within asset and wealth management
Recent negative newsflow on unauthorized trading losses could impact Private
Banking inflows and client trading businesses.
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CSG
AC
Kian Abouhossein
(44-20) 7325-1523
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CS remains a Tier I player globally in equities in our view, with strong cash
equities and electronic trading platform which generated SF2.0bn in revenues in
2011.
Amit Ranjan
(44-20) 7325-4780
amit.x.ranjan@jpmorgan.com
%
AM
11%
WMC
39%
IB
34%
CIC
16%
AM
4%
WMC
7%
CIC
20%
IB
63%
Basel 3 3Q 2011
RWA
66
65
30
21
5
10
209
RWA mitigation
-40
-30
-10
-8
-1
-10
-99
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P/E
B3 CE T1
Capital
P/BV
AuM
(bn)
% of
AuM
Value/
share
% of
total
Valuation
(mn)
ROE
1,759
709
2,468
10.0
8.0
9.4
1,408
3,926
5,333
12.5
1.4
4.4
838
143
981
2.1%
4.0%
13
4
17
45%
15%
60%
17,590
5,673
23,263
125%
18%
Investment Banking
1,572
6.0
17,822
0.5
24%
9,434
9%
513
7.5
876
4.4
10%
3,850
59%
Divisional Total
4,554
8.0
24,031
27
94%
36,546
19%
Corporate centre
of which excess capital
TOTAL - CASH / Basel 3 Tier I
Target price Dec 2012
(149)
10
4,415
4,415
10.0
1,583
2,178
27,792
0
2
28
28
0%
6%
100%
96
2,178
38,819
38,819
Asset Management
8.8
8.8
1.0
1.0
419
0.9%
16%
Valuation Methodology
Our Dec 2012E sum-of-the-parts based price target for Credit Suisse is SF28. Note
that our SOP multiples are differentiated by business and for franchise quality.
Taking these factors into account, we value Wealth Management clients on a 2013E
P/E of 10x and Corporate and Institutional Clients on 8.0x for a total Private Banking
2013E P/E of 9.4x. We value Asset management at a 7.5x P/E. Our PT implies an
8.8x P/E on overall 2013E earnings.
Risks to Our View
We believe the key risks that could keep our OW rating and target price from being
achieved include the following:
The performance of the capital markets, impacting both the investment
banking capital markets business as well as the performance of Credit Suisses
assets under management.
Growth in new private banking money and the development of private banking
transaction margins. Impact of legislation and regulatory issues surrounding
Swiss banking secrecy and customer confidentiality.
The US, as well as global, economies could experience a slowdown with a
corresponding deterioration in credit quality and weaker revenues. In addition,
widening credit spreads could affect funding costs.
Legal risk in part from the structured credit and financial market crisis
could become an issue in particular for banks with material capital markets
activities as well as within asset and wealth management.
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AC
Kian Abouhossein
(44-20) 7325-1523
kian.abouhossein@jpmorgan.com
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PBC
27%
AWM
10%
CB&S
47%
GTB
16%
DBK
DB was the number one player by revenue in Europe in ECM, DCM and
M&A in 2011 based on Dealogic data.
We believe DB is the most well-positioned to benefit from a retrenchment of
Tier II European IBs owing to its strong FICC franchise. In addition, we also
believe several provisions such as Section 716 of the Dodd-Frank Act in the
U.S. would also benefit European IBs such as DB at the expense of U.S. IBs.
Figure 90: DBK: Global Tier I IB: strongly positioned to benefit from retrenchment of Tier II IBs
GTB
5%
CI
3%
PBC
13%AWM
1%
CB&S
78%
Source: J.P. Morgan estimates.
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Adj. Earnings
1,874
1,389
484
3,186
2,392
794
-281
-173
-41
4,564
Multiple
7.9
8.0
7.5
8.0
8.0
8.0
7.0
6.0
8.2
Capital
6,263
5,709
554
35,144
32,969
2,176
1,123
Multiple
2.4
2.5
6.6
0.7
0.6
2.9
-1.8
-2,781
39,750
1.0
0.9
Value
14.7
11.1
3.6
25.5
19.1
6.4
-2.0
-1.0
-2.6
35
per share
16
12
4
27
20
7
-2
-1
-3
36
36
%
43%
32%
11%
74%
55%
18%
-6%
-3%
-8%
100%
RoE
30%
24%
88%
9%
7%
36%
-25%
11%
Valuation Methodology
Our Dec-2012E Sum-of-the-parts based price target for Deutsche Bank is 36. Note
that our SOP multiples are differentiated by business and franchise quality. We value
DBs Tier 1 CB&S division at 8.0x P/E, at a premium to Tier 2 IB peers. We value
the AWM division at a discount to Swiss peers, owing to the better Private Banking
franchise of both Swiss peers.
Risks to Our View
We believe the key risks (both upside and downside) that could keep our N rating
and target price from being achieved include the following:
1. The performance of the capital markets, impacting both the investment banking
capital markets business (particularly Fixed Income) as well as the performance of
Deutsche Banks assets under management.
2. Upside risks include a pick-up in capital market and trading activity, with DB
highly geared to the trading environment through its CB&S division.
3. Provision and mark-to-market risk in Deutsche Banks riskier assets such as
monoline exposures, leverage finance, RMBS, CMBS, CDOs and other structured
credit assets.
4. The US, as well as global, economies could experience slowdown with a
corresponding deterioration in credit quality and weaker revenues. In addition,
widening credit spreads could affect DBs profitability.
5. Legal risk in part from the structured credit and financial market crisis could
become an issue in particular for banks with material capital markets activities as
well as within asset and wealth management.
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Barclays
Progressing towards improved returns
Raul Sinha
AC
(44-20) 7742-2190
raul.sinha@jpmorgan.com
Vivek Gautam
(44-20) 7742-3244
vivek.gautam@jpmorgan.com
Barclays remains a Tier 1 player in FICC globally and amongst the top 2 in
Europe with strong market positioning in Flow rates, Commodities, flow credit,
FX and munis. We estimate Barclays FICC revenues to be 6.7bn in 2013E,
below the 2009-10 level but amongst the top 5 globally on our estimates.
Within Equities the group ranks outside top 5 players on 2013E revenues on
our estimates with a significant portion of revenues generated by Equity
derivatives and Prime Brokerage in our view. We estimate 1.9bn Equity
revenues in 2013E - below the management target of 2.6bn-2.9bn.
Within Investment banking, the Group fares amongst the top tier
Investment Banks with most of the revenues driven by loans (debt financing)
and debt underwriting businesses. We estimate 2.3bn IB revenues and 0.3bn
Principal Investment revenues in 2013E.
10%
1%
10%
15%
17%
-6%
11%
2013
Target*
15% -16%
10% -11%
13% -14%
14% -15%
16% -17%
4% -5%
17% -18%
2013E
JPMe**
10%
4%
23%
33%
30%
-3%
16%
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UK Retail
Barclays Corporate
Barclays Capital
Investment Management
Wealth
Barclaycard
Europe and Africa
Underlying Post Tax Core Earnings
Corporate Activities
Restructuring Charges and Litigation Losses
Capital Excess/ (Shortfall) (Basel3)
Price Target (Dec 2012E)
Value
5,331
7,040
22,736
490
2,485
5,495
8,931
52,507
-11,099
-4,000
-3,714
33,695
Valuation basis
RoE - g/CoE - g
RoE - g/CoE - g
RoE - g/CoE - g
PE
PE
RoE - g/CoE - g
RoE - g/CoE - g
1 times BV
P/E (x)
4.7
25.6
9.4
8.0
10.0
5.2
11.2
8.7
P/BV (x)
1.5
1.0
0.9
0.0
0.0
1.5
1.6
1.1
0.0
7.5
0.8
Valuation Methodology
Our sum-of-the-parts based Dec-2012E price target for Barclays of 265p is
calculated using cost of equity of 10.5% and 12% for the Group ex Barcap and
Barcap respectively and expected 2013E returns fully adjusted for Basel 3.
Risks to Our View
We believe the key risks (both upside & downside) that could prevent our OW rating
and price target from being achieved include the following:
The key downside risks include regulatory risks especially ringfencing and high
dependence on investment banking activities. Through Barclays Capital, the Group is
significantly exposed to the fixed income cycle and the corporate credit cycle and is
vulnerable to a slowdown in volumes and/or further deterioration in the economic
environment which could result in higher writedowns.
The key upside risks include rapid improvement in economic conditions especially
macro concerns. Barclays has lower exposure to UK mortgages than UK peers and
potentially better customer asset quality with significant exposure to consumer credit
through Barclaycard. Barclays is also exposed to the economic cycle through its
lending exposure in particular to the UK credit cycle, South Africa and Spain. Being
a retail bank it is also exposed to the interest rate environment.
.
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GS
AC
Kian Abouhossein
(44-20) 7325-1523
kian.abouhossein@jpmorgan.com
Amit Ranjan
(44-20) 7325-4780
amit.x.ranjan@jpmorgan.com
Please see our notes:
Global Investment Banks: US
Basel 2.5 NPR2 capital at risk
analysis: yet another US IB
disadvantage, downgrade GS, MS
to N published 25th Jan 2012
Global Investment Banks:
Regulatory Arbitrage series: OW
European over US IBs, published
8th March 2011
%
Invest.
Mgmt.
11%
IBD
13%
GS was the number one player by revenue globally in M&A in 2011 based
on Dealogic data while it was in the Top 5 players in ECM globally.
I&L
18%
ICS
58%
180-360 day s
10%
91-180 day s
14%
0-45 day s
54%
46-90 day s
14%
Source: Company reports. * Inventory composition includes cash inventory and some listed derivatives; excludes OTC derivatives.
1Q07 - 3Q10 Quarterly Average Days as % of Balance Sheet
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the comp flexibility provided by its strong revenue base to improve return to
shareholders.
INVESTMENT CASE AND VALUTION:
We see GS as a clear winner in a more cash-equity like FICC world as well as
from the retrenchment of European Tier II/ Tier III IBs.GS trades at 0.9x
P/NAV for RoNAV 9% and PE 10.6x 2012E on a fully diluted basis. We estimate
GS to reach Basel 3 T1 ratio of 9.7% fully-loaded in 2012YE.
GS valuation does not look cheap, but we believe there is potential to re-rate
the ROE with a more aggressive cost management stance. Currently, GS is not
adjusting its cost base materially relative to its revenue generation to generate
adequate returns for shareholders. Unless GS management starts to adjust its cost
base we do not see GS re-rating above 1x tangible BV.
In addition, we see U.S. regulations as more punitive for U.S. IBs like GS and
believe the market share movements would only be realized in the long term. As
a result, shareholder returns could remain subdued till there is more clarity around
the myriad of different regulations.
Table 107: GS: SOP Valuation 2013E
$ millions
Division
ICS and Investing & Lending
ICS and Investment Banking
Investing & Lending
Investment Management
Excess capital over Basel 3 Core Tier I
Cost of pref/other
Divisional Total Basel 3 capital
2013
Earnings
5,872
4,685
1,188
755
P/E
9.2
10.0
6.0
9.0
30
-170
6,487
10.0
9.9
Basel 3 Equity
Tier I capital
61,957
52,957
9,000
3,684
P/core
Tier I
0.9
0.9
0.8
1.8
Value/
Share
101
88
13
13
% of
Total
84%
73%
11%
11%
Valuation
(mn)
53,971
46,845
7,126
6,795
5,155
1.0
70,796
0.9
9
-3
120
8%
-3%
100%
4,898
(1,701)
63,962
RoE
9%
9%
13%
20%
9%
Valuation Methodology
Our Dec 2012E sum-of-the-parts-based price target for Goldman Sachs is $120. Note
that our SoP multiples are differentiated by business and franchise quality, and the IB
multiple is adjusted for regulatory uncertainty. Taking these factors into account, we
value ICS and Investment Banking on 10.0x P/E and Investing and Lending on 6.0x
2013E P/E. We value Investment Management on a 9x P/E. Our PT implies a 9.9x
P/E on our overall 2013E earnings.
Risks to Our View
We believe the key risks (both on the upside and downside) that could keep our N
rating and target price from being achieved include the following:
The performance of the capital markets, impacting both the investment banking
capital markets business (especially fixed income) as well as the performance of
Goldman Sachs assets under management.
Upside risks include a pick-up in capital market and trading activity, with GS highly
geared to the trading environment through its Institutional Client Services and
Investment Banking divisions.
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Funding risk with Goldman Sachs being predominantly wholesale funded could
become a material issue should credit markets freeze up.
The US, as well as global economies, could experience a slowdown with a
corresponding deterioration in credit quality and weaker revenues, impacting
Goldman Sachs' profitability.
Legal risk coming out from the structured credit and financial market crisis could
become a material issue both from a financial and reputational perspective.
Regulatory risk with the proposed changes in Basel rules and financial reform in
OTC derivatives could significantly reduce profitability of the group.
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MS
AC
Kian Abouhossein
(44-20) 7325-1523
kian.abouhossein@jpmorgan.com
Amit Ranjan
(44-20) 7325-4780
amit.x.ranjan@jpmorgan.com
Please see our notes:
Global Investment Banks: US
Basel 2.5 NPR2 capital at risk
analysis: yet another US IB
disadvantage, downgrade GS, MS
to N published 25th Jan 2012
Global Investment Banks:
Regulatory Arbitrage series: OW
European over US IBs, published
8th March 2011
Institutional
Securities
86%
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2013E
Earnings
3,468
179
403
85
74
-158
4,050
P/E
7.0
8.5
8.5
9.0
10.8
Allocated
Equity
28,515
955
1,911
8,893
7,738
P/BV
48,012
0.9
0.9
1.6
1.0
1.0
AuM (bn)
% of
AuM
308
1,702
0.5%
0.2%
Value/Share
13
1
2
5
4
-1
23
% of
Total
55%
3%
8%
20%
18%
-3%
100%
Valuation
(mn)
24,275
1,524
3,425
8,893
7,738
-1,425
43,838
RoE
12%
19%
21%
8%
23
Valuation Methodology
Our Dec 2012E sum-of-the-parts-based price target for Morgan Stanley is $23. Note
that our SoP multiples are differentiated by business and franchise quality, and the IB
multiple accounts for regulatory uncertainty. Taking these factors into account, we
value Institutional Securities on a 7x 2013E P/E, and Asset Management and Global
Wealth Management both on an 8.5x P/E. Our price target implies a 10.7x P/E on
overall 2013E earnings.
Risks to Our View
We believe the key risks (both upside and downside) that could keep our N rating
and target price from being achieved include the following:
The performance of the capital markets, impacting both the investment banking
capital markets business as well as the performance of Morgan Stanleys assets under
management.
Upside risks include a pickup in capital market and trading activity, with MS highly
geared to the trading environment through its Institutional Securities division.
Execution risk in Morgan Stanleys Wealth management joint venture with
Citigroups SSB division.
Mark-to-market risk in Morgan Stanleys riskier assets such as leverage finance,
residential and commercial real estate and other structured credit assets.
In addition, other assets such as credit card loans, consumer finance and other ABS
could see mark-to-market gains and losses.
Funding risk with Morgan Stanley being predominantly wholesale funded could
become a material issue should credit markets freeze up.
The US, as well as global economies, could experience a slowdown with a
corresponding deterioration in credit quality and weaker revenues.
Legal risk in part from the structured credit and financial market crisis could become
an issue, in particular for banks with material capital markets activities as well as
within asset and wealth management.
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AC
Vivek Juneja
(1-212) 622-6465
vivek.juneja@jpmorgan.com
Citigroup
Investment Bank Outlook:
Citigroup has a top tier global capital markets franchise, with capital raising
across the globe and trading operations in approximately 75 countries worldwide.
Cs securities and banking business is one of its key business lines and accounted for
sizable 27% (ex CVA/DVA) of total Citigroup revenues in 2011 despite weakness in
trading. Citi added to its investment banking teams in early 2011 to offset personnel
exits in 2009 and 2010 and increase market share. We expect Citi to remain among
the leading global investment banking players due to breadth of its footprint in
the business and benefit from growth outside the developed markets.
C maintains a Tier 1 trading franchise in virtually all areas, reporting $12bn$13bn in trading revenues and $4bn-$5bn in investment banking fees in 2011.
Similar to peers, FICC accounted for over 80% of total trading revenues.
Trading revenues (ex-DVA) were hurt in 2011 by weak market conditions but it
should benefit from the recovery in 1Q and elimination of prop trading losses.
Expenses have been elevated in the Securities and Banking business as C added
$1 bil in expenses in 2011. We would expect C to focus on improving operating
margins and fine-tuning staffing levels. C has already begun this, taking $400m
in severance charges in 4Q, primarily related to Securities and Banking but
expense reductions have lagged revenue declines.
We would expect C to benefit from exit or scaling back of smaller scale
competitors. In addition, C should benefit relative to peers from large emerging
markets exposure, with over 50% of Cs Institutional Client Group revenues
(which includes Securities and Banking) from emerging markets.
Investment Thesis
We maintain Citigroup at Overweight longer-term relative to our universe due to: 1)
attractive valuation with the shares trading below tangible book value; 2) strong and
growing capital levels; 3) revenue growth opportunities led by its emerging markets
franchise (40% of Citigroup revenues in 2011); 4) sizable amount of loan loss
reserves; and 5) potential for return of excess capital to shareholders in the near term
post stress test given strong capital position. Citi also has better revenue growth
drivers than peers because of its emerging markets and international businesses, and
continued shrinkage of Citi Holdings.
Valuation
Citi trades at 0.7 times price to tangible book and at 8 times our 2012E EPS both
metrics below peer averages. Our price target is $46.50 and assumes a price to
tangible book value multiple of 0.9 times its expected YE 2012 tangible book value,
a discount to the expected peer group multiple of 1.5 times. While we expect Citi to
continue to trade at a discount, we expect the discount to narrow gradually with
improved performance and increased visibility for return of capital.
Risks to Rating and Price Target
Citigroups business and earnings are sensitive to economic and general business
conditions. Downside risks that may affect our outlook include regulatory risk, risks
from government interference, interest rate risk, higher than expected increase in
credit losses, significant deterioration in credit risk profile, changes in capital
structure/adequacy, actions by ratings agencies, changes in overall economic and
loan growth, and performance of the equity and fixed income markets. Lastly, given
a global franchise and presence in emerging markets, Citigroup is subject to
geopolitical risk and material economic downturn outside of the U.S.
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AC
Vivek Juneja
(1-212) 622-6465
vivek.juneja@jpmorgan.com
Bank of America
Investment Bank Outlook
Bank of America has become a top tier player in trading and investment banking
worldwide since its acquisition of Merrill Lynch and has done a good job with the
integration. BACs investment bank contributed 27% to total company revenues (ex
CVA/DVA) in 2011 despite weakness in trading. The 2009 acquisition of Merrill
Lynch doubled the size of BACs equities business and vastly expanded the reach of
investment banking.
BAC has gained market share in investment banking and was top ranked by fees
in 4Q11 in investment banking and syndicated loans per Dealogic. BAC
continues to expand it investment banking franchise globally, leveraging its
resources and adding capabilities/products outside the US. BAC has invested in
hiring staff overseas to grow market share.
Similar to peers, BAC is most active in fixed income trading, which accounted
for nearly 70% of total sales and trading revenues (ex CVA/DVA). Credit and
Rates are two key FICC businesses commodities is a much smaller contributor.
BAC is in the process of cutting expenses to maintain profitability in light of the
slowdown in business volumes and impact of Volcker rule and Dodd Frank bill.
Near-term, BAC should benefit from positive seasonality in trading and reduced
negative comparisons from prop trading.
Longer term, BAC has scale in most trading businesses (except commodities) and
BAC has resources to absorb added costs from new regulations and likely should
benefit from the exit of the business by less scaled competitors.
Investment Thesis
We continue to rate Bank of America Overweight longer term relative to our
universe due to relatively attractive valuation, potential for significant appreciation
when earnings normalize, ongoing improvement of capital levels and position as a
leading retail and commercial core franchise in the US. BACs normalized earnings
should benefit from the large cost cutting program under way, reduction in the very
large legacy asset servicing expenses, and decline in litigation expenses. There has
been some progress on mortgage related issues some issues remain to be resolved
but BAC has put aside sizable additional reserves.
Valuation
Our price target for Bank of America is $10.50 and is based on 0.8x price to our
December 2012E tangible book value multiple, nearly a 50% discount to expected
peer median tangible book value multiple of 1.5x. We expect BAC to trade at a
discount near term due to continued headline risk, mortgage related headwinds and
some pressure on revenues. Bank of America is currently trading at 0.6x tangible
book value, which is below the large cap banks median of 1.1x, and 12x our 2012
EPS estimate.
Risks to Rating and Price Target
Bank of Americas business and earnings are sensitive to economic and general
business conditions. Risks that may affect our outlook for the company include
higher than expected mortgage putback losses on GSEs and/or private label MBS,
and mortgage related litigation changes, unfavorable regulatory changes, interest rate
risk, changes in credit risk profile, changes in capital requirements, actions by ratings
agencies, changes in overall economic growth and loan growth, and performance.
153
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AC
Natsumu Tsujino
Nomura Holdings
(81-3) 6736-8618
natsumu.tsujino@jpmorgan.com
7%
Domestic retail
37%
19%
26%
Equity
Global markets
45%
Fixed income
million
3Q
FY09
Global Markets
Fixed income
Japan
Europe
US
Asia
Japan
Europe
US
Asia
Equity
Excl. Instinet (estimates)
Japan
Asia
Europe
US
Japan
Asia
Europe
US
4Q
FY09
1Q
FY10
2Q
FY10
3Q
FY10
4Q
FY10
1Q
FY11
2Q
FY11
3Q
FY11
69,400
20,820
26,372
13,880
8,328
67,600
25,688
20,280
14,872
6,760
45,700
27,877
9,140
4,570
4,113
71,200
22,072
25,988
9,256
13,884
27.0%
60.0%
3.0%
10.0%
38.0%
42.0%
9.0%
11.0%
39.0%
38.0%
12.0%
11.0%
33.0%
33.0%
21.0%
11.0%
30.0%
35.0%
27.0%
8.0%
30.0%
38.0%
20.0%
12.0%
38.0%
30.0%
22.0%
10.0%
61.0%
20.0%
10.0%
9.0%
31.0%
36.5%
13.0%
19.5%
90,100
70,100
21,030
38,555
9,814
701
76,500
56,500
18,080
18,080
17,515
2,825
46,300
26,300
11,572
4,603
14,334
-4,208
55,200
35,200
14,080
7,040
10,560
3,520
61,500
41,500
12,450
11,205
13,695
4,150
64,300
46,300
18,520
9,723
13,890
4,167
56,700
38,700
8,127
11,223
11,997
7,353
33,400
15,400
7,546
3,234
3,388
1,232
39,700
21,700
7,595
5,425
3,255
5,425
30%
55%
14%
1%
32%
32%
31%
5%
44%
18%
55%
-16%
40%
20%
30%
10%
30%
27%
33%
10%
40%
21%
30%
9%
21.0%
29.0%
31.0%
19.0%
49.0%
21.0%
22.0%
8.0%
35.0%
25.0%
15.0%
25.0%
Cost reductions in progress and will reduce FY2012 costs sizably: Nomura has
announced a US$1.2 billion cost cut plan (a 20-25 billion quarterly personnel cost
reduction) during summer to fall 2011, and personnel costs declined considerably
from 142.6 billion in 2Q (7-9/2011) to 127.8 billion in 3Q (10-12/2011). The
127.8 billion figure included 6-7 billion in restructuring costs; if these are absent
in 4Q and 1Q FY2012, personnel costs should decline further. This size of the cost
cut was not enough for Nomura to breakeven in the operating environment of 3Q
(10-12/2011), though.
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Risk mitigation targeting Basel III is in progress and is now strongly capitalized.
The Tier 1 common ratio at end-December was 10.5% based on Basel 2.5 and just
under 10% based on Basel III. The Tier 1 ratio was 12.2% based on Basel 2.5 and
just over 10% based on Basel III. It was a rather big improvement from its Basel IIIbased Tier 1 common ratio at end-September 2011, which was just over 8%, thanks
to successful risk mitigation, including unrated securitized product exposures.
Assuming Nomura was to sell its holding in Nomura Real Estate Holdings, in which
it has 51% stake through its consolidated subsidiary Nomura Land and Building, we
believe it would be able to improve its Tier 1 common ratio by another 2.5-3% points.
INVESTMENT CASE AND VALUTION:
We maintain our Neutral rating and price target of 380 (by end-March 2013),
with target P/B of 0.7x. We set a P/B of 0.7x for a company close to breakeven but
with the potential to earn annualized ROE of up to roughly 5%. The stock already
trades at 0.7x our end-March 2013 tangible BPS estimate. We accordingly do not see
much upside potential for the stock in the short term, unless Nomura is to prove that
it will be able to post meaningfully high ROE rather than just returning to
profitability. The average ROE of global IBs is still much higher than Nomuras,
therefore we think its P/B will remain well below its peers for the time being. In
addition, within Japan, financial sector valuations are still low overall, and since
Nomura looks richly valued relative to insurance and megabank stocks and in light of
RoEs, the difference between the stock's current price and our price target is
somewhat small.
Nomura may be able to grow its global business faster than its global peers, if some
of major global peers continue to face the challenge of reducing risks more, which
may help Nomura gain market share and improve its ROE.
Downside risks include European market instability, a prolonged slump in
investment trust sales in Japan, and a tightening of investment trust regulations.
Upside risks include higher-than-expected increase in revenues due to market
recovery.
We no longer use SOTP valuation for Nomuras price target as its profitability has
deteriorated too much since the Lehman shock. However, if we were to apply such a
method as before, Nomuras fair value would become much higher than the current
share price, as we have to apply a positive P/B multiple to its wholesale business,
which has been posting losses for many quarters over the past few years.
Figure 98: Nomuras SOTP Valuation Example
million
Domestic retail
Estimated capital
allocation Mar 2013
250,000
Target P/B
Fair value
1.4
357,143
1,668,100
50,000
0.70
2.9
1,167,670
142,857
1,667,670
455
Global wholesale
Asset management
Fair value
Fair value per share
ROE currently around 10% and with cost of capital of 7%, fair P/B will be 1.4x.
ROE currently around breakeven, but assuming it will turn to around 3-6%, we
used 0.7x for adequate multiple with low ROE business.
ROE currently around 20% and with cost of capital of 7%, fair P/B will be 2.9x.
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3Q
FY09
1Q
FY10
2Q
FY10
3Q
FY10
4Q
FY10
1Q
FY11
2Q
FY11
3Q
FY11
95,452 110,959
71,479 73,216
23,973 37,743
87,753
64,975
22,778
97,482
74,482
23,000
96,239
78,572
17,667
94,189
72,176
22,013
83,980
73,250
10,730
79,713
69,614
10,099
186,400
157,000
29,400
9,300
141,200
156,100
-14,900
-7,200
79,300
152,400
-73,100
-68,300
176,100
138,300
37,800
3,800
69,400
64,300
3,300
137,000
125,500
11,500
67,600
56,700
5,800
130,100
124,300
5,700
45,700
33,400
-6,500
72,600
121,200
-48,600
71,200
39,700
7,700
118,700
110,300
8,400
93,150 104,290
66,796 69,119
26,354 35,171
199,304 210,091
161,110 161,584
38,194 48,507
50,611 65,010
4Q
FY09
33,200
12,200
20,945
3,860
24,805
33,265
-8,460
81,700
37,200
44,464
1,777
46,241
30,833
15,408
43,300
15,400
27,840
7,612
35,452
30,222
5,230
29,000
13,200
15,800
-3,600
12,200
27,000
-14,800
39,700
18,700
21,100
-2,000
19,000
32,500
-13,500
61,900
25,600
36,200
-5,100
31,100
33,500
-2,400
54,400
25,100
29,300
20,100
49,400
31,500
17,900
32,300
13,400
18,900
-7,700
11,200
31,800
-20,600
23,800
12,300
11,500
-4,800
6,700
31,200
-24,500
45,100
21,700
23,400
34,000
57,400
28,000
29,400
Asset management
Net revenues
Expenses other than interest expenses
Pretax profits
16,467
11,994
4,473
17,247
13,166
4,081
18,001
13,090
4,911
15,768
11,771
3,997
16,191
12,022
4,169
17,278
11,702
5,576
17,298
11,018
6,280
18,843
11,397
7,446
15,951
11,238
4,713
15,301
11,058
4,243
69,021
87,759
64,103
640
34,547
39,376
59,034
14,559
-57,657
52,142
-65,894
-40,917
16,469
-8,018
-13,303
-12,925
21,033
15,381
-15,246
-13,300
2,700
5,228
-6,019
5,168
-2,087
-1,505
4,221
7,737
65
-3,015
250
-713
390
291
681
-183
-316
1,877
-10,693
-43,843
1,585
-28,114
-14,073
363
-2,486
13,114
1,993
5,512
-8,791
1,380
-15,668
-4,573
5,260
-20,685
4,296
3,475
12,783
5,599
1,970
-8,442
17,815
1,301
-28,852
4,884
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Macquarie Group
Scott Manning
AC
(61-2) 9220-1803
scott.r.manning@jpmorgan.com
James Nicholias
(61-2) 9220-1528
james.nicholias@jpmorgan.com
Bharat Anand
(61-2) 9220-1550
bharat.k.anand@jpmorgan.com
The market has effectively looked through the weaker FY12E guidance at the
February 2012 Operational Briefing to focus on the key issues of cost initiatives and
capital management with a view to understanding the path to recovery in ROE.
Cost Initiatives
The FY11 AGM in July 2011 saw MQGs first attempt to demonstrate a costconscious outlook in tough operating conditions. Following an A$380m reduction in
expenses in 1H12, the Operational Briefing outlined future cost initiatives which
would benefit 2H12E and FY13E earnings. We expect a similar reduction in
expenses in 2H12E, with a further ~A$260m of benefit in FY13E as the cost run-rate
is fully realised (predominantly in Macquarie Securities and Macquarie Capital).
Capital Management
In relation to the announced ~A$900m buy-back, MQG has confirmed subject to
regulatory approval, buyback expected to commence in 1H13 and to proceed
concurrent with further capital actions. In our view, the successful realisation of
~A$600m of capital efficiencies is the key behind the commitment to commence the
buyback in 1H13 (now having ~A$800m of surplus capital at hand). A likely key
trigger for continuance of the buy-back beyond the initial commencement is the
issuance of the planned A$500m hybrid once APRA rules are finalised. The
potential sale of MQGs stake in SYD (formerly MAp) is unlikely to be top of the
list, given that the current SYD share price still results in a ~A$120m adverse
valuation variance which would have to be taken to the P&L upon sale.
Prospects for ROE Recovery
Based on MQG disclosures, the blended ROE (5-year average) for Annuity Style and
Capital markets businesses (excluding legacy) is identical at 20%, generating
~A$1.7bn of earnings. In effect, this is substantially above our current earnings
forecasts (at close to half this level), as the outlook for MQGs Capital markets
businesses remains challenging, resulting in ongoing poor levels of profitability.
Table 109: Approximate Business Basel 3 ROE
A$ in billions
Basel 3
Equity
1.5
1.6
0.7
3.8
Macquarie Securities
Macquarie Capital
FICC
Capital Market Businesses
0.7
1.3
2.5
4.5
1.3
1.1
2.4
10.7
FY12E
ROE.
5 Yr Ave
ROE
5 Yr Av
Earnings*
23%
20%
0.8
0%
40%
20%
15%
20%
0.3
0.3
0.4
0.9
16%
1.7
Source: Company data (Slide 49, 1H12 results presentation), J.P. Morgan estimates
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Valuation
We value each of MQGs different styles of earnings stream with consideration given
to the appropriate multiples for each, as well as placing value on the equity held
against balance sheet equity investments which generate minimal direct earnings, and
surplus capital. On this basis, our valuation is A$30.06.
Our FY13E forecasts reflect a mere 2% underlying revenue growth and fully
incorporates the benefit of MQGs announced cost initiatives. Despite a subdued
revenue growth outlook, we think significant operational leverage (ie ~85%
efficiency ratio) at currently depressed earnings levels will attract investor interest as
markets recover.
In our view, MQG will continue to trade in line with Global IB comps on a P/B
basis. Following its expansion into offshore markets over recent years during
periods of dislocation during the GFC, investors will take Global IB outcomes as a
proxy for MQGs revenue growth prospects.
Table 110: MQG Valuation JPM
A$ in millions
Earnings
Macquarie - JPM FY13E
Traditional Banking
Funds Management
Investment Banking
Core Earnings
Capital - Equity Investments
279
215
254
749
88
836
28
864
Capital - Surplus
Multiple
8.0x
12.0x
7.0x
8.8x
1.5x
11.2x
8.0x
12.1x
Value
Share
count (m)
per share
348
348
348
348
348
348
348
348
6.41
7.40
5.11
18.93
7.91
26.84
3.22
30.06
2,233
2,578
1,781
6,593
2,754
9,347
1,123
10,470
SHF
ROE
2,332
1,500
3,896
7,728
2,623
10,351
900
11,251
P/B
12.0%
14.3%
6.5%
9.7%
0.96x
1.72x
0.46x
0.85x
1.05x
0.90x
1.25x
0.93x
8.1%
7.7%
Figure 100: Macquarie Historical Price/Book Relative to Global Investment Banking Peers
5x
4
3
2
1
0
Jan-06
Jan-07
Jan-08
MQG AU Equity
Jan-09
Jan-10
Jan-11
Jan-12
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2006
Australia
2007
Americas
2008
2009
Asia Pacific
2010
2011
EMEA
ECM
As highlighted in Table 111, MQG relatively speaking recorded a strong
performance in ECM activity in 2011, ranking second in terms of announced deals
behind UBS. However given the backdrop of weak equity volumes relative to history
(Table 111), the revenue contribution to its markets facing businesses was still
subdued. Some of the primary or secondary market equity raisings that MQG
participated in included Origin Energys ~A$800m rights issue and Southern Cross
Media Groups ~A$250m rights issue. Whilst MQGs performance in 2011 in
respect to ECM flows is a positive, it remains to been seen whether they are able to
achieve the same relative performance in 2012 given that management has
highlighted ~A$300m of cost savings for the Securities/Capital divisions at their
recently conducted Feb-12 Operational Briefing.
DCM
MQGs absence from the domestic DCM league tables (refer Table 111above), does
not come as a surprise, as this area has traditionally been dominated by the presence
of the four major Australian Retail Banks (i.e. ANZ, CBA, NAB and WBC) which
have large wholesale debt issuance programs and often utilize each others services in
this area.
M&A
For MQG specifically, whilst recently they have been able to benefit from positive
market activity in the sectors highlighted above, they still lag well behind global
peers in the domestic M&A league tables (refer Table 111above). This is also a
function of MQG's transition away from its specialist funds model towards vanilla
investment banking, which provides structural headwinds to M&A volumes.
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Company
1
2
3
4
5
6
7
8
9
10
UBS
Macquarie
J.P. Morgan
Morgan Stanley
BAML
Credit Suisse
RBS
Goldman Sachs
Deutsche Bank
Citi
DCM
Vol
(US$mm)
5,022
2,128
1,890
1,498
1,456
1,439
944
642
633
409
No.
36
20
13
15
12
8
44
10
11
5
Rank
Company
1
2
3
4
5
6
7
8
9
10
J.P. Morgan
Citi
BAML
Barclays Capital
Credit Suisse
Deutsche Bank
Nomura
HSBC
UBS
BNP Paribas
M&A
Vol
(US$mm)
No.
7,576
6,380
6,263
6,168
5,344
3,655
3,182
3,169
2,855
2,709
28
25
24
21
17
15
16
13
12
13
Rank
Company
1
2
3
4
5
6
7
8
9
10
Goldman Sachs
J.P. Morgan
UBS
Barclays Capital
Morgan Stanley
Moelis
Scotia Capital
RBS
Flagstaff
Macquarie
Vol
(US$mm)
52,233
38,266
29,997
29,968
27,152
25,690
19,637
19,496
16,173
15,520
No.
44
18
33
6
10
6
2
8
8
39
Source: Bloomberg. Note The Major Australian Retail Banks (ANZ, CBA, NAB and WBC) have been omitted from the DCM rankings listed above.
Equities
MQG continues to be ranked as a Top 3 Equities firm in the benchmark domestic
Peter Lee survey, and held ~8% market share in 2001 across domestic cash equities,
ranking fourth behind UBS, Citi and Deutsche Bank (refer Figure 102).
Figure 102: 2011 Broker Market Share - ASX Traded Buy & Sell
14%
12%
10%
8%
6%
4%
2%
0%
UBS
Citi
Deutsche MQG
Bank
Goldman Credit
Sachs Suisse
Morgan BOAML
J.P. Nomura
Stanley
Morgan
Source: IRESS
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Investec
Mervin Naidoo
AC
(27-11) 507-0716
mervin.x.naidoo @jpmorgan.com
The group has reorganized itself around 3 pillars (announced Nov-11), namely Asset
management, Wealth and Specialised Banking. The continued focus on fee
generation through third party asset gatherers bodes well for the group in our view.
The group plans to foster closer working relationships across its banking operations
in an effort to capture greater share of clients wallet and extract synergies across the
group. The strategy is a generic banking one but the execution in our view is
challenging as we believe Investecs culture is well entrenched and has historically
not lent itself to leveraging the group well. If executed appropriately, this strategy
should realize cost savings through rationalizing back-office infrastructure for the
group.
60,000
ECM
DCM
M&A
50,000
400
ECM
DCM
M&A
350
300
40,000
250
30,000
200
150
20,000
100
10,000
50
-
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Source: Dealogic.
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Source: Dealogic.
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60.0%
FY11
50.0%
70.0%
FY12e
40.0%
60.0%
30.0%
50.0%
20.0%
40.0%
10.0%
IB & CM
PB & AM
30.0%
0.0%
PB
WM
IB
CM
AM
PA
GS
-10.0%
20.0%
10.0%
-20.0%
0.0%
2005A 2006A 2007A 2008A 2009A 2010A 2011A 2012E 2013E 2014E
-30.0%
80.0%
70.0%
30.0%
Private Banking
Wealth and Investment
Capital Markets
Investment Banking
Asset Management
Property Activities
Other
20.0%
60.0%
50.0%
40.0%
Allocated
Pre-tax
Capital
Current ROE
33.8%
-1.70%
11.7%
9.90%
32.0%
27.50%
9.3%
-3.80%
4.6%
81.70%
2.7%
13.50%
5.9%
-9.80%
10.0%
0.0%
2005A
2006A
2007A
2008A
2009A
2010A
2011A
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Other
Growth and Acquisition Finance
80,000
60,000
40,000
20,000
0
1H11
2H11
1H12
1H11
Aus
2H11
SA
1H12
1H11
2H11
1H12
UK
-20,000
While the SA and UK portfolios appear to be over the worst and should ease, we
expect SA to decline, with UK staying relatively flat. Australia has a residential
development book of A$450m (A$90m provisions versus A$380m in default). The
Irish residential property development book is GBP200m (50% provisions versus
c90-100% in default). Based on the levels of default, we believe the provisions
against these books will continue into H2FY12e and H1FY13e. Both the Australia
and Irish development property books are in run-off.
Where does the balance of risks lie? In FY11, Private Bank made a GBP91m loss
versus average (2002-2010) operating profit of GBP73.1m and peak levels of
GBP166.4m. In H1FY12, the Private Bank made an operating loss of GBP4.9m
(profit of GBP37m on core book and a loss of GBP42m on run-off books).
INVESTMENT CASE AND VALUATION:
Notwithstanding a delay in earnings recovery, we nevertheless remain
constructive on the stock as:
High liquidity and capital levels are already in the base. New business
margins will be strong (already seeing evidence of this) and combined with
the groups focus on capital light activities should support the ROE outlook.
Capital levels are adequate (Investec Plc: 11.8%; Investec Ltd 11.6%). We
estimate core tier 1 (Basel 3) for Investec at 9.5% at present.
We expect activity levels to continue improving (albeit more gradual)
and this will support top-line prospects. The group is structuring itself to
achieve greater internal synergies and right-size for current market
conditions. Most of operating profit has historically come from SA (c70%)
which also provides us with comfort.
Impairment release (although elevated and more gradual) cushions
earnings risk. The risks to the development property books however
remain and we now forecast more gradual release.
At current valuation at 0.9x PB (CY12e), we remain constructive on the
stock. Notwithstanding the risk to earnings from further write-down of runoff books (see below), we calculate the worst case impact to NAV
ofsGBP676m, resulting in NAV/sh of 360p (PB of 1.14x on adjusted basis).
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On our estimates, the group is capable of 13.5% ROE in FY14e and 15.4%
by FY16e.
What is the impact of written off remaining exposures in Private Bank on group
valuation? Assuming a full provision of the remaining run-off book exposures will
result in a further A$360m and GBP100m in provisions. The impact on NAV is
GBP676m, resulting in NAV/sh of 360p.
Our price target reflects our SOTP valuation, which uses 12m forward EPS and
the weighted peer multiples 12m forward. Our Nov-12 SOTP-derived price
target is 500p (6466c).
Table 113: SOTP valuation
Division
Private banking
Wealth and Investment
Capital Markets
Investment banking
Asset management
Property activities
Central services
Less: Value of run-off books not provided for
Total
Shares in issue (million)
SOTP fair value per share (GBp)
SOTP (12m forward TP)
ZAR:GBP exchange rate
Valuation method
P/B ratio
P/E ratio
P/E ratio
P/E ratio
P/E, Assets under management *
P/E ratio
P/E ratio
Multiple
0.53
10.0
9.0
13.3
*
10.8
7.0
Base case
million
1057
310
1599
164
1143
179
15
-676
3790
840.0
451
500
12.92
Source: Bloomberg, J.P. Morgan estimates. Conversion for ZAR/GBP using exchange rate of 12.92. * SA asset mgt on 2.92% of AUM and 12x PE; International asset mgt on 1.52% of AUM and
10x PE.
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AC
Delphine Lee
(33-1) 40 15 49 28
delphine.x.lee@jpmorgan.com
Kian Abouhossein
(44-20) 7325-1523
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BNP Paribas
Profitable Tier II player in IB as run like an agency business
further capital release expected
BNP PARIBAS INVESTMENT BANKING STRATEGY:
IB Contribution and Outlook: We estimate BNP Paribas Corporate & Investment
Bank contributes 32% of group pretax profits in 2013e, and consumes 40% of
allocated capital based on our methodology (10% of RWAs for CIB). The group
remains a Tier II player with 9.5bn of revenues in CIB in 2013e, split 3.6bn in
Fixed Income, 2.2bn in equities & advisory and 3.7bn in financing. However,
BNPP benefits from solid positions in equity derivatives, European Fixed Income
and a large corporate franchise in Europe.
BNP Paribas remains a strong player in equity derivatives, with estimated
1.7bn of revenues in 2011. The group is a relatively small cash equity house
through Exane BNPP, and the prime brokerage business acquired from Bank of
America also generated negligible revenues vs. equity derivatives. BNP Paribas
see further potential from a) a more rapid roll out of standardised or listed product
distribution platforms and b) emerging markets.
BNP Paribas is a Tier II player in Fixed Income globally with about 4bn of
clean revenues in 2011, despite decent market shares in Europe (#1 on all bonds
in euros). Main strengths in Fixed Income are in Rates & FX, and to a lesser
extent credit. The group aims to gain market share from smaller players exiting
gradually and other players scaling down due to capital constraints.
Financing businesses remain core to CIB despite the deleveraging, with
3.7bn of revenues in 2013e post deleveraging vs. 4.3bn in 2011. We estimate
total CIB loan book to decline from 150bn to about 115bn end 2012e, with a
structured finance book of 55bn. The group aims to leverage its global network
to develop banking and cash management services.
Main strength of BNP Paribas Corporate & Investment Bank is its relatively
high profitability post regulatory changes. BNPP CIB would be the least impacted
by regulatory changes within French banks and IB peers with CIB ROE declining to
9.7% from 16.2% in 2013e, as a) the group benefits from one of the lowest
cost/income ratio at 61% vs. 72% industry average, b) lower impact from Basel 2.5
with a net RWAs increase of 21% vs. industry average of 30%, and c) the lowest
impact from Basel 3 with an increase of RWAs of 30bn only, CVA and CCR
related, equivalent to 20% increase vs. 40% industry average. Basel 3 impact is
significantly lower due to the smaller legacy assets portfolio vs. peers and lower
impact from securitization the group already currently risk weights lower rated
tranches at 1250% and hence is not impacted by the rule change. The legacy assets
amounted to about 10bn in CIB, mostly Dutch RMBS, and overall quality is high
with over 70% of AAA-rated assets. We estimate the legacy assets portfolio in CIB
had RWAs of 15bn end 2012e under Basel 3 standards, or 7% of total CIB RWAs
post regulatory changes.
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CIB deleveraging: The group targets 45bn of RWAs reduction by end 2012, of
which 22bn had already been achieved by end 2011. This should lead to a capital
improvement of 57bp. BNPP has also already achieved most of the targeted $65bn
reduction in USD liquidity needs, with CIB USD cash balance sheet running with a
$19bn surplus of stable funding. Deleveraging will continue to focus on asset
repricing, stricter origination policies and asset sales/business disposals, mostly in
structured finance. Part of the CIB assets will be sold at an estimated 3-5% discount
to book leading to losses of c.0.8bn pretax. Revenues impact is 1.0bn net of 0.4bn
of repricing, offset by 450m of cost savings (c.1,400 headcount reduction), hence
the pre-prov impact on a FY recurring basis will be about 0.5bn or 10% of CIB
clean pretax in 2011.
INVESTMENT CASE AND VALUTION:
We remain Neutral on BNP Paribas on valuation grounds. BNP Paribas trades at
7.3x 2012e earnings and 0.8x NAV 2012e for a RoNAV of 10.8% ex own debt, vs.
SG at 0.5x NAV for RoNAV of 7.5% and European banks at 0.9x NAV for a
RoNAV of 10%. Long term, the stock should re-rate towards 1x tangible book value
in our view, however, we see more limited upside in the medium term given the
ongoing uncertainties around the Italian sovereign situation. Within French banks,
BNP Paribas appears better positioned from a capital and funding perspective, and
should be able to comply with new Basel 3 requirements quicker and at a lower cost.
However, this is already reflected in the valuation with the stock having
outperformed SG by 33% over the past year, and trading at a significant premium to
French peers.
Table 114: BNP Paribas SOP valuation (Dec-12e)
million
2013
Earnings
1,327
1,598
711
447
58
381
1,268
524
581
163
2,422
263
369
-821
91
6,516
P/E
Capital
P/BV
7.5
6.6
6.5
6.5
9.0
6.5
7.4
8.0
7.0
7.0
6.0
6.0
6.5
8.0
6,565
12,691
3,697
3,232
3,567
2,195
7,265
1,565
5,300
400
21,141
6,028
3,868
4,765
4,321
66,644
1.5
0.8
1.3
0.9
0.1
1.1
1.3
2.7
0.8
2.9
0.7
0.3
0.6
7.8
1.0
0.8
AuM
(bn)
853.0
692.0
161.0
% of
AuM
1.1%
0.6%
2.5%
Value/
share
8.1
8.6
3.8
2.4
0.4
2.0
7.6
3.4
3.3
0.9
11.8
1.3
1.9
-1.5
3.5
41
% of
total
20%
21%
9%
6%
1%
5%
18%
8%
8%
2%
29%
3%
5%
-4%
8%
100%
Valuation
ROE
9,955
10,532
4,623
2,906
525
2,478
9,398
4,188
4,066
1,143
14,533
1,580
2,397
-1,805
4,321
50,910
1,230
20%
13%
19%
14%
2%
17%
nm
33%
11%
41%
11%
4%
10%
10%
41
Valuation Methodology
Our SOP-based Dec-2012E price target for BNP Paribas is 41. Our SOP
multiples are differentiated by business (e.g. 6-7x for CIB, 8x for French retail, 9-10x
for EM) and franchise quality. Note that we have also accounted for an additional
70bn in RWAs in Corporate & Investment Banking resulting from new Basel 2.5
and Basel 3 rules.
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Socit Gnrale
AC
Delphine Lee
(33-1) 40 15 49 28
delphine.x.lee@jpmorgan.com
Kian Abouhossein
(44-20) 7325-1523
kian.abouhossein@jpmorgan.com
The group remains a small player in IB with 6.2bn of revenues in CIB in 2013e,
split 2.6bn in Equities, 1.6bn in Fixed Income and 1.9bn in Financing &
Advisory. SGs main strength is in equity derivatives where the group has a leading
franchise, just behind GS. In Fixed income and Financing, SG has decent market
shares in Europe only, but still well behind BNPP and Tier I investment banks.
Socit Gnrale has a leading franchise in equity derivatives, with estimated
2.6bn of revenues in 2013e, up from 2.4bn in 2011. The group is a relatively
small cash equity house and has no real prime brokerage activities. The group
aims to consolidate its global leadership position in equity derivatives in a less
competitive environment.
Socit Gnrale is a small player in Fixed Income globally with about 1.6bn
of clean revenues in 2013e, down from 1.8bn in 2011. The group has decent
market shares in Euro corporate bonds and Euro rates, however, remains subscale
globally. The long-term ambition of the group has never been to compete with
Tier I players, and the main rationale for investing in the business is to support its
European client base, leverage its structured product franchise and position CIB
for increased disintermediation.
Financing businesses are scaled down with the deleveraging, with 1.9bn of
revenues in 2013e post deleveraging vs. 2.5bn in 2011. We estimate total CIB
loan book to decline from c.100bn to about 80bn end 2012e, with a structured
finance book of 32bn, as the group refocuses on its core strengths: natural
resources financing, and core EMEA clients.
Relative profitability of Socit Gnrale Corporate & Investment Bank
understated due to legacy assets. SG CIB would be the most impacted by
regulatory changes within IB peers with CIB ROE declining to 5.5% from 14.6% in
2013e due to the legacy assets. Excluding the legacy assets, CIB ROE would be
8.5% vs. industry average of 7.7%. At 8.5% ROE however, we believe further
restructuring/deleveraging is required in Fixed Income & Financing which are the
business most impacted by regulatory changes.
CIB deleveraging: SG targets 30-40bn of RWAs reduction or a decline of 5060bn in liquidity needs. The deleveraging is focused on legacy assets as well as CIB
businesses affected by regulations and consuming USD funding: certain capital
markets activities, but also US real estate financing, aircraft/shipping finance,
leveraged finance and asset based finance. For more details on the deleveraging plan,
please refer to French Banks: Structural deleveraging inevitable downgrade BNP
to N and CASA to UW on 27 Jan 2012.
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amit.x.ranjan@jpmorgan.com
Legacy assets: SG reduced its legacy assets portfolio to 17bn end 2011, down
from 33bn end 2010, as the group accelerated the disposals with 13bn of sales
achieved in 2011 with limited impact from disposals (116m or about 1% of
assets). The group targets to reduce the legacy assets portfolio to 10bn by 2013.
We estimate the legacy assets portfolio in CIB had RWAs of 20bn under Basel
2.5 end 2011 and close to 85bn under Basel 3 pre mitigation and 70bn post
mitigation of 15bn. SG is focusing on the dismantling of CDOs of RMBS which
would be the most capital intensive under Basel 3, and the group has already
achieved 1.3bn of capital savings by 2013, of which 0.9bn already freed up at
end 2011.
Deleveraging in core businesses: The group also started selling loans in the
secondary market with 6bn of disposals in 2011 at reasonable cost (163m or
3% discount to BV). We have however assumed the haircut on asset disposals
will be closer to 4%-5%. Management guided to 500-700m of additional losses
on disposals. We estimate the group targets overall 20bn reduction in the
financing loan book, of which 6bn has been achieved end 2011.
Financial impact: Overall, SG expects the deleveraging to reduce CIB revenue
run rate by 750m (12% of 2011 CIB revenues), offset by cost savings of 250m
(5% of 2011 CIB costs, about 880 headcount reduction in France alone), resulting
in pre-provision impact of 500m (25% of 2011 CIB excl. legacy assets or 11%
of group pretax).
INVESTMENT CASE AND VALUTION:
We remain OW on SG as the risk reward appears attractive at current prices
and we expect investor sentiment to improve with the ongoing disposals of CIB
assets and management delivery on the announced deleveraging plan. Whilst
profitability is expected to remain low in the next few years, we feel this has been
more than reflected in valuation despite the +23% outperformance vs. the sector
ytd, the stock is still at 2012E 7.5x PE, 0.5x NAV vs. 9.4x and 0.9x NAV on average
for the sector. Even adjusted for the 5bn of capital shortfall, SG would still be
trading at 0.6x NAV, and liquidity risk has been significantly reduced by the extra
ECB support, hence, we feel that the discount to the sector is largely unjustified.
Table 115: Socit Gnrale SOP Valuation (Dec-12e)
million
2013
Earnings
1,416
315
276
302
129
140
32
950
-463
-34
2,761
P/E
Capital
P/B
8.0
7.0
8.5
7.9
7.5
8.5
7.0
6.0
7.5
6,184
3,146
7,410
1,648
458
554
636
17,256
1,350
-2,092
34,902
1.8
0.7
0.3
1.4
2.1
2.1
0.4
0.3
7.2
1.0
0.6
AuM (bn)
189.7
96.0
93.7
% of
AuM
1.3%
1.0%
1.3%
Value/
share
15
3
3
3
1
2
0
8
-3
-3
26
% of
total
57%
11%
12%
12%
5%
6%
1%
29%
-11%
-11%
100%
Valuation
ROE
11,329
2,202
2,346
2,386
970
1,190
225
5,698
-2,123
-2,092
19,746
756
26
23%
10%
4%
18%
28%
25%
5%
6%
8%
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Valuation Methodology
Our sum-of-the-parts-based Dec-2012E price target for Socit Gnrale is 26.
Note that our SoP multiples are differentiated by business (e.g. 6-7x for CIB, 8x for
French retail, 9-10x for EM) and franchise quality. We have also accounted for an
additional 112bn in CIB RWAs as a result of Basel 2.5 and Basel 3 rules.
Risks to Our View
We believe the key risks that could keep our OW rating and price target from being
achieved include the following:
Asset quality, and the performance of the emerging markets businesses as well as
emerging market macro risks related to FX as well as the political environment
Performance of the capital markets, in particular with respect to demand for
equity derivatives, and derivatives trading profits in the environment of
increasing correlation and falling dividend expectations impacting the CIB
division as well as structured credit pricing leading to potential asset writedowns.
The French retail banking environment, and the net interest margin trends in this
market, as well as the impact of the interest rate environment and changes to the
shape of the yield curve.
Potential additional sovereign debt writedowns on the group's exposures to
Greece, Ireland, Portugal, Italy and Spain. Negative capital and funding
implications from the ongoing uncertainties on the sovereign risk.
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Crdit Agricole
Tier II IB in restructuring to be focus on agency model
AC
Delphine Lee
(33-1) 40 15 49 28
delphine.x.lee@jpmorgan.com
Kian Abouhossein
(44-20) 7325-1523
kian.abouhossein@jpmorgan.com
Please see our notes:
French Banks: Structural
deleveraging inevitable downgrade
BNP to N and CASA to UW 27 Jan
2012
European banks: All eyes on funding:
LCR, the next undiscounted regulatory
headwind 6 Sept 2011
Global Investment Banks: Investment
Banking wallet outlook all eyes on
equity derivatives on 8 Sept 2010
The group remains a small player in IB with 4.7bn of revenues in CIB in 2013e,
split 1.4bn in Equities, 1.1bn in Fixed Income and 2.5bn in Financing businesses.
The group is number 10 Corporate & Investment Bank in Europe5. CASA has
already substantially reduced its capital market activities since 2008, and is a small
player both in Equities and Fixed Income, even in Europe. CASAs main strength is
in project finance and trade finance which have been impacted by the challenging
market conditions in 2011, however, the group is adapting its model in financing
businesses to defend some of its market shares.
Crdit Agricole is a small player in equities, with estimated 1.4bn of revenues
in 2013e. With the deleveraging plan, the group is exiting equity derivatives. The
equities business line also includes Advisory & ECM as well as Newedge.
Excluding these activities, cash equities through Cheuvreux and CLSA generate
about 600m of revenues in our estimates. In equities, CA CIB is in discussion
with CITICS to explore opportunities to create a global institutional brokerage
platform and an Asia-Pacific focused investment bank. CITICS is already
expected to purchase a 19.9% equity stake in each of CLSA and Cheuvreux for
$374m. The goal is to create a leading research driven agency only equity house
with the merger of Cheuvreux and CLSA and larger business cooperation with
CITICS.
Crdit Agricole is also a very small player in Fixed Income globally with
about 1.1bn of clean revenues in 2013e, down from 1.3bn in 2011. With the
deleveraging, CA CIB is exiting commodities. The group is #7 in Euro bonds but
remains subscale even in Europe; the model in Fixed Income is agency-based,
focusing on servicing the groups target corporate customers and positioning CIB
for increased disintermediation.
Financing businesses are scaled down with the deleveraging, with 2.1bn of
revenues in 2013e post deleveraging vs. 2.5bn in 2011. CASA had strong
market shares in some areas, e.g. #1 aircraft finance, #3 project finance and #5
export finance globally, and #3 in loan syndication in Europe. These activities
have suffered from the USD funding squeeze, however, the group aims to
continue to defend its project and trade finance positions. To achieve that, CASA
is adapting its model to an originate-to-distribute system, with the bank keeping
20% vs. most of the loans previously.
CIB deleveraging: The group will discontinue certain businesses, some nonstrategic
international operations, and scale down financing activities mainly, focusing on
activities which mostly consume dollar funding, low ROE and return on liquidity.
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The target is 15-18bn reduction by 2012 of which 11bn was achieved by end
2011. The asset deleveraging will mainly focus on equity derivatives and financing
activities. Overall, CASA aims to reduce about 30bn of RWAs, to be achieved
through the cutback in operations, transfer of loans and portfolio disposals. Losses on
disposals are guided at 890m, split 240m in Q4 11 and 650m in 2012.
Restructuring costs of 336m were booked in Q4 11 CASA is reducing staff by
13% or 1,750 FTEs, split 550 in France and 1,200 in other countries. The negative
revenue impact of 350-375m is expected to be offset by cost savings of estimated
c.200m. We estimate earnings impact of 350m pretax in CIB. For more details on
the deleveraging plan, please refer to French Banks: Structural deleveraging
inevitable downgrade BNP to N and CASA to UW on 27 Jan 2012.
INVESTMENT CASE AND VALUTION:
We remain Underweight on Credit Agricole as valuation looks relatively
unattractive compared to French peers. CASA is trading at 2012E 6.4x earnings, 0.5x
NAV for RoNAV of 7.8%, however, we find risk reward unattractive, given that the
group remains vulnerable through a) its 5.5bn funding exposure to Emporiki, and b)
its weak capitalization levels at 5.9% Basel 3 Common Equity end 2012e, especially
in a worst case scenario for Greece. For similar valuations, we prefer SG, with lower
exposures to peripheral risk.
Table 116: Crdit Agricole SOP Valuation (Dec-12e)
million
2013
Earnings
973
701
1,014
391
-1,133
1,779
554
119
1,106
816
-1,362
-83
2,122
P/E
8.8
8.0
8.0
7.0
7.0
8.1
8.0
9.0
8.0
7.0
4.7
6.3
Capita
l
15,331
2,369
3,120
4,118
5,724
12,962
9,680
16,369
-2,296
-6,562
35,804
P/BV
AuM
(bn)
% of
AuM
0.6
2.4
2.6
0.7
-1.4
1.1
0.9
0.3
1.0
0.4
658.6
134.3
232.7
0.7%
0.8%
3.8%
Value/
share
3.4
2.3
3.3
1.1
-3.2
5.8
1.8
0.4
3.6
2.3
-3.5
-2.6
5.3
% of
total
64%
42%
61%
21%
-60%
108%
33%
8%
66%
43%
-65%
-49%
100%
Valuation
ROE
8,523
5,605
8,116
2,734
-7,932
14,352
4,434
1,073
8,845
5,709
-8,699
-6,562
13,324
5
6%
30%
33%
9%
-20%
14%
11%
5%
6%
Valuation Methodology
Our sum of the parts based Dec-2012E price target for Credit Agricole is 5.
Note that our SoP multiples are differentiated by business (e.g. 6-7x for CIB, 8x for
French retail, 9-10x for EM) and franchise quality.
Risks to Our View
Key investment risks on the downside and upside include:
Interest rate trends and changes mainly related to yield-curve, to the competitive
environment and regulation.
Capital markets environment as well as structured credit pricing, impacting the
CIB division as well as potential asset writedowns.
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Deteriorating asset quality could also have an impact on our valuation, as could
the development of capital markets.
The ownership structure, with the 41 Regional Banks holding a majority stake of
55% in CASA, also limits the influence and interests of minority shareholders.
Regulatory risk with uncertainties regarding capital and liquidity requirements.
Sovereign risk through the government bond exposures and lending exposures in
Greece and Italy. Deteriorating funding conditions for Italy with weaker
economic growth and further ratings downgrades. Disorderly default of Greece.
Upside risks: significant relaxation of the Basel 3 liquidity rules, disposal of
Emporiki.
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RBS
Restructuring to benefit post 2013E
Raul Sinha
AC
(44-20) 7742-2190
raul.sinha@jpmorgan.com
IB Contribution and Outlook: RBS GBM consumes 39% of Core divisions capital
in 2013E & contributes 23% to the Core PBT (from 45% in 2010) ex bank levy on
our estimates.
Vivek Gautam
(44-20) 7742-3244
vivek.gautam@jpmorgan.com
FICC is the biggest contributor to RBS GBM revenues with Rates, FX, and
mortgage trading strongly placed. We estimate 3.4bn FICC revenues (inc credit
markets) in 2013E contributing 65% of GBM revenues.
Within Equities the group lacked scale to be in Top Tier of Global IBs and
hence decided to close their cash equities and corporate broking businesses. We
estimate 0.6bn equity revenues in 2013E with structured products generating
significant revenues.
The Group lacks scale within the IB operations and following a strategy
review, decided to close ECM and M&A operations to focus on Fixed Income.
We believe the Group aims to be GBM light in the long term with renewed focus on
historical strength areas such as such as macro, financing and risk management. We
estimate 2013E GBM revenues to be 5.2bn with FICC contributing 65% of the
revenues. We estimate Portfolio management & origination revs of 1.3bn in 2013E.
Rest of the Group: In addition to GBM, Ulster and Non Core are also overhangs
on current profitability. Non core has been a drag on Groups profitability for a
long time now and is likely to continue offsetting profits generated from the core
bank. We continue to worry about the time and eventual cost of the Non core run
down and see this is a key vulnerability for the group if economic conditions turn out
to be more challenging that anticipated. Although over the longer term we believe
that Non core would become less material to profitability. The core UK franchises
within RBS have performed strongly in our view and along with GTS, offer
attractive returns in the long term in our view.
Restructuring: With Q411 results, RBS announced the details of their latest
restructuring plans focused on both cost savings and reduction of capital intensive
businesses. Restructuring plan includes closure/sale of cash equities, corporate
broking, ECM, and M&A advisory businesses with 3 year targets of i) 150bn
GBM RWAs (75bn reduction on Basel 3 basis) ii) c. 300bn GBM TPAs (120bn
reduction from H111 level) with associated wholesale funding reduction of c.
75bn on top of c. 100 unsecured wholesale funding reduction due to non core. The
Group also announced c.3500 staff reductions over the next 3 years split between
UK and non UK locations.
Investment conclusion
The group outlined details of further restructuring in order to bring its medium term
core ROE in excess of 12%. Weaker returns are likely to persist in the near term,
with the more significant benefits of the restructuring for returns likely to show 2014
onwards in our view. Although the new Core targets represent a more realistic
outcome within the current economic outlook, we continue to see near to medium
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term pressures on overall group returns. With the shares trading at 0.6x TBV and
overall group RoE unlikely to approach CoE in 2013/14, we remain Neutral and
prefer Barclays within the domestic UK banks.
Table 117: RBS: 2013E SOP
million
Global Banking & Market
Global Transaction Services
UK Retail
UK Corporate
Wealth
Ulster
US Retail & Commercial
RBS Insurance
Core Group post tax core earnings
Corporate Activities
Non-Core
Capital at risk due to CRE exposure
Capital Excess/Shortfall
Price Target (Dec 2012E)
Earnings
740
640
1,487
1,106
287
-197
449
0
4,513
0
-1,506
2,316
Value
11,556
6,403
6,906
9,001
2,868
1,250
6,346
0
44,331
0
-5,107
-3,839
-2,373
33,013
Valuation Basis
RoE - g/CoE - g
PE
RoE - g/CoE - g
RoE - g/CoE - g
PE
RoE - g/CoE - g
RoE - g/CoE - g
P/B
PE
DCF
Capital at risk
P/E (x)
15.6
10.0
4.6
8.1
10.0
-6.4
14.1
0.0
9.8
14.1
P/BV (x)
0.7
14.3
0.7
1.5
1.3
2.1
0.3
1.1
1.0
1.1
Valuation Methodology
Our Dec-12 price target of 30p is based on our sum-of the parts analysis. We base
this on a peer multiple rating as well as incorporating Basel III adjustments to the
Groups capital position.
Risks to Our View
Several risks could prevent the stock from achieving our target price and N rating.
Through Corporate Markets, the bank is highly exposed to corporate credit quality
and to some extent the market conditions in fixed income. RBS is also exposed to the
UK general insurance cycle and currency risks, more specifically the US dollar both
through Corporate Markets and Citizens, and also the euro, which present risks to the
upside and downside, in our view.
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HSBC
GBM recovery key to group strategic targets
Raul Sinha
AC
(44-20) 7742-2190
raul.sinha@jpmorgan.com
Vivek Gautam
(44-20) 7742-3244
vivek.gautam@jpmorgan.com
Josh Klaczek
(852) 2800-8534
josh.klaczek@jpmorgan.com
HSBC GBM contributed 32% of group PBT in 2011 and consumed 42% of
capital on a Basel 3 basis. We expect GBMs PBT contribution to rise to 41% in
2013. GBM is likely to benefit from growing trade flows between developed and
emerging markets as well as HSBCs strong balance sheet position.
Asia and Emerging markets are the key drivers of GBM income, with 53% of
revenues in 2011 generated in markets outside Europe and North America.
GBMs long-term growth strategy is based on being Emerging markets led and
financing focused.
We believe that client flows are the key driver of GBM franchise revenues, with
c.50% of the relationship client base being highly profitable and sticky corporate
clients.
Legacy assets remain a drag on capital, but are likely to run off within the
transition period for Basel 3. The division reported a pre tax return on RWA of
2.1% excluding legacy assets in 2011.
Figure 109: GBM Asia likely to be key growth driver
Credit & Rates areas could see potential recovery: HSBCs credit and rates
businesses in Europe saw significant headwinds in 2011 in a difficult market
environment with the group reporting losses in credit and rates in Q311. We expect
Rates and Credit revenues to rise 30% to $2.2bn in 2012, after falling 55% in
2011.
Foreign Exchange: HSBCs FX business is driven by its strong client base with
majority of revenues coming from highly profitable corporate clients including CMB
clients. FX revenues increased 19% in FY11 to $3.3bn driven by i) increased client
activity in HK, Rest of Asia Pacific, North America and Latin America ii) benefits
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from market volatility in 2011 resulting in improved trading environment for FX and
iii) increase in metal business revenues driven by rally in precious metal prices. We
expect FX revenues to rise 11% in 2012.
Equities: HSBC is a relatively focused player in equities with focus on gaining
market share to reach Top 5 in Asia and Top 10 in Europe. Equity revenues increased
27% in FY11 driven by increased client flows in HK and Europe in H111 with some
headwinds in Q411.
Securities Services: The securities services business consists of three sub
businesses: global custody, sub custody and fund management, as well as a Prime
brokerage JV started in 2009 with Equities, and the client base is mainly institutional.
Securities Services revenues increased 11% YoY FY11 driven by higher spreads in
Rest of Asia Pacific and LatAm, higher transaction volumes and rise in assets under
custody. We expect the Custody businesses within Securities services to continue to
benefit from HSBC's balance sheet strength especially in UK, Asia and ME, where
HSBC is among the largest players.
Table 118: HSBC: GBM revenue split by product
$ million
Global Markets
Credit
Rates
Foreign Exchange
Equities
Securities Services
Asset & Structured Finance
Global Banking
Financing & ECM
Payments & Cash Mgmt
Other Transaction Services
Balance Sheet Management
Principal Investments
Other
Total
2009
10,364
2,330
2,648
2,979
641
1,420
346
4,630
3,070
1,053
507
5,390
42
512
20,938
2010
9,173
1,649
2,052
2,752
755
1,511
454
4,621
2,852
1,133
636
4,102
319
697
18,912
2011
8,098
335
1,341
3,272
961
1,673
516
5,401
3,233
1,534
634
3,488
209
-139
17,057
2012E
9,182
737
1,448
3,632
1,067
1,757
542
5,908
3,556
1,718
634
2,965
234
92
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Earnings
2,906
3,349
4,837
3,028
1,809
822
-1,186
-138
-1,048
1,447
12,176
-1,101
-47
11,028
Value
27,227
19,812
61,758
46,058
15,700
8,078
11,748
16,084
-4,336
14,613
143,236
-12,771
-1,033
-6,068
123,363
Valuation Basis
RoE - g/CoE - g
RoE - g/CoE - g
RoE - g/CoE - g
Blended PE and Mkt Value
RoE - g/CoE - g
RoE - g/CoE - g
DCF
RoE - g/CoE - g
PE
1 times BV
Capital at risk
P/E (x)
9.4
5.9
12.8
P/BV (x)
1.0
2.5
2.9
9.8
-9.9
1.8
0.6
10.1
11.6
11.7
1.5
Valuation Methodology
Our target price of 650p for Dec 12 is based on our sum-of-the-parts analysis
calculated using cost of equity of 10.5% and expected 2013E geographical returns
fully adjusted for Basel 3.
Risks to Our View
We believe the key risks that could prevent our target price and OW rating from
being achieved include the following: Being a global universal bank, HSBC is
exposed to general macro variables such as a slowdown in world GDP growth;
higher or lower interest rates in all of the economic regions; and changes in FX rates
(especially USD). Credit exposure is predominantly to the US consumer (both
mortgages and unsecured) in terms of loan losses so any changes in asset quality
could impact group earnings. Hong Kong is also a significant part of the groups
earnings growth profile.
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Standard Chartered
Growth underpinned by unique EM franchise
Raul Sinha
AC
(44-20) 7742-2190
raul.sinha@jpmorgan.com
Vivek Gautam
(44-20) 7742-3244
vivek.gautam@jpmorgan.com
Josh Klaczek
(852) 2800-8534
josh.klaczek@jpmorgan.com
Standard Chartered is a major intermediary for cross border trade flows and
banking across Asia, Africa and Middle East. The group has generated
compounded annual revenue growth of 16% in the last 9 years.
At its core, Standard Chartered has grown by financing trade, commercial
banking and FX within emerging and between emerging and developed markets.
Its market positions in Asian markets are difficult for non-local players to
compete against, given the regulatory restrictions for new entrants and for
opening new branches. Leaving aside selected markets (HK & Singapore) where
the group offers a full range of retail and wholesale products, Standard Chartered
has a significantly differentiated client proposition based on international
connectivity which competes mainly with Citigroups EM businesses and HSBC
across all markets in our view.
Management believes that wholesale banking revenue pools are growing 2x to
2.5x GDP growth in its markets, driving a natural rate of growth in the mid teens
before market share gains. The groups core strategy is to be within the top 3 cash
management banks for its clients as these share a majority of the total fee pool.
c54% of WB revenues are still generated within the more steady growing
Commercial banking operations which are less volatile than markets related
revenues and hence provide a solid base for growth. Transaction banking and FX
which generates over 50% of client income which itself comprises c75%-80% of
total WB revenues.
Table 120: Standard Chartered: Wholesale banking revenue split
$ million
Trade and lending
ow Transaction Banking
ow Lending and Portfolio Mgmt
Global markets
ow Financial Markets
ow Foreign Exchange
ow Rates
ow Commodities & Equities
ow Capital Markets
ow Credit & Other
ow Corporate Finance
ow Principal Finance
ow Asset Liability Mgmt ('ALM')
Total
FY07
2,570
2,033
537
2,673
1,323
1,017
158
49
259
-160
454
400
496
5,243
FY08
3,214
2,663
551
4,275
2,365
1,194
748
141
234
48
745
253
912
7,489
FY09
3,386
2,537
849
5,905
3,311
1,349
879
389
409
285
1,294
337
963
9,291
FY10
3,638
2,770
868
6,341
3,303
1,200
837
411
541
314
1,710
416
912
9,979
FY11
4,088
3,247
841
6,758
3,688
1,434
893
603
548
210
1,873
276
921
10,846
Investment conclusion
We believe Standard Chartered is an attractive long-term growth story with strong
banking franchises in Asia, Africa and in the Middle East. While the macro
environment for revenue growth remains difficult globally for banks, we believe that
Standard Chartered is likely to outperform and continue to see Standard Chartered as
well positioned to benefit from 1) Growth, with underlying loan growth of 5% in H2
2011; 2) Strong capital (11.8% CT1) and excess liquidity; 3) re-pricing opportunities
and 4) broad-based franchise with strong performance from Greater China &
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ASEAN offsetting India & Korea. The shares trade at 1.7x 2012E TNAV & 12.2x
2012E P/E. With earnings resilient relative to the sector and the group continuing to
deliver growth, we remain OW.
Table 121: Standard Chartered: 2013E SOP
million
Hong Kong
Singapore
Korea
Other Asia Pacific
India
Middle East and Other
Africa
Americas, UK and Europe
Post Tax Core Earnings
Minorities & prefs
Capital at Risk due to Chinese Exposure
Capital Excess/ (Shortfall)
Price Target (Dec 2012E)
Earnings
907
628
144
820
351
412
373
207
3,842
-172
3670
Value
6,657
7,694
2,072
10,985
5,189
4,020
2,467
5,098
44,181
-2,049
-1,141
2,795
43,786
Valuation Basis
RoE - g/CoE - g
RoE - g/CoE - g
RoE - g/CoE - g
RoE - g/CoE - g
RoE - g/CoE - g
RoE - g/CoE - g
RoE - g/CoE - g
1 times BV
PE
Capital at Risk
1 times BV
P/E (x)
7.3
12.3
14.4
13.4
14.8
9.7
6.6
0.0
11.5
P/BV (x)
2.7
2.5
1.1
2.4
3.1
1.6
2.7
1.0
2.0
11.9
1.8
Valuation Methodology
Our target price of 1800p is based on our sum of the parts analysis fully adjusted for
Basel III.
Risks to Our View
We believe the key risks that could prevent our price target and OW rating from
being achieved, both to the upside and downside, include the following: Being a
global universal bank, Standard Chartered is exposed to general macro economic
variables such as a slowdown or rebound in world GDP growth, higher or lower
interest rates in all of the economic regions, changes in FX rates and cross-border
and political risks.
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Eugenio Cicconetti
UniCredit
AC
(44-20) 7325-1523
eugenio.cicconetti@jpmorgan.com
14
12
10
8
10
9
7.5
7.5
6
4
2
0
Run -off by 2012 Run -off by 2013 Run -off by 2014 Run -off by 2015 Run -off after 2015
20
21
15
10
5
Global Transaction Banking (GTB): this is the product line related to products
such as Cash Management, Trade Finance, Structured Trade and Export Finance, and
Global Securities Services.
0
Other CIB
Leasing
CIB-Markets
Series1
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Capital Markets in the first nine months of 2011 posted revenues that were
down 21% y/y and 42% q/q.
Valuation Tool
ROE-COE
ROE-COE
PE
PE
ROE-COE
ROE-COE
Net
Profit
2013E
1,092
2,689
220
254
1,467
5,722
Allocated
Equity
2013E
8,674
24,595
353
211
10,722
44,555
-2,464
3,259
7,492
52,047
88,140
554,086
8.5%
52,047
54,772
9.3%
554,086
554,086
9.4%
9.9%
812
52,858
3,259
0.15%
(%)
RoE
2013E
13%
11%
62%
120%
14%
13%
Sust.
RoE
(%)
10%
10%
62%
2.0%
2.0%
2.0%
14%
12%
(%)
CoE
2013E
11.0%
11.5%
10.2%
9.0%
14.0%
12.8%
nm
6.3%
(%)
g
nm
6.0%
12.8%
12.8%
( million)
Value
/ Share
(x)
PE
(x)
P/BV
4.7%
1.0%
8,058
19,417
2,672
2,035
10,707
42,889
1.39
3.35
0.46
0.35
1.85
7.41
7.4
7.2
12.1
8.0
7.3
7.5
0.9
0.8
7.6
9.6
1.0
1.0
2.6%
2.6%
-18,464
24,425
-3.19
4.22
7.5
7.5
-2.5
0.5
-2,400
-0.43
812
0.14
457
652
23,900
5,789
4.1
3.5
0.08
0.11
4.20
1.0
554,086
554,086
Valuation Methodology
We assign UCG a Dec 12 TP of 3.50 on a 2013E earnings-based SOP valuation.
We assign capital requirements in terms of Core Tier 1 at 9% for retail, 10% for CIB,
and 11% for international operations, and an average group CoE of c.12%.
Risks to Our View
We believe the key risks that could keep our N rating and target price from being
achieved include the following:
On the downside: 1) UCGs profitability could still be subject to volatility and
deterioration of the sovereign risks affecting European peripheral economies, which
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could further impact the bank's cost of funding and LLP levels. 2) CEE contributes a
significant portion to UCG's earnings; consequently a deterioration of the macro
environment in the region and currency movements could adversely impact UCG
earnings. 3) The company could require increased capital requirements due to
Regulator demands.
Upside risks include 1) accelerated cost efforts, 2) steeper interest rate hikes and 3) a
more rapid normalization of provisions.
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SEB
Sofie PeterzensAC
(44-20) 7777-9063
sofie.c.peterzens @jpmorgan.com
nana.a.francois@jpmorgan.com
Struct
ured
derivs
etc,
5%
Equiti
es,
26%
Cap
mkts,
26%
FX,
44%
SEB
Life
12%
WM
11%
Baltic
8%
Retail
17%
Source: J.P. Morgan estimates.
4,000
3,500
3,000
2,500
2,000
1,500
1,000
500
0
-500
Capital mkts
FX
Equities
SEB is looking to expand its balance sheet by increasing its loan commitments by
SEK200bn in 2012and attracting >400 new clients in the Nordics and Germany. This
combined with SEBs ambition to maintain flat costs until 2014 (at SEK23.1bn)
should help profitability going forward. We estimate SEB to generate an adjusted
RoNAV of 13.5% in 2013E.
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SEB
Life
14%
WM
7%
Baltic
12%
Retail
16%
Corp
MB
51%
Adj Profit
2013E
6,564
2,203
% of
group
51%
17%
P/E
9.3 x
9.0 x
Capital
3,241
1,119
2,353
1,514
0
838
1,208
401
347
460
1,604
2,878
-1,624
25%
9%
18%
12%
0%
6%
9%
3%
3%
4%
12%
22%
-13%
9.5 x
9.5 x
9.8 x
10.0 x
0.0 x
9.5 x
8.3 x
9.0 x
8.0 x
8.0 x
12.0 x
10.0 x
7.5 x
12,983
100%
11.5 x
51,321
15,396
25,661
10,264
14,484
10,863
0
3,621
12,249
3,321
3,677
5,251
5,623
11,280
16,204
16,204
111,160
as %
of group
46%
14%
P/NAV
1.2x
1.3x
RoNAV %
2013E
13%
14%
Value SEK
Per share
28
9
23%
9%
13%
10%
1.2x
1.0x
1.6x
1.4x
13%
11%
16%
14%
3%
11%
3%
3%
5%
5%
10%
15%
2.2x
0.8x
1.1x
0.8x
0.7x
3.4x
1.4 x
-0.8x
1.0 x
1.3 x
23%
10%
12%
9%
9%
29%
26%
na
14
5
11
7
0
4
5
2
1
2
9
14
-6
7
68
100%
12.1%
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VTB
alex.kantarovich@jpmorgan.com
Ekaterina Petrovich
+7 495 967 3103
ekaterina.a.petrovich@jpmorgan.com
Investment case
Despite competitive pressure from large local and international players as well as
highly volatile market conditions, VTB Capital attained top rankings in core IB
segments in 2011 (see the charts further). With an expected increase in debt and
equity capital markets activity in 2012, we believe VTB Capital remains wellpositioned to participate in a lions share of the deals owing to its size and support
from the state. Specifically, with a large-scale multi-year privatization program
ahead, VTB may be able to secure a substantial portion of the fees from the pie. By
various estimates in the media (Vedomosti, Kommersant, Bloomberg, Interfax, FTSE
Global Markets), Russia may privatize stakes with the total value in the $60-80 bn
range. On the fixed income side, we expect a major pick up in activity; 2012 should
be a bumper year after the markets reopen post 2011 freeze while the corporates may
want to take advantage of the window ahead of the planned introduction of the
punishing taxation on Eurobonds. The negative impact on 2013 issuance may still be
mitigated by corporates switching to the local issuance.
Given the evolution of competitive landscape, VTB IB is facing challenges from
Sberbank, its main rival on the commercial banking side, following the acquisition of
Troika in 2011. Over time we expect the two to compete for deals on a relatively
equal basis. However for VTB we would expect only a moderate erosion of market
share over time as other competitors may cede grounds.
All considered, given the inherent risks of the IB model (as evident from the losses in
2008 and 2011), in our view valuing IB requires an elevated cost of equity, 20% in
our SOP model.
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Alternative valuations
Our end-2012 VTB TP of$5.81 per share is based on the Gordon growth valuation
methodology with terminal growth of 5% and COE of 16%.
Alternatively, we use sum-of-parts valuation approach allowing for better granularity
of assumptions and modeling. We apply 2013 estimates of BV and ROE to derive
2012 values assuming different COE for main revenue segments of the VTB Group:
15% for both retail and corporate lines of business and 20% for investment banking,
thus adjusting for higher risks associated with the business. With VTBs Capital
expansion strategy in mind, we assume a higher terminal growth of 6% due to a
shorter valuation horizon (2013 as opposed to 2016 in our Gordon Growth model).
The implied exit P/BV multiples are 1.6x for retail, 1x for the corporate and 1.2x for
IB. The estimated SOP-implied valuation is $5.6 per share..
Table 124: VTB SOP Valuation
Key SOP assumptions
2012E
2013E
Retail
20%
20%
Corporate
14%
15%
IB
20%
23%
Aggregate
16%
18%
Terminal
Target ROE
COE
Retail
15%
Corporate
15%
IB
20%
Growth in perpetuity
SOP valuation (RUB bn)
6%
2012
2013
Target P/BV
Retail
217
250
1.6
Corporate
482
554
1.0
IB
152
183
1.2
Aggregate
852
987
1.2
163
5.6
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Naresh Bilandani
EFG Hermes
AC
(971) 4428-1763
naresh.n.bilandani@jpmorgan.com
Table 125: Snapshot of EFG Hermes group revenue break-up by business lines
E mn (unless stated)
Brokerage: Egypt
Brokerage: UAE
Brokerage: KSA
Brokerage: Oman
Brokerage: Kuwait
Brokerage: Jordan
Total brokerage
Asset mgmt: Egypt
Asset mgmt: Regional
Total asset mgmt.
Private equity
IB advisory: Egypt
IB advisory: Regional
Total IB advisory
Total IB fee revenues
Cap mkts & treasury ops.
Comml. banking revenues
Total group revenues
Asset mgt. AUM, $bn
Pvt. equity AUM, $bn
9M'11
125
15
8
5
20
4
177
33
67
100
111
47
48
95
483
58
732
1,273
3.2
1.1
% of total
10%
1%
1%
0%
2%
0%
14%
3%
5%
8%
9%
4%
4%
7%
38%
5%
58%
100%
FY10
266
36
13
9
51
1
377
65
101
166
145
156
11
167
855
1,052
556
2,463
4.7
0.9
% of total
11%
1%
1%
0%
2%
0%
15%
3%
4%
7%
6%
6%
0%
7%
35%
43%
23%
100%
9M'10
205
28
9
7
43
0
292
43
68
111
110
133
11
144
657
997
256
1,910
4.6
0.9
% of total
11%
1%
0%
0%
2%
0%
15%
2%
4%
6%
6%
7%
1%
8%
34%
52%
13%
100%
FY09
300
66
18
14
66
0
464
55
99
154
131
40
3
43
792
638
0
1,430
4.4
1.0
% of total
21%
5%
1%
1%
5%
0%
32%
4%
7%
11%
9%
3%
0%
3%
55%
45%
0%
100%
9M/9M
-39%
-46%
-11%
-29%
-53%
-39%
-23%
-1%
-10%
1%
-65%
336%
-34%
-26%
-94%
186%
-33%
-30%
22%
FY/FY
-11%
-45%
-28%
-36%
-23%
-19%
18%
2%
8%
11%
290%
267%
288%
8%
65%
72%
7%
-10%
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Figure 117: EFG Hermes brokerage market share (& mkt ranking)
400
350
44.3%
Egypt
Saudi
Kuwait
Qatar
Dubai
Abu Dhabi
300
250
23.4%
200
19.2%
14.8%
150
12.5%
100
50
0
Apr-11 May-11 Jun-11 Jul-11
0.4%
Aug-11 Sep-11 Oct-11 Nov-11 Dec-11 Jan-12 Feb-12
Egypt (#1)
Dubai (#1)
Oman (#3)
Kuwait (#2)
BGCC200
MSCI World
MSCI EM
15%
Performance fee
Mgmt fee
110
100
90
5%
80
1.40%
70
Mar-11 Apr-11 May-11 Jun-11 Jul-11 Aug-11 Sep-11 Oct-11 Nov-11 Dec-11 Jan-12 Feb-12
Source: Bloomberg
MEDA fund
1.75%
1.75%
2.00%
0.25%
Egypt fund
Saudi fund
Alexandria fund
Source: Bloomberg
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Valuation Methodology
We value EFG at E36.50 based on our SOTP model.
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ICICI
AC
Seshadri K Sen
(91-22) 6157-3575
seshadri.k.sen@jpmorgan.com
Dibin Korath
(91-22) 6157-3576
dibin.m.korath@jpmorgan.com
Management aims to contain credit costs at ~70bp for FY12 and ~75bp for FY13,
including potential losses on Rs13B in loans already in the restructuring pipeline.
Our credit cost estimates, however, are conservative at 125bp for FY13/14 given the
pressures on the economy. Any surprise in asset quality would be a key driver for the
stock.
NIMs driven by falling rates and shrinking international share
NIMs have been above 2.6% in the last 4 quarters. Management hopes to hold NIMs
at ~2.8%, though we think that falling interest rates may create the opportunity for a
positive surprise there. The key drivers will be a) the shrinking share of the
international book and b) falling interest rates driving up domestic NIMs in FY13.
7%
5%
34%
26%
The significant challenge in FY13 will be the international book, given that the bank
faces $2bn in run-offs - we see no re-fi risk but feel that it will be hard to replace.
However the growth signs in retail are an important positive.
28%
Retail
International
Domestic corporates
SME
Fee income: We also estimate the fee income to remain muted due to the drop in the
wholesale loan origination driven by slowdown in the economy.
Rural
Valuation still looks attractive: The 33% YTD run in the stock has knocked some
of the valuation support out (subs-adjusted PBV is now 1.6x), but the overall
operating environment is improving with a) falling interest rates and b) some policy
momentum. We maintain OW and retain the stock as a top pick.
Figure 121: Quarterly credit cost and net NPA has reduced
3.00%
2.75%
2.50%
2.70%
2.00%
2.65%
1.50%
2.60%
1.00%
2.55%
0.50%
2.50%
2.70%
2.60% 2.60%
2.50%
2.60% 2.60%
2.70%
2.60% 2.60%
2.50%
2.45%
0.00%
2Q10
3Q10
4Q10
1Q11
2Q11
3Q11
4Q11
1Q12
2Q12
3Q12
2.40%
2Q10
3Q10
4Q10
1Q11
2Q11
3Q11
4Q11
1Q12
2Q12
3Q12
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Saul Martinez
AC
Itau Unibanco
saul.martinez@jpmorgan.com
Thomas Strakos
(55-11) 4950-3474
The fully owned subsidiary Itau BBA consolidates Itau Unibancos treasury,
corporate banking and IB platforms. It is difficult to measure the IBs performance
on a stand-alone basis, especially considering the highly successful cross-selling
strategy adopted by Itau.
(1-212) 622-3602
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Christopher Delgado
(1-212) 622-6601
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Company financials
Company financials
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Symbol
UBSN.VX
CSGN.VX
DBKGn.DE
BARC.L
GS
MS
C
BAC
8604.T
MQG.AX
INPJ.J
BNPP.PA
SOGN.PA
CAGR.PA
RBS.L
HSBA.L
STAN.L
CRDI.MI
SEBa.ST
VTBRq.L
HRHO.CA
ICBK.BO
ITUB4.SA
Price CCY
CHF
CHF
EUR
GBp
USD
USD
USD
USD
JPY
AUD
ZAc
EUR
EUR
EUR
GBp
GBp
GBp
EUR
SEK
USD
EGP
INR
BRL
Price
12.44
24.41
35.45
241
117.29
18.37
34.20
8.05
384
26.25
4,803
36.95
24.42
4.73
26
557
1,573
3.95
49.17
4.92
15.21
914.20
38.38
Rating
OW
OW
N
OW
N
N
OW
OW
N
N
OW
N
OW
UW
N
OW
OW
N
OW
N
OW
OW
N
Price Target
16.00
28.00
36.00
265
120.00
23.00
46.50
10.50
380
30.06
6,466
41.00
26.00
5.00
30
650
1,800
3.50
68.00
5.81
36.50
950.00
43.00
Source: Company data, Bloomberg, J.P.Morgan estimates. All prices as of 09 Mar 12.
UBS
Overweight
Company Data
Price (SF)
Date Of Price
Price Target (SF)
Price Target End Date
52-week Range (SF)
Mkt Cap (SF bn)
Shares O/S (mn)
12.44
09 Mar 12
16.00
31 Dec 12
18.25 - 9.34
46.9
3,768
2010A
1.73
7.2
1.99
9.6
1.3
17.8%
0.00
22.4%
2011A
0.56
22.2
1.12
11.5
1.1
16.0%
0.10
10.4%
2012E
1.33
9.4
1.42
12.3
1.0
12.2%
0.25
11.8%
2013E
1.60
7.8
1.62
13.3
0.9
15.7%
0.90
12.4%
2011A
1.59
15.3
1.40
20.3
0.75
1.2
15.2%
8.0%
2012E
2.78
8.8
2.45
23.1
0.75
1.1
14.7%
12.1%
2013E
3.30
7.4
3.18
25.9
0.75
0.9
16.0%
12.7%
Overweight
Company Data
Price (SF)
Date Of Price
Price Target (SF)
Price Target End Date
52-week Range (SF)
Mkt Cap (SF bn)
Shares O/S (mn)
24.41
09 Mar 12
28.00
31 Dec 12
40.17 - 19.53
28.7
1,174
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Deutsche Bank
Neutral
Company Data
Price ()
Date Of Price
Price Target ()
Price Target End Date
52-week Range ()
Mkt Cap ( bn)
Shares O/S (mn)
35.45
09 Mar 12
36.00
31 Dec 12
45.02 - 20.79
33.0
932
2011A
4.35
5.18
8.2
55
0.6
0.9
0.75
8.2%
39.2
12.9%
11.1%
2012E
4.65
4.76
7.6
59
0.6
0.8
0.75
8.1%
44.3
11.1%
10.8%
2013E
4.80
4.91
7.4
63
0.6
0.7
0.75
7.8%
48.3
12.1%
10.2%
2010A
28.54
8.4
30.41
3,564
2011A
23.55
10.2
24.67
3,007
2012E
27.57
8.7
28.87
3,521
2013E
35.19
6.8
36.82
4,492
341.0
0.7
9.2%
10.8%
369.4
0.7
5.2%
11.0%
390.3
0.6
7.6%
11.0%
417.1
0.6
9.1%
10.2%
2011A
4.82
24.3
4.82
116.2
1.0
4.3%
1.40
13.9%
2012E
10.95
10.7
11.46
125.8
0.9
9.1%
1.40
10.2%
2013E
12.20
9.6
12.77
136.7
0.9
9.4%
1.40
11.2%
Barclays
Overweight
Company Data
Price (p)
Date Of Price
Price Target (p)
Price Target End Date
52-week Range (p)
Mkt Cap ( bn)
Shares O/S (mn)
241
09 Mar 12
265
31 Dec 12
311 - 134
29.4
12,199
Goldman Sachs
Neutral
Company Data
Price ($)
Date Of Price
Price Target ($)
Price Target End Date
52-week Range ($)
Mkt Cap ($ bn)
Shares O/S (mn)
117.29
09 Mar 12
120.00
31 Dec 12
164.40 84.27
63.5
541
Source: Company data, Bloomberg, J.P. Morgan estimates. 'Bloomberg' above denotes Bloomberg
consensus estimates.
Morgan Stanley
Neutral
Company Data
Price ($)
Date Of Price
Price Target ($)
Price Target End Date
52-week Range ($)
Mkt Cap ($ bn)
Shares O/S (mn)
18.37
09 Mar 12
23.00
31 Dec 12
28.92 - 11.58
35.4
1,927
2011A
2.89
6.4
1.36
33
29.1
0.20
0.6
16.7%
2012E
2.00
9.2
2.00
33
29.6
0.20
0.6
12.6%
2013E
2.10
8.7
2.10
35
31.5
0.20
0.6
13.4%
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Citigroup Inc.
Overweight
Company Data
Price ($)
Date Of Price
52-week Range ($)
Mkt Cap ($ mn)
Fiscal Year End
Shares O/S (mn)
Price Target ($)
Price Target End Date
34.20
09 Mar 12
46.90 - 21.40
99,997.38
Dec
2,924
46.50
31 Dec 12
2010A
2011A
2012E
1.51
0.91
0.73
0.44
3.56
9.6
0.99
1.09
1.23
0.31
3.62
9.4
1.08
1.02
1.05
1.13
4.28
8.0
Source: Company data, Bloomberg, J.P. Morgan estimates. 'Bloomberg' above denotes Bloomberg
consensus estimates.
Bank of America
Overweight
Company Data
Price ($)
Date Of Price
52-week Range ($)
Mkt Cap ($ mn)
Fiscal Year End
Shares O/S (mn)
Price Target ($)
Price Target End Date
8.05
09 Mar 12
14.69 - 4.92
84,814.57
Dec
10,536
10.50
31 Dec 12
2010A
2011A
2012E
0.28
0.27
(0.77)
(0.16)
(0.36)
9.1
0.17
(0.90)
0.56
0.14
0.01
59.0
0.07
0.17
0.19
0.23
0.65
11.2
Source: Company data, Bloomberg, J.P. Morgan estimates. 'Bloomberg' above denotes Bloomberg
consensus estimates.
384
12 Mar 12
1,467.9
3,822.6
467 - 223
845.28
8
2.1%
-0.1%
FY13E
1,570,076
149,267
149,267
FY14E
1,678,499
233,166
233,166
102,994
89,560
28.1
13.7
581
0.66
160,885
139,900
43.9
8.7
617
0.62
FY13E
6,579.0
890.0
2.542
10.3
1.500
5.7%
30.0%
864.1
2.434
15.9%
10.8
FY14E
6,766.8
900.7
2.561
10.3
1.500
5.7%
30.0%
874.8
2.453
0.8%
10.7
J.P.
36.90 - 19.94
9.15
9.68
Mar
26.25
12 Mar 12
348.6
3,413.7
5,651.2
28.84
12.3%
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Investec Plc
Overweight
Company Data
Price (c)
Date Of Price
Price Target (c)
Price Target End Date
52-week Range (c)
Mkt Cap (R bn)
Shares O/S (mn)
4,803
09 Mar 12
6,466
30 Nov 12
5,772 - 4,143
40.3
840
2011E
43.15
9.4
450
11.2%
0.8%
9.4
0.9
17.00
3,647
17.00
423
328
2012E
40.49
10.0
437
10.5%
0.6%
10.0
0.9
15.57
3,841
15.57
463
342
2013E
47.56
8.5
460
11.8%
0.7%
8.5
0.9
18.29
4,090
18.29
548
406
BNP Paribas
Neutral
Company Data
Price ()
Date Of Price
52-week Range ()
Mkt Cap ( bn)
Shares O/S (mn)
Price Target ()
Price Target End Date
36.95
09 Mar 12
55.44 - 22.72
44.6
1,208
41.00
31 Dec 12
2010A
6.61
5.6
6.58
54
41.7
0.9
11.9%
11.4%
0.7
2011A
6.83
5.4
5.05
57
45.2
0.8
9.1%
11.6%
0.7
2012E
5.05
7.3
4.66
60
48.5
0.8
8.0%
12.5%
0.6
2013E
5.30
7.0
5.35
63
51.6
0.7
8.7%
13.5%
0.6
2011A
3.61
6.8
3.16
62
42.6
0.6
6.0%
10.7%
2012E
3.30
7.4
2.59
65
45.1
0.5
4.7%
11.7%
2013E
3.65
6.7
3.65
68
48.8
0.5
6.3%
12.5%
Socit Gnrale
Overweight
Company Data
Price ()
Date Of Price
Price Target ()
Price Target End Date
52-week Range ()
Mkt Cap ( bn)
Shares O/S (mn)
24.42
09 Mar 12
26.00
31 Dec 12
49.47 - 14.32
18.9
776
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Credit Agricole
Underweight
Company Data
Price ()
Date Of Price
Price Target ()
Price Target End Date
52-week Range ()
Mkt Cap ( bn)
Shares O/S (mn)
4.73
09 Mar 12
5.00
31 Dec 12
12.38 - 3.98
11.8
2,498
2011E
1.23
3.9
(0.48)
NM
9.7
0.5
0.3
0.00
-2.7%
9.8%
2012E
0.75
6.3
0.59
8.0
10.2
0.5
0.3
0.00
3.3%
9.8%
2013E
0.85
5.5
0.85
5.5
11.1
0.4
0.3
0.00
4.6%
10.1%
2012E
1.79
14.6
0.72
782
2013E
2.35
11.1
2.11
2,316
48.1
0.5
1.5%
10.5%
49.8
0.5
4.2%
10.3%
Neutral
Company Data
Price (p)
Date Of Price
Price Target (p)
Price Target End Date
52-week Range (p)
Mkt Cap ( bn)
Shares O/S (mn)
26
09 Mar 12
30
31 Dec 12
45 - 17
28.9
110,228
Source: Company data, Bloomberg, J.P. Morgan estimates. Current and previous Adj EPS estimates are
calculated differently
Overweight
Company Data
Price (p)
Date Of Price
Price Target (p)
Price Target End Date
52-week Range (p)
Mkt Cap ( bn)
Shares O/S (mn)
557
09 Mar 12
650
31 Dec 12
674 - 456
99.8
17,922
2011E
0.71
12.3
16,224
2012E
0.83
10.5
17,676
2013E
0.95
9.2
17,865
7.10
1.2
10.4%
10.1%
0.92
7.66
1.1
11.4%
11.0%
0.98
8.15
1.1
12.2%
10.3%
0.96
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Standard Chartered
Overweight
Company Data
Price (p)
Date Of Price
Price Target (p)
Price Target End Date
52-week Range (p)
Mkt Cap ( bn)
Shares O/S (mn)
1,573
09 Mar 12
1,800
31 Dec 12
1,706 - 1,142
37.4
2,379
2011A
1.98
12.4
2.05
4,748
2012E
2.10
11.8
2.18
5,105
2013E
2.29
10.8
2.38
5,664
14.12
1.7
14.6%
11.8%
15.39
1.6
14.4%
12.0%
16.75
1.5
14.4%
11.5%
2011E
(0.08)
NM
6.6
0.00
-0.8%
9.5%
-1.3%
8.6%
2012E
0.45
8.8
8.7
0.08
4.2%
10.5%
6.1%
9.3%
2013E
0.62
6.4
9.2
0.11
5.2%
10.6%
7.1%
9.5%
UniCredit
Neutral
Company Data
Price ()
Date Of Price
Price Target ()
Price Target End Date
52-week Range ()
Mkt Cap ( bn)
Shares O/S (mn)
3.95
09 Mar 12
3.50
31 Dec 12
12.44 - 2.20
22.9
5,789
2010A
0.07
57.9
20.0
0.03
1.9%
9.4%
3.6%
8.5%
SEB
Overweight
Company Data
Price (Skr)
Date Of Price
Price Target (Skr)
Price Target End Date
52-week Range (Skr)
Mkt Cap (Skr bn)
Shares O/S (mn)
Mkt Cap ($ bn)
49.17
09 Mar 12
68.00
31 Dec 13
59.75 - 30.72
107.9
2,194
15.9
2012E
5.43
9.1
47.0
1.0
10.5%
0.5%
2.00
11,905
2013E
5.92
8.3
50.7
1.0
10.8%
0.5%
2.25
12,983
4.1%
4.6%
2012E
0.68
3.76
7.3
1.3
8,575
1,718
3,541
10.0%
2013E
0.89
4.58
5.6
1.1
10,088
2,195
4,635
10.5%
VTB
Neutral
Company Data
Price ($)
Date Of Price
Price Target ($)
Price Target End Date
52-week Range ($)
Mkt Cap ($ bn)
Shares O/S (mn)
4.92
09 Mar 12
5.81
31 Dec 12
7.15 - 3.51
25.7
5,230
2010A
0.37
3.35
13.4
1.5
5,633
813
1,916
12.4%
2011E
0.63
2.99
7.8
1.6
7,057
1,260
3,284
9.8%
201
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EFG Hermes
Overweight
Company Data
Price (E)
Date Of Price
Price Target (E)
Price Target End Date
52-week Range (E)
Mkt Cap (E bn)
Shares O/S (mn)
Mkt Cap ($ bn)
Average Volume
15.21
11 Mar 12
36.50
31 Dec 11
19.02 - 9.25
5.8
383
1.0
39,750,000.00
2011E
2.10
7.3
0.9
0.6
1.8%
11.9%
6.9%
803
2012E
2.85
5.3
0.8
0.6
2.3%
15.8%
9.4%
1,091
ICICI Bank
Company Data
52-wk range (Rs)
Market cap (Rs mn)
Market cap ($ mn)
Shares outstanding (mn)
Fiscal Year End
Price (Rs)
Date Of Price
Avg daily value (Rs mn)
Avg daily value ($ mn)
Avg daily vol (mn)
NIFTY
Exchange Rate
1,139.00 641.00
1,053,742
21,136
1,153
Mar
914.20
09 Mar 12
2,297.2
46.1
3.4
5,334
49.86
FY13E
132,091
72,271
62.75
61.01
24.00
14.7%
11.9%
14.6
545.43
1.7
2.6%
FY14E
162,770
89,922
78.07
76.33
29.00
24.4%
13.8%
11.7
589.57
1.6
3.2%
Itau Unibanco
Neutral
Company Data
Price (R$)
Date Of Price
52-week Range (R$)
Mkt Cap (R$ bn)
Fiscal Year End
Shares O/S (mn)
Price Target (R$)
Price Target End Date
38.38
09 Mar 12
39.47 - 25.15
173.23
Dec
4,514
43.00
31 Dec 12
2011A
2012E
2013E
0.80
0.73
0.87
0.83
3.24
3.20
0.85
0.88
0.93
0.94
3.59
3.65
4.05
4.22
Source: Company data, Bloombereg, J.P. Morgan estimates. 'Bloomberg' above denotes Bloomberg
consensus estimates.
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FY10A
FY11A
FY12E
FY13E
6,215
-3.6%
25,844
17,158
-3.1%
7,471
-2399.5%
1,215
32,059
31.2%
-6,586
5.4%
(17,954)
7,519
1812.7%
-65
7,454
-390.9%
381
(5.1%)
(303)
7,532
6,826
9.8%
21,147
15,432
-10.1%
4,258
-43.0%
1,457
27,973
-12.8%
-5,961
-9.5%
(16,478)
5,534
-26.4%
-83
5,451
-26.9%
(952)
17.5%
(269)
4,230
6,963
2.0%
20,744
15,149
-1.8%
4,795
12.6%
800
27,706
-1.0%
-6,126
2.8%
(15,117)
6,464
16.8%
-36
6,913
26.8%
(1,318)
20.5%
(250)
5,344
7,032
1.0%
21,472
15,288
0.9%
5,234
9.2%
950
28,504
2.9%
-6,098
-0.4%
(14,454)
7,952
23.0%
-25
7,927
14.7%
(1,585)
20.0%
(245)
6,096
FY10A
FY11A
FY12E
FY13E
262,877
266,604
267,137
269,274
-14.3%
1.4%
0.2%
0.8%
2,390
1,626
1,832
1,832
75,558
53,969
54,077
54,510
737,036
875,395
877,146
884,163
-5.9%
18.8%
0.2%
0.8%
1,277,400 1,236,684 1,217,522 1,212,734
9,822
9,695
9,695
9,695
131,626
102,233
102,457
103,354
1,317,245 1,419,312 1,422,151 1,433,528
332,301
342,409
338,985
335,595
-19.0%
3.0%
-1.0%
-1.0%
130,271
140,617
140,617
140,617
41,490
30,201
30,261
30,503
782,940
739,354
742,667
740,568
122,643
128,852
130,469
135,268
262,877
266,604
267,137
269,274
5,043
4,406
4,406
4,406
1,317,245 1,419,312 1,422,151 1,433,528
Ratio Analysis
SF in millions, year end Dec
Per Share Data
EPS Reported
EPSAdjusted
% Change Y/Y
DPS
% Change Y/Y
Dividend yield
Payout ratio
BV per share
NAV per share
Shares outstanding
Return ratios
RoRWA
Pre-tax ROE
ROE
RoNAV
Revenues
NIM (NII / RWA)
Non-IR / average assets
Total rev / average assets
NII / Total revenues
Fees / Total revenues
Trading / Total revenues
SF in millions, year end Dec
Cost ratios
Cost / income
Cost / assets
Staff numbers
Balance Sheet Gearing
Loan / deposit
Investments / assets
Loan / assets
Customer deposits / liabilities
LT Debt / liabilities
Asset Quality / Capital
Loan loss reserves / loans
NPLs / loans
LLP / RWA
Loan loss reserves / NPLs
Growth in NPLs
RWAs
% YoY change
Core Tier 1
Total Tier 1
FY10A
FY11A
FY12E
FY13E
1.99
1.73
2354.9%
0.00
0.0%
12
9.6
3,847.4
1.12
0.56
-67.7%
0.10
0.8%
8.9%
14
11.5
3,822.0
1.42
1.33
137.2%
0.25
150.0%
1.9%
17.6%
15
12.3
3,822.0
1.62
1.60
20.1%
0.90
260.0%
6.8%
55.6%
16
13.3
3,822.0
0.04
17.0%
15.1%
22.4%
0.02
10.9%
4.3%
10.4%
0.02
11.7%
9.2%
11.8%
0.02
13.5%
10.4%
12.4%
3.13%
1.94%
2.41%
19.39%
53.52%
23.30%
2.83%
1.55%
2.04%
24.40%
55.17%
15.22%
2.05%
1.46%
1.95%
25.13%
54.68%
17.31%
2.42%
1.50%
2.00%
24.67%
53.63%
18.36%
FY10A
FY11A
FY12E
FY13E
76.5%
0.0
64,423
80.2%
0.0
64,547
76.7%
0.0
63,376
72.1%
0.0
62,316
79.1%
5.7%
20.0%
25.2%
9.9%
77.9%
3.8%
18.8%
24.1%
9.9%
78.8%
3.8%
18.8%
23.8%
9.9%
80.2%
3.8%
18.8%
23.4%
9.8%
0.9%
0.6%
0.7%
0.7%
1.6%
1.1%
1.2%
1.2%
0.0%
0.0%
0.0%
0.0%
57.0% 57.0%
57.0%
57.0%
(10.1%) (32.0%)
12.7%
0.0%
198,875 240,962 340,135 290,135
-3.7% 21.2%
41.2% -14.7%
15.3% 14.1%
10.9%
14.2%
17.8% 16.0%
12.2%
15.7%
203
This document is being provided for the exclusive use of Rathiesh Chandran at PREMJI INVEST.
Kian Abouhossein
(44-20) 7325-1523
kian.abouhossein@jpmorgan.com
Amit Ranjan
(44-20) 7325-4780
amit.x.ranjan@jpmorgan.com
FY10A
FY11A
FY12E
6,541
-5.1%
24,084
14,078
2.4%
9,338
-23.2%
668
30,625
-8.9%
-9,205
-4.1%
(14,699)
6,721
-26.1%
79
6,800
-20.8%
(1,548)
22.8%
(135)
5,098
6,433
-1.7%
18,996
12,952
-8.0%
5,020
-46.2%
1,024
25,429
-17.0%
-9,398
2.1%
(12,304)
3,727
-44.5%
-187
2,693
-60.4%
(671)
24.9%
(125)
1,897
7,748
20.4%
17,627
12,125
-6.4%
5,120
2.0%
382
25,375
-0.2%
-8,998
-4.3%
(11,207)
5,171
38.7%
-190
4,581
70.1%
(1,191)
26.0%
(125)
3,265
FY10A
FY11A
FY12E
218,842
-7.7%
1,017
24,879
546,671
0.7%
802,856
8,585
118,355
1,032,006
233,413
6.7%
910
18,386
518,788
-5.1%
780,490
8,591
121,742
1,049,165
232,246
-0.5%
919
18,294
516,194
-0.5%
768,661
8,591
121,133
1,043,919
325,057
0.7%
173,752
168,394
818,985
123,960
33,282
9,733
1,032,006
353,548
8.8%
162,655
176,559
834,761
131,251
33,674
7,411
1,049,165
351,780
-0.5%
162,655
175,676
844,928
130,595
38,262
7,374
1,043,919
Balance sheet
SF in millions, year end Dec
ASSETS
Net customer loans
% change Y/Y
Loan loss reserves
Investments
Other interest earning assets
% change Y/Y
Average interest earnings assets
Goodwill
Other assets
Total assets
LIABILITIES
Customer deposits
% change Y/Y
Long term funding
Interbank funding
Average interest bearing liabs
Other liabilities
Retirement benefit liabilities
Shareholders' equity
Minorities
Total liabilities & Shareholders Equity
Ratio Analysis
FY13E SF in millions, year end Dec
Per Share Data
8,132 EPS Reported
5.0% EPSAdjusted
17,922
% Change Y/Y
12,247 DPS
1.0%
% Change Y/Y
5,222 Dividend yield
2.0% Payout ratio
453 BV per share
26,054 NAV per share
2.7% Shares outstanding
-9,012
0.2% Return ratios
(10,716) RoRWA
6,327 Pre-tax ROE
22.4% ROE
-190 RoNAV
6,137 Revenues
34.0% NIM (NII / RWA)
(1,596) Non-IR / average assets
26.0% Total rev / average assets
(126) NII / Total revenues
4,415 Fees / Total revenues
Trading / Total revenues
FY13E SF in millions, year end Dec
Cost ratios
229,923 Cost / income
-1.0% Cost / assets
928 Staff numbers
18,111
511,032 Balance Sheet Gearing
-1.0% Loan / deposit
762,900 Investments / assets
8,591 Loan / assets
119,922 Customer deposits / liabilities
1,033,480 LT Debt / liabilities
Asset Quality / Capital
348,262 Loan loss reserves / loans
-1.0% NPLs / loans
162,655 LLP / RWA
173,919 Loan loss reserves / NPLs
839,815 Growth in NPLs
129,289 RWAs
% YoY change
43,575 Core Tier 1
7,300 Total Tier 1
1,033,480
FY10A
FY11A
FY12E
FY13E
4.22
1.40
4.09
1.59
-30.8% -61.0%
1.30
0.75
(35.0%) (42.3%)
5.3%
3.1%
30.8%
53.8%
28
28
20.8
20.3
1,173.9 1,220.3
2.45
2.78
74.8%
0.75
0.0%
3.1%
30.6%
30
23.1
1,270.3
3.18
3.30
18.4%
0.75
0.0%
3.1%
23.6%
33
25.9
1,340.3
0.02
19.2%
14.4%
20.5%
0.01
8.0%
5.7%
8.0%
0.01
12.7%
9.1%
12.1%
0.02
15.0%
10.8%
12.7%
2.99%
2.33%
2.97%
21.36%
45.97%
30.49%
2.66%
1.83%
2.44%
25.30%
50.93%
19.74%
2.74%
1.68%
2.42%
30.53%
47.78%
20.18%
2.78%
1.73%
2.51%
31.21%
47.00%
20.04%
FY10A
FY11A
FY12E
FY13E
78.1%
0.0
-
85.3%
0.0
-
79.6%
0.0
-
75.7%
0.0
-
67.3%
2.4%
21.2%
32.9%
17.6%
66.0%
1.8%
22.2%
35.1%
16.1%
66.0%
1.8%
22.2%
35.2%
16.3%
66.0%
1.8%
22.2%
35.4%
16.6%
0.5%
0.4%
0.4%
0.4%
0.9%
0.7%
0.9%
0.9%
(0.0%)
0.1%
0.1%
0.1%
54.6%
53.0%
45.6%
46.1%
(18.9%) (7.8%)
17.3%
0.0%
218,702 241,753 282,753 292,083
-1.3%
10.5%
17.0%
3.3%
10.6%
9.3%
9.6% 11.1%
17.2%
15.2%
14.7%
16.0%
204
This document is being provided for the exclusive use of Rathiesh Chandran at PREMJI INVEST.
Kian Abouhossein
(44-20) 7325-1523
kian.abouhossein@jpmorgan.com
Amit Ranjan
(44-20) 7325-4780
amit.x.ranjan@jpmorgan.com
FY10A
FY11A
FY12E
15,582
25.1%
12,983
10,669
19.7%
3,353
-52.8%
28,565
2.3%
-12,239
12.6%
(10,645)
5,224
-33.2%
-1,277
3,947
-23.9%
(1,646)
43.9%
2,301
17,444
12.0%
15,785
11,544
8.2%
3,059
-8.8%
33,229
16.3%
-12,806
4.6%
(12,863)
7,038
34.7%
-1,838
5,200
31.8%
(1,064)
21.0%
4,136
17,899
2.6%
16,671
11,574
0.3%
4,950
61.8%
34,571
4.0%
-13,573
6.0%
(12,054)
8,997
27.8%
-1,951
6,964
33.9%
(2,538)
34.0%
4,426
FY10A
FY11A
FY12E
407,729
58.0%
3,296
15,594
1,905,630
412,838
1.3%
4,162
15,462
2,164,000
421,076
2.0%
4,245
15,462
2,142,360
533,984
55.1%
48,146
1,905,630
535,314
0.3%
52,703
2,164,000
539,337
0.8%
56,433
2,142,360
Balance sheet
in millions, year end Dec
ASSETS
Net customer loans
% change Y/Y
Loan loss reserves
Investments
Other interest earning assets
% change Y/Y
Average interest earnings assets
Goodwill
Other assets
Total assets
LIABILITIES
Customer deposits
% change Y/Y
Long term funding
Interbank funding
Average interest bearing liabs
Other liabilities
Retirement benefit liabilities
Shareholders' equity
Minorities
Total liabilities & Shareholders Equity
Ratio Analysis
FY13E in millions, year end Dec
Per Share Data
18,210 EPS Reported
1.7% EPSAdjusted
16,743
% Change Y/Y
11,690 DPS
1.0%
% Change Y/Y
4,950 Dividend yield
0.0% Payout ratio
- BV per share
34,953 NAV per share
1.1% Shares outstanding
-13,063
-3.8% Return ratios
(12,875) RoRWA
9,167 Pre-tax ROE
1.9% ROE
-1,976 RoNAV
7,108 Revenues
2.1% NIM (NII / RWA)
(2,544) Non-IR / average assets
33.0% Total rev / average assets
- NII / Total revenues
4,565 Fees / Total revenues
Trading / Total revenues
FY13E in millions, year end Dec
Cost ratios
429,478 Cost / income
2.0% Cost / assets
4,330 Staff numbers
- Balance Sheet Gearing
- Loan / deposit
- Investments / assets
15,462 Loan / assets
- Customer deposits / liabilities
2,142,360 LT Debt / liabilities
Asset Quality / Capital
542,034 Loan loss reserves / loans
0.5% NPLs / loans
- LLP / RWA
- Loan loss reserves / NPLs
- Growth in NPLs
- RWAs
% YoY change
60,301 Core Tier 1
- Total Tier 1
2,142,360
FY10A
FY11A
FY12E
FY13E
3.18
2.72
-37.6%
0.75
0.0%
2.2%
23.5%
50
33.9
960.0
5.18
4.35
59.7%
0.75
0.0%
2.2%
14.5%
55
39.2
951.0
4.76
4.65
7.1%
0.75
0.0%
2.2%
15.7%
59
44.3
951.0
4.91
4.80
3.1%
0.75
0.0%
2.2%
15.3%
63
48.3
951.0
0.01
8.9%
5.5%
8.0%
0.01
10.1%
8.2%
11.1%
0.01
12.4%
8.1%
10.8%
0.01
11.7%
7.8%
10.2%
4.50%
0.76%
1.68%
54.55%
37.35%
11.74%
4.58%
0.78%
1.63%
52.50%
34.74%
9.21%
3.67%
0.77%
1.61%
51.78%
33.48%
14.32%
3.83%
0.78%
1.63%
52.10%
33.45%
14.16%
FY10A
FY11A
FY12E
FY13E
80.1%
77.2%
74.1%
74.2%
0.0
0.0
0.0
0.0
102,062 102,062 102,062 102,062
77.1%
21.6%
-
77.9%
19.3%
-
78.9%
19.9%
-
80.0%
20.2%
-
0.8%
1.0%
1.0%
1.0%
2.0%
2.7%
2.3%
2.2%
0.4%
0.5%
0.4%
0.4%
39.1%
36.7%
44.2%
44.7%
(5.4%)
34.6% (15.5%)
0.9%
346,000 381,000 487,246 475,904
26.7%
10.1%
27.9%
-2.3%
8.7%
9.5%
8.7%
9.7%
12.3%
12.9%
11.1%
12.1%
205
This document is being provided for the exclusive use of Rathiesh Chandran at PREMJI INVEST.
Kian Abouhossein
(44-20) 7325-1523
kian.abouhossein@jpmorgan.com
Amit Ranjan
(44-20) 7325-4780
amit.x.ranjan@jpmorgan.com
FY11A
FY12E
FY13E
12,201
-2.6%
17,066
8,622
-2.8%
5,024
-35.7%
3,420
29,267
-8.4%
-19,777
-1.0%
9,904
-10.9%
-4,025
0
5,879
-3.1%
1,928
32.8%
944
3,007
12,266
0.5%
17,529
8,717
1.1%
5,369
6.9%
3,443
29,795
1.8%
-18,770
-5.1%
10,344
4.4%
-3,963
0
6,381
8.5%
1,878
29.4%
982
3,521
12,455
1.5%
18,185
8,925
2.4%
5,760
7.3%
3,501
30,641
2.8%
-18,457
-1.7%
11,501
11.2%
-3,718
0
7,784
22.0%
2,270
29.2%
1,021
4,492
FY11A
FY12E
FY13E
431,934
0.9%
11,303
105,867
47,446
25.5%
585,247
7,846
1,563,527
443,618
2.7%
10,624
108,324
48,552
2.3%
600,494
7,846
1,563,537
455,128
2.6%
10,081
107,901
48,361
-0.4%
611,390
7,846
1,574,555
366,032
5.9%
129,736
91,116
222,929
9,607
-
384,071
4.9%
127,378
89,460
232,570
9,607
-
392,071
2.1%
127,349
89,439
238,443
9,607
-
Ratio Analysis
in millions, year end Dec
Per Share Data
EPS Reported
EPSAdjusted
% Change Y/Y
DPS
% Change Y/Y
Dividend yield
Payout ratio
BV per share
NAV per share
Shares outstanding
Return ratios
RoRWA
Pre-tax ROE
ROE
RoNAV
Revenues
NIM (NII/Loans)
Total rev / average assets
NII / Total revenues
Fees / Total revenues
Trading / Total revenues
in millions, year end Dec
Cost ratios
Cost / income
Cost / assets
Balance Sheet Gearing
Loan / deposit
Investments / assets
Loan / assets
Customer deposits / liabilities
LT Debt / liabilities
Asset Quality / Capital
Loan loss reserves / loans
NPLs / loans
LLP/ Loans
Loan loss reserves / NPLs
Growth in NPLs
RWAs
% YoY change
Core Tier 1
Total Tier 1
FY11A
FY12E
FY13E
24.67
23.55
-17.5%
6.00
8.9%
3.4%
24.3%
456
369.4
12,199.0
28.87
27.57
17.1%
8.00
33.3%
3.4%
27.7%
477
390.3
12,199.0
36.82
35.19
27.7%
10.00
25.0%
4.3%
27.2%
503
417.1
12,199.0
0.8%
8.4%
5.6%
5.2%
0.8%
8.8%
6.2%
7.6%
0.9%
10.6%
7.5%
9.1%
3.12%
1.87%
42.77%
30.23%
17.17%
2.96%
1.86%
42.22%
30.00%
18.02%
2.59%
1.91%
41.66%
29.85%
18.80%
FY11A
FY12E
FY13E
69.3%
0.0
64.6%
0.0
61.7%
0.0
118.0%
115.6%
27.6%
24.4%
8.7%
115.5%
215.6%
28.4%
25.7%
8.5%
116.1%
215.6%
28.9%
26.1%
8.5%
2.6%
5.6%
0.9%
51.6%
8.6%
390,999
-1.8%
11.0%
12.9%
2.4%
4.9%
0.9%
53.9%
(10.0%)
414,965
6.1%
11.0%
12.8%
2.2%
4.3%
0.8%
56.9%
(10.0%)
480,479
15.8%
10.2%
11.7%
206
This document is being provided for the exclusive use of Rathiesh Chandran at PREMJI INVEST.
Kian Abouhossein
(44-20) 7325-1523
kian.abouhossein@jpmorgan.com
Amit Ranjan
(44-20) 7325-4780
amit.x.ranjan@jpmorgan.com
FY10A
FY11A
FY12E
FY13E
39,161
-13.3%
10,428
14.0%
15,841
12,892
-35.0%
12,892
-35.0%
4,538
35.2%
641
7,713
28,811
-26.4%
10,389
-0.4%
12,223
6,199
-51.9%
6,199
-51.9%
1,727
27.9%
1,908
2,540
33,361
15.8%
11,086
6.7%
13,509
8,767
41.4%
8,767
41.4%
2,806
32.0%
140
5,822
34,410
3.1%
10,900
-1.7%
13,764
9,746
11.2%
9,746
11.2%
3,119
32.0%
140
6,487
FY10A
FY11A
FY12E
FY13E
67,703
22.4%
911,332
66,281
-2.1%
923,000
66,281
0.0%
923,000
66,281
0.0%
923,000
187,270
3.8%
11,212
38,569
77,356
6,957
911,332
213,845
14.2%
8,689
41,799
70,379
3,100
923,000
213,845
0.0%
8,689
41,799
75,490
3,100
923,000
213,845
0.0%
8,689
41,799
81,265
3,100
923,000
Balance sheet
$ in millions, year end Dec
ASSETS
Net customer loans
% change Y/Y
Loan loss reserves
Investments
Other interest earning assets
% change Y/Y
Average interest earnings assets
Goodwill
Other assets
Total assets
LIABILITIES
Customer deposits
% change Y/Y
Long term funding
Interbank funding
Average interest bearing liabs
Other liabilities
Retirement benefit liabilities
Shareholders' equity
Minorities
Total liabilities & Shareholders Equity
Ratio Analysis
$ in millions, year end Dec
Per Share Data
EPS Reported
EPSAdjusted
% Change Y/Y
DPS
% Change Y/Y
Dividend yield
Payout ratio
BV per share
NAV per share
Shares outstanding
FY10A
FY11A
FY12E
FY13E
14.23
12.56
-35.4%
1.40
0.0%
11.5%
9.8%
118
108.9
631.0
4.82
4.82
-61.6%
1.40
0.0%
3.3%
29.1%
127
116.2
531.8
11.46
10.95
127.1%
1.40
0.0%
9.7%
12.2%
136
125.8
531.8
12.77
12.20
11.4%
1.40
0.0%
11.4%
11.0%
147
136.7
531.8
Return ratios
RoRWA
Pre-tax ROE
ROE
RoNAV
0.02
16.7%
10.0%
12.4%
0.01
8.8%
3.6%
4.3%
0.01
11.6%
7.7%
9.1%
0.01
12.0%
8.0%
9.4%
Revenues
NIM (NII / RWA)
Non-IR / average assets
Total rev / average assets
NII / Total revenues
Fees / Total revenues
Trading / Total revenues
4.45%
-
3.14%
-
3.61%
-
3.73%
-
FY10A
FY11A
FY12E
FY13E
67.1%
0.0
35,700
78.5%
0.0
33,300
73.7%
0.0
33,300
71.7%
0.0
33,300
30.9%
7.4%
22.5%
1.3%
30.9%
7.2%
25.1%
1.0%
30.9%
7.2%
25.2%
1.0%
30.9%
7.2%
25.4%
1.0%
444,290
2.9%
14.2%
16.9%
457,000
2.9%
12.1%
13.9%
668,966
46.4%
9.0%
10.2%
665,621
-0.5%
9.9%
11.2%
207
This document is being provided for the exclusive use of Rathiesh Chandran at PREMJI INVEST.
Kian Abouhossein
(44-20) 7325-1523
kian.abouhossein@jpmorgan.com
Amit Ranjan
(44-20) 7325-4780
amit.x.ranjan@jpmorgan.com
FY10A
FY11A
FY12E
FY13E
31,614
35.4%
9,474
17.5%
16,051
6,178
620.9%
6,178
620.9%
716
11.6%
198
4,506
32,518
2.9%
9,980
5.3%
16,501
6,037
-2.3%
6,037
-2.3%
1,400
23.2%
1,846
2,256
31,353
-3.6%
9,393
-5.9%
15,628
6,331
4.9%
6,331
4.9%
1,899
30.0%
96
3,845
31,985
2.0%
9,536
1.5%
15,841
6,608
4.4%
6,608
4.4%
1,982
30.0%
96
4,050
FY10A
FY11A
FY12E
FY13E
35,258
27.8%
11,406
807,698
34,175
-3.1%
11,079
749,898
34,346
0.5%
11,079
757,397
34,518
0.5%
11,079
764,971
187,061
4.3%
29,094
57,211
9,597
807,698
209,901
12.2%
27,785
62,049
1,508
749,898
210,033
0.1%
27,785
65,316
1,508
757,397
210,166
0.1%
27,785
68,981
1,508
764,971
Balance sheet
$ in millions, year end Dec
ASSETS
Net customer loans
% change Y/Y
Loan loss reserves
Investments
Other interest earning assets
% change Y/Y
Average interest earnings assets
Goodwill
Other assets
Total assets
LIABILITIES
Customer deposits
% change Y/Y
Long term funding
Interbank funding
Average interest bearing liabs
Other liabilities
Retirement benefit liabilities
Shareholders' equity
Minorities
Total liabilities & Shareholders Equity
Ratio Analysis
$ in millions, year end Dec
Per Share Data
EPS Reported
EPSAdjusted
% Change Y/Y
DPS
% Change Y/Y
Dividend yield
Payout ratio
BV per share
NAV per share
Shares outstanding
FY10A
FY11A
FY12E
FY13E
3.31
2.39
-406.4%
0.20
17.7%
1.1%
6.0%
31
27.2
1,786.5
1.36
2.89
21.0%
0.20
0.0%
1.1%
14.7%
33
29.1
1,850.0
2.00
2.00
-30.9%
0.20
0.0%
1.1%
10.0%
33
29.6
1,927.0
2.10
2.10
5.3%
0.20
0.0%
1.1%
9.5%
35
31.5
1,927.0
Return ratios
RoRWA
Pre-tax ROE
ROE
RoNAV
0.01
10.8%
7.9%
11.6%
0.01
9.7%
3.6%
4.4%
0.01
9.7%
5.9%
6.9%
0.01
9.6%
5.9%
6.9%
Revenues
NIM (NII / RWA)
Non-IR / average assets
Total rev / average assets
NII / Total revenues
Fees / Total revenues
Trading / Total revenues
4.00%
-
4.18%
-
4.16%
-
4.20%
-
FY10A
FY11A
FY12E
FY13E
80.5%
0.0
62,542
81.4%
0.0
61,899
79.8%
0.0
60,299
79.3%
0.0
60,299
18.8%
4.4%
24.9%
-
16.3%
4.6%
30.5%
-
16.4%
4.5%
30.3%
-
16.4%
4.5%
30.2%
-
329,560
8.1%
9.2%
16.0%
316,000
-4.1%
13.1%
16.7%
446,000
41.1%
10.0%
12.6%
446,000
0.0%
10.9%
13.4%
208
This document is being provided for the exclusive use of Rathiesh Chandran at PREMJI INVEST.
Kian Abouhossein
(44-20) 7325-1523
kian.abouhossein@jpmorgan.com
Amit Ranjan
(44-20) 7325-4780
amit.x.ranjan@jpmorgan.com
FY10A
FY11A
FY12E
FY13E
1Q12E
2Q12E
3Q12E
4Q12E
54,186
26,042
32,415
86,601
47,375
13,184
2,233
10,593
0
(68)
10,661
2,968
3.56
3.58
0.04
48,447
12,796
29,906
78,353
50,933
14,624
3,521
10,862
5
112
10,750
2,999
3.62
3.58
0.04
48,847
11,680
29,503
78,350
48,495
18,174
5,014
12,809
8
0
12,809
2,990
4.28
4.28
0.20
52,861
12,607
29,316
82,177
49,581
19,989
5,504
14,144
2
0
14,144
2,889
4.90
4.90
0.60
12,078
3,183
8,279
20,357
12,432
4,742
1,389
3,259
2
0
3,259
3,014
1.08
1.08
0.05
12,119
2,893
6,996
19,115
11,967
4,255
1,120
3,051
2
0
3,051
3,004
1.02
1.02
0.05
12,217
2,813
6,935
19,152
11,915
4,423
1,195
3,143
2
0
3,143
2,983
1.05
1.05
0.05
12,434
2,791
7,293
19,726
12,182
4,754
1,310
3,357
2
0
3,357
2,958
1.13
1.13
0.05
FY10A
FY11A
FY12E
FY13E
Balance Sheet
1Q12E
2Q12E
3Q12E
4Q12E
Balance Sheet
Securities
Total gross loans
Loan loss reserves
Total net loans
Total earning assets
Total assets
Total deposits
Total liabilities
Common equity
Shareholders' equity
318,164
293,413
309,876
322,271
648,794
647,242
697,079
754,143
40,655
30,115
25,712
23,208
608,139
617,127
671,368
730,935
1,724,597 1,691,799 1,711,275 1,760,487
1,913,902 1,873,878 1,887,774 1,941,933
844,968
865,936
928,128
983,815
1,748,113 1,694,305 1,699,969 1,752,242
163,156
177,494
185,726
187,612
165,789
179,573
187,805
189,691
Securities
Total gross loans
Loan loss reserves
Total net loans
Total earning assets
Total assets
Total deposits
Total liabilities
Common equity
Shareholders' equity
299,281
303,770
306,808
309,876
653,831
667,209
678,623
697,079
28,878
27,730
26,676
25,712
624,953
639,479
651,947
671,368
1,700,913 1,707,813 1,700,702 1,711,275
1,885,035 1,893,342 1,879,428 1,887,774
883,255
892,087
909,929
928,128
1,701,150 1,708,451 1,693,488 1,699,969
181,806
182,812
183,861
185,726
183,885
184,891
185,940
187,805
FY10A
FY11A
FY12E
FY13E
1Q12E
2Q12E
3Q12E
4Q12E
5.9%
8.7%
4.4%
93.1
3.2%
54.7
0.5%
6.9%
6.89
12.91
3.25
4.51
6.27
209.49
(6.0%)
(2.2%)
(1.5%)
88.9
2.9%
65.0
0.6%
6.3%
7.90
13.55
1.82
3.11
4.65
268.26
3.8%
0.5%
(4.0%)
96.1
2.9%
61.9
0.7%
7.1%
8.31
15.63
1.67
2.25
3.69
233.93
8.6%
2.0%
2.0%
102.3
3.0%
60.3
0.7%
7.7%
8.19
16.58
1.69
1.98
3.08
189.64
0.8%
2.8%
2.0%
91.2
2.9%
61.1
0.7%
7.4%
8.09
14.26
1.75
2.47
4.42
266.36
1.5%
0.5%
(1.9%)
94.4
2.9%
62.6
0.6%
6.8%
8.12
14.43
1.70
2.31
4.16
259.02
1.9%
(0.1%)
(1.4%)
97.6
2.9%
62.2
0.7%
7.0%
8.24
15.06
1.71
2.18
3.93
243.24
2.2%
0.1%
(1.4%)
101.3
2.9%
61.8
0.7%
7.4%
8.31
15.63
1.67
2.07
3.69
233.93
209
This document is being provided for the exclusive use of Rathiesh Chandran at PREMJI INVEST.
Kian Abouhossein
(44-20) 7325-1523
kian.abouhossein@jpmorgan.com
Amit Ranjan
(44-20) 7325-4780
amit.x.ranjan@jpmorgan.com
Balance Sheet
FY10A
FY11A
FY12E
FY13E
1Q12E
2Q12E
3Q12E
4Q12E
51,524
28,435
58,697
110,221
83,108
(1,322)
915
(3,586)
(12,399)
8,813
10,012
(0.36)
0.88
0.04
44,616
13,410
48,838
93,454
80,274
(230)
(1,676)
85
3,883
(3,798)
10,466
0.01
0.14
0.04
43,241
11,001
47,349
90,590
67,197
12,392
3,663
7,529
(735)
8,264
11,545
0.65
0.72
0.04
45,389
10,721
50,820
96,209
63,573
21,915
6,574
14,140
0
14,140
12,245
1.15
1.15
0.10
10,726
2,842
11,472
22,198
17,868
1,487
446
741
(735)
1,476
11,335
0.07
0.13
0.01
10,706
2,792
11,950
22,656
16,760
3,104
916
1,888
0
1,888
11,423
0.17
0.17
0.01
10,801
2,753
11,697
22,498
16,226
3,519
1,038
2,181
0
2,181
11,603
0.19
0.19
0.01
11,008
2,614
12,230
23,238
16,342
4,282
1,263
2,719
0
2,719
11,820
0.23
0.23
0.01
Balance Sheet
FY10A
FY11A
FY12E
FY13E
338,054
940,440
41,885
898,555
1,897,802
2,264,909
1,010,430
2,036,661
211,686
228,248
311,416
926,200
33,783
892,417
1,834,877
2,129,046
1,033,041
1,898,945
211,704
230,101
314,436
964,872
30,841
934,031
1,745,909
2,046,216
1,049,050
1,808,714
219,105
237,502
336,447
1,042,359
29,172
1,013,187
1,788,472
2,104,600
1,090,655
1,854,731
231,473
249,870
FY10A
FY11A
FY12E
FY13E
1.0%
3.7%
0.8%
97.0
2.8%
63.3
0.4%
4.5%
5.86
11.24
3.47
3.58
4.45
136.48
(2.1%)
(3.3%)
4.8%
90.6
2.5%
78.8
0.2%
2.0%
6.52
12.40
2.98
2.22
3.65
134.57
(0.1%)
(4.8%)
2.7%
88.0
2.5%
72.6
0.4%
4.1%
7.24
14.28
2.48
1.45
3.20
141.70
5.1%
2.1%
1.5%
91.6
2.6%
65.3
0.7%
6.3%
7.69
15.93
1.88
1.16
2.80
163.05
Securities
Total gross loans
Loan loss reserves
Total net loans
Total earning assets
Total assets
Total deposits
Total liabilities
Common equity
Shareholders' equity
1Q12E
2Q12E
3Q12E
4Q12E
308,302
923,223
32,767
890,457
1,750,268
2,093,616
1,039,051
1,862,356
212,863
231,260
305,219
932,978
31,995
900,982
1,740,101
2,057,376
1,041,854
1,824,410
214,569
232,966
308,271
945,592
31,388
914,204
1,741,173
2,039,528
1,044,757
1,804,562
216,568
234,965
314,436
964,872
30,841
934,031
1,752,092
2,046,216
1,049,050
1,808,714
219,105
237,502
1Q12E
2Q12E
3Q12E
4Q12E
(0.9%)
(1.9%)
1.5%
88.2
2.5%
76.7
0.3%
3.1%
6.71
12.63
2.90
1.61
3.55
135.43
0.4%
(0.6%)
1.1%
87.6
2.5%
73.1
0.4%
3.8%
6.93
13.20
2.78
1.49
3.43
137.07
1.2%
0.1%
1.0%
87.8
2.5%
71.3
0.5%
4.2%
7.11
13.71
2.64
1.40
3.32
139.43
1.7%
0.6%
0.9%
88.5
2.6%
69.5
0.6%
5.1%
7.24
14.28
2.48
1.30
3.20
141.70
Securities
Total gross loans
Loan loss reserves
Total net loans
Total earning assets
Total assets
Total deposits
Total liabilities
Common equity
Shareholders' equity
210
This document is being provided for the exclusive use of Rathiesh Chandran at PREMJI INVEST.
Kian Abouhossein
(44-20) 7325-1523
kian.abouhossein@jpmorgan.com
Amit Ranjan
(44-20) 7325-4780
amit.x.ranjan@jpmorgan.com
FY11 E
FY12 E
FY13 E
3Q FY10
4Q FY10
1Q FY11
2Q FY11
3Q FY11
1,130,698
405,463
207,600
166,400
1,407,938
335,271
179,082
124,000
1,570,076
350,874
199,680
117,562
1,678,499
399,527
231,906
131,217
295,867
100,041
50,900
39,800
299,384
103,824
59,300
34,800
330,365
96,780
45,400
43,100
301,589
85,926
46,800
31,000
404,937
73,983
41,300
24,900
107,005
143,939
336,503
2,290
63,210
143,365
244,131
10,453
88,500
151,979
343,176
0
99,500
156,858
387,066
0
33,974
37,119
104,878
5,168
27,773
38,254
68,663
-2,087
13,770
39,055
67,500
-1,505
13,819
36,712
25,984
4,221
17,246
33,398
80,147
7,737
-16,677
19,292
0
43,864
91,309
-5,919
27,286
0
480,116
120,478
0
8,000
0
567,548
60,000
0
8,000
0
567,548
60,000
2,106
-2,386
0
3,422
16,713
-2,755
23,587
0
12,172
27,866
-597
-5,950
0
83,365
36,442
-2,544
-2,315
0
112,977
31,030
-2,778
34,551
0
141,887
26,503
Non-interest expenses
Compensation and benefits
Commissions and floor brokerage
Information processing and communications
Occupancy and related depreciation
Business development expenses
Private equity entities cost of goods sold
Other
1,037,443
518,993
92,088
182,918
87,843
30,153
0
125,448
1,373,099
529,442
92,602
176,988
99,431
44,391
0
430,245
1,420,809
471,132
98,253
180,000
92,000
40,000
0
539,424
1,445,332
485,455
108,453
180,000
92,000
40,000
0
539,424
268,093
143,131
24,013
44,209
20,507
7,429
0
28,804
261,971
127,081
23,037
47,794
21,739
8,785
0
33,535
296,007
136,307
24,058
43,547
20,692
9,335
0
62,068
346,221
142,569
22,939
43,544
26,371
12,333
0
98,465
370,464
127,783
22,521
46,397
26,184
12,723
0
134,856
93,255
61,330
31,925
28,661
40,018
133,584
120,485
34,839
27,998
6,841
-1,987
-20,937
-34,895
-62,181
149,267
46,273
102,994
102,994
89,560
149,267
141,267
233,166
72,282
160,885
160,885
139,900
233,166
225,166
27,774
14,483
13,291
13,389
7,200
12,000
14,386
37,413
23,747
13,666
11,899
17,313
28,855
5,268
34,358
16,320
18,038
17,771
-444
-740
5,210
-44,632
-373
-44,259
-46,092
-34,865
-58,109
-55,794
34,473
9,923
24,550
17,822
7,988
13,314
-21,237
36,692,990
2,082,754
1,965,920
116,834
17.6
1,915,000
1,715,000
16.4%
22.2%
34,238,724
2,055,336
1,894,407
160,929
16.7
2,050,861
1,850,861
---
37,312,417
2,129,029
1,968,100
160,929
17.5
2,124,554
1,924,554
---
40,444,000
2,260,612
2,099,683
160,929
17.9
2,256,137
2,056,137
---
33,300,907
2,061,486
1,946,339
115,147
16.2
1,963,000
1,763,000
17.3%
24.9%
36,692,990
2,082,754
1,965,920
116,834
17.6
1,915,000
1,715,000
16.4%
22.2%
39,713,079
2,101,667
1,984,833
116,834
18.9
2,134,000
1,934,000
16.2%
19.9%
36,935,671
2,037,558
1,876,629
160,929
18.1
2,050,000
1,850,000
15.8%
19.6%
33,494,863
2,061,475
1,900,546
160,929
16.2
2,057,000
1,857,000
12.9%
15.5%
8.2%
2.5%
91.8%
46.3%
54.3%
3.1%
1.4%
1.9%
3.4%
2.5%
-0.1%
97.5%
38.3%
68.5%
4.1%
-0.1%
-1.1%
-1.8%
9.5%
6.6%
90.5%
30.0%
73.7%
4.2%
4.9%
4.6%
4.1%
13.9%
9.6%
86.1%
28.9%
74.2%
4.2%
7.3%
6.9%
6.2%
9.4%
4.5%
90.6%
49.9%
57.4%
3.6%
2.6%
1.5%
1.8%
12.5%
4.0%
87.5%
43.7%
57.5%
3.3%
2.6%
3.5%
0.6%
10.4%
5.4%
89.6%
50.1%
62.9%
3.3%
3.4%
-0.1%
0.6%
-14.8%
-15.3%
114.8%
65.0%
59.2%
3.3%
-8.6%
-7.2%
-6.9%
8.5%
4.4%
91.5%
40.2%
78.6%
4.8%
4.8%
1.7%
-2.7%
5.7%
6.0%
5.7%
5.6%
6.2%
5.7%
5.3%
5.5%
6.2%
7.9
7.9
8.0
578
578
546
-0.5
-0.5
8.0
561
561
517
28.1
28.1
8.0
581
581
537
43.9
43.9
8.0
617
617
573
3.7
3.7
0.0
573
573
541
3.3
3.3
4.0
578
578
546
4.9
4.9
0.0
583
583
551
-12.6
-12.6
4.0
557
557
513
4.9
4.9
0.0
563
563
519
million
211
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Kian Abouhossein
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Amit Ranjan
(44-20) 7325-4780
amit.x.ranjan@jpmorgan.com
Macquarie Group
2009
2010
2011
2012E
2013E
2014E
938
4,045
1,080
3,721
1,275
3,891
1,396
3,350
1,366
3,361
1,221
3,653
409
583
132
85
1,209
-666
4,588
5,526
590
665
145
144
1,544
293
5,558
6,638
392
553
192
222
1,359
1,119
6,369
7,644
258
435
250
-83
860
1,048
5,258
6,655
278
490
282
0
1,050
688
5,099
6,465
306
540
311
0
1,157
631
5,441
6,662
-2,359
-4,537
-3,101
-5,344
-3,890
-6,373
-3,407
-5,683
-3,135
-5,339
-3,235
-5,522
989
-15
-70
904
-33
871
1,294
-201
-22
1,071
-21
1,050
1,271
-282
-7
982
-26
956
971
-248
23
747
-26
721
1,126
-263
27
890
-26
864
1,140
-266
27
901
-26
875
149,144
9,560
70,221
145,940
11,769
73,754
157,568
11,932
84,550
176,711
11,977
87,723
180,861
12,369
89,783
185,241
12,769
91,958
0.58
0.86
0.82
0.61
0.69
0.69
1.6
82.10
15.8
80.51
22.7
83.37
26.3
85.40
24.0
82.58
24.0
82.89
Rates Of Return
ROA
ROE
0.51
9.96
0.70
10.16
0.61
8.94
0.45
6.48
0.53
7.49
0.53
7.32
310.4
309.4
185
3,057
2,789
8.2
8.2
7.2
70
30
59.8
17.6
320.2
317.4
186
3,263
2,840
8.0
8.0
7.3
0
30
60.0
21.7
282.5
275.9
186
3,288
2,891
9.0
9.3
7.3
0
30
67.4
12.2
213.1
210.0
150
3,283
2,884
12.0
12.2
5.9
0
30
72.6
10.0
246.8
243.4
150
3,378
2,981
10.3
10.5
5.9
30
30
60.9
10.0
248.7
245.2
150
3,477
3,082
10.3
10.4
5.9
30
30
60.4
10.0
283.4
280.6
281.5
100%
344.2
327.9
340.8
100%
346.8
338.4
359.2
100%
349.2
338.4
343.3
100%
351.0
350.2
355.1
100%
352.5
351.8
356.7
100%
212
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Kian Abouhossein
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Amit Ranjan
(44-20) 7325-4780
amit.x.ranjan@jpmorgan.com
FY11A
FY12E
FY13E
681
11.2%
1,274
855
45.8%
419
-8.5%
1,955
18.0%
1,197
30.0%
785
12.7%
311
466
13.8%
58
13.8%
(13)
328
761
11.6%
1,305
1,028
20.3%
276
-34.0%
2,065
5.7%
1,305
9.0%
704
-10.3%
327
451
-3.3%
88
19.0%
(11)
342
805
5.8%
1,456
1,152
12.0%
304
10.0%
2,260
9.4%
1,435
10.0%
763
8.4%
339
536
18.9%
110
20.0%
(11)
406
FY11A
FY12E
FY13E
20,907
5.7%
311
21,952
5.0%
327
23,379
6.5%
339
593
50,941
581
53,093
570
55,880
24,441
11.4%
4,434
3,961
314
46,980
27,374
12.0%
4,966
4,144
303
48,949
30,933
13.0%
5,612
4,382
292
51,498
Ratio Analysis
FY14E mn millions, year end Mar
Per Share Data
880 EPS Reported
9.3% EPSAdjusted
1,615
% Change Y/Y
1,287 DPS
11.7%
% Change Y/Y
328 Dividend yield
8.0% Payout ratio
- BV per share
2,494 NAV per share
10.4% Shares outstanding
1,579
10.0% Return ratios
- RoRWA
208 Pre-tax ROE
-72.8% ROE
346 RoNAV
- Revenues
641 NIM (NII / RWA)
19.6% Non-IR / average assets
131 Total rev / average assets
0.0% NII / Total revenues
(12) Fees / Total revenues
491 Trading / Total revenues
FY14E mn millions, year end Mar
Cost ratios
25,483 Cost / income
9.0% Cost / assets
346 Staff numbers
- Balance Sheet Gearing
- Loan / deposit
- Investments / assets
558 Loan / assets
- Customer deposits / liabilities
59,610 LT Debt / liabilities
Asset Quality / Capital
35,263 Loan loss reserves / loans
14.0% NPLs / loans
- LLP / RWA
6,397 Loan loss reserves / NPLs
- Growth in NPLs
- RWAs
% YoY change
4,672 Core Tier 1
280 Total Tier 1
54,938
FY11A
FY12E
FY13E
FY14E
35.92
43.15
-4.4%
17.00
6.3%
47.3%
450
450.3
810.0
34.19
40.49
-6.2%
15.57
-8.4%
45.5%
437
436.5
880.0
44.45
47.56
17.5%
18.29
17.5%
41.2%
460
460.1
888.8
53.35
0.20
-99.6%
21.88
19.6%
41.0%
489
489.3
897.7
0.01
11.2%
7.3%
0.01
10.5%
7.4%
0.01
11.8%
9.1%
0.02
13.5%
10.4%
2.49%
2.61%
4.01%
34.86%
43.73%
21.42%
2.67%
2.51%
3.97%
36.83%
49.79%
13.38%
2.69%
2.67%
4.15%
35.60%
50.95%
13.45%
2.75%
2.80%
4.32%
35.26%
51.58%
13.16%
FY11A
FY12E
FY13E
FY14E
62.1%
0.0
-
65.4%
0.0
-
65.7%
0.0
-
65.5%
0.0
-
86.8%
41.7%
52.0%
12.0%
81.4%
42.0%
55.9%
7.5%
76.7%
42.4%
60.1%
2.8%
73.2%
43.3%
64.2%
(1.7%)
1.5%
1.3%
1.1%
78.3%
27,314
9.4%
-
1.5%
1.4%
1.1%
11.8%
28,468
4.2%
-
1.4%
1.5%
1.1%
9.6%
29,962
5.3%
-
1.3%
1.4%
1.1%
8.1%
31,962
6.7%
-
213
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Amit Ranjan
(44-20) 7325-4780
amit.x.ranjan@jpmorgan.com
FY10A
FY11A
FY12E
FY13E
21,384
1.7%
16,392
9,334
25.0%
7,059
16.0%
6,103
43,880
9.2%
-19,213
5.0%
(7,304)
17,363
3.0%
-4,802
13,018
44.6%
(3,856)
29.6%
(1,321)
7,841
20,567
-3.8%
17,492
10,080
8.0%
7,412
5.0%
4,325
42,384
-3.4%
-20,174
5.0%
(5,952)
16,258
-6.4%
-6,797
9,651
-25.9%
(2,757)
28.6%
(844)
6,050
18,655
-9.3%
18,541
10,685
6.0%
7,856
6.0%
2,370
39,566
-6.7%
(26,152)
13,413
-17.5%
-4,449
9,348
-3.1%
(2,804)
30.0%
(930)
5,614
17,999
-3.5%
19,654
11,326
6.0%
8,328
6.0%
2,356
40,009
1.1%
(25,218)
14,791
10.3%
-4,348
10,834
15.9%
(3,250)
30.0%
(1,000)
6,584
FY10A
FY11A
FY12E
FY13E
Balance sheet
in millions, year end Dec
ASSETS
Net customer loans
% change Y/Y
Loan loss reserves
Investments
Other interest earning assets
% change Y/Y
Average interest earnings assets
Goodwill
Other assets
Total assets
LIABILITIES
Customer deposits
% change Y/Y
Long term funding
Interbank funding
Average interest bearing liabs
Other liabilities
Retirement benefit liabilities
Shareholders' equity
Minorities
Total liabilities & Shareholders Equity
684,686
665,834
621,889
615,670
0.9%
-2.8%
-6.6%
-1.0%
26,671
27,958
32,407
36,756
1,074,433 1,037,266
985,403
936,133
96,286
107,751
102,363
97,245
-33.6%
11.9%
-5.0%
-5.0%
1,875,379 1,833,128 1,760,253 1,679,352
11,324
11,406
11,406
11,406
131,429
143,026
64,613
35,937
1,998,158 1,965,283 1,785,674 1,696,390
580,913
546,284
546,284
546,284
-4.0%
-6.0%
0.0%
0.0%
208,669
157,786
157,786
157,786
170,108
150,385
135,347
121,812
1,000,914
907,073
846,936
832,649
842,460
919,893
836,768
755,896
63,635
65,114
69,295
74,417
10,997
10,256
10,256
10,256
1,912,529 1,879,657 1,785,674 1,696,390
Ratio Analysis
in millions, year end Dec
Per Share Data
EPS Reported
EPSAdjusted
% Change Y/Y
DPS
% Change Y/Y
Dividend yield
Payout ratio
BV per share
NAV per share
Shares outstanding
Return ratios
RoRWA
Pre-tax ROE
ROE
RoNAV
Revenues
NIM (NII / RWA)
Non-IR / average assets
Total rev / average assets
NII / Total revenues
Fees / Total revenues
Trading / Total revenues
in millions, year end Dec
Cost ratios
Cost / income
Cost / assets
Staff numbers
Balance Sheet Gearing
Loan / deposit
Investments / assets
Loan / assets
Customer deposits / liabilities
LT Debt / liabilities
Asset Quality / Capital
Loan loss reserves / loans
NPLs / loans
LLP / RWA
Loan loss reserves / NPLs
Growth in NPLs
RWAs
% YoY change
Core Tier 1
Total Tier 1
FY10A
FY11A
FY12E
FY13E
6.58
5.05
6.61
6.83
30.3%
3.3%
2.10
1.20
40.0% (42.9%)
5.7%
3.3%
31.9% 23.8%
54
57
41.7
45.2
1,191.4 1,198.5
4.66
5.05
-26.2%
1.20
0.0%
3.3%
25.7%
60
48.5
1,204.0
5.35
5.30
5.0%
1.20
0.0%
3.3%
22.4%
63
51.6
1,230.4
0.01
12.9%
8.0%
10.8%
0.01
14.0%
8.7%
10.7%
0.01
20.4%
11.9%
16.6%
0.01
14.2%
9.1%
15.7%
3.56%
0.81%
2.16%
48.73%
21.27%
16.09%
3.35%
0.88%
2.14%
48.53%
23.78%
17.49%
3.35%
3.35%
1.30% 101.30%
2.11%
2.30%
48.53% 48.53%
23.78% 23.78%
17.49% 17.49%
FY10A
FY11A
FY12E
FY13E
58.8%
0.0
-
51.9%
0.0
-
63.8%
0.0
-
63.0%
0.0
-
117.9%
53.8%
39.1%
30.4%
10.9%
121.9%
52.8%
39.4%
29.1%
8.4%
113.8%
55.2%
40.6%
30.6%
8.8%
112.7%
55.2%
42.0%
32.2%
9.3%
3.7%
4.0%
5.0%
5.5%
6.3%
6.5%
0.8%
1.1%
0.7%
75.8% 67.6%
70.0%
5.0% 12.0% (3.4%)
601,271 614,000 609,718
-3.1%
2.1%
-0.7%
9.2%
9.6% 10.5%
11.4% 11.6%
12.5%
5.6%
6.5%
0.7%
70.0%
(0.0%)
607,894
-0.3%
11.5%
13.5%
214
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Kian Abouhossein
(44-20) 7325-1523
kian.abouhossein@jpmorgan.com
Amit Ranjan
(44-20) 7325-4780
amit.x.ranjan@jpmorgan.com
FY10A
FY11A
FY12E
FY13E
11,970
2.9%
14,447
7,485
-4.2%
5,374
467.5%
1,588
26,417
21.6%
-6,986
5.7%
(9,559)
9,872
65.5%
-4,160
5,831
4351.2%
(1,542)
26.9%
385
3,916
12,207
2.0%
13,431
7,179
-4.1%
4,432
-17.5%
1,820
25,638
-2.9%
-7,370
5.5%
(9,666)
8,602
-12.9%
-4,330
4,366
-25.1%
(1,323)
32.9%
405
2,384
9,356
-23.4%
14,425
7,323
2.0%
4,521
2.0%
2,582
23,781
-7.2%
-7,239
-1.8%
(9,666)
6,876
-20.1%
-3,795
3,225
-26.1%
(863)
28.0%
407
1,956
8,743
-6.6%
15,818
7,762
6.0%
4,792
6.0%
3,264
24,560
3.3%
-7,148
-1.3%
(9,763)
7,649
11.3%
-3,425
4,387
36.0%
(1,183)
28.0%
446
2,758
FY10A
FY11A
FY12E
FY13E
401,013
396,842
380,968
380,968
7.4%
-1.0%
-4.0%
0.0%
14,723
16,111
19,906
23,331
84,349
130,403
130,403
130,403
2.8%
54.6%
0.0%
0.0%
1,033,457 1,017,804 1,068,264 1,086,318
7,431
6,973
6,973
6,973
54,341
68,460
68,460
68,460
1,132,072 1,181,372 1,181,372 1,181,372
337,447
340,172
340,172
340,172
12.5%
0.8%
0.0%
0.0%
141,385
108,583
108,583
108,583
80,089
112,245
110,473
107,716
541,791
543,743
559,075
558,735
427,006
475,721
475,721
475,721
401,013
396,842
380,968
380,968
4,554
4,045
4,045
4,045
1,132,072 1,181,372 1,181,372 1,181,372
Ratio Analysis
in millions, year end Dec
Per Share Data
EPS Reported
EPSAdjusted
% Change Y/Y
DPS
% Change Y/Y
Dividend yield
Payout ratio
BV per share
NAV per share
Shares outstanding
Return ratios
RoRWA
Pre-tax ROE
ROE
RoNAV
Revenues
NIM (NII / RWA)
Non-IR / average assets
Total rev / average assets
NII / Total revenues
Fees / Total revenues
Trading / Total revenues
in millions, year end Dec
Cost ratios
Cost / income
Cost / assets
Staff numbers
Balance Sheet Gearing
Loan / deposit
Investments / assets
Loan / assets
Customer deposits / liabilities
LT Debt / liabilities
Asset Quality / Capital
Loan loss reserves / loans
NPLs / loans
LLP / RWA
Loan loss reserves / NPLs
Growth in NPLs
RWAs
% YoY change
Core Tier 1
Total Tier 1
FY10A
FY11A
FY12E
FY13E
5.33
3.16
5.34
3.61
-1184.4%
-32.3%
1.75
0.00
600.0% (100.0%)
7.5%
0.0%
32.8%
61
62
38.9
42.6
737.4
756.0
2.59
3.30
-8.7%
0.00
0.0%
65
45.1
756.0
3.65
3.65
10.5%
0.00
0.0%
68
48.8
756.0
0.02
22.9%
11.0%
14.4%
0.01
15.5%
6.0%
8.9%
0.01
11.6%
4.7%
7.5%
0.01
14.1%
6.3%
7.8%
3.58%
1.34%
2.45%
45.31%
28.33%
20.34%
3.49%
1.16%
2.22%
47.61%
28.00%
17.29%
2.79%
1.22%
2.01%
39.34%
30.79%
19.01%
2.08%
1.34%
2.08%
35.60%
31.60%
19.51%
FY10A
FY11A
FY12E
FY13E
62.5%
0.0
-
63.4%
0.0
-
67.9%
0.0
-
68.9%
0.0
-
99.2%
50.0%
42.9%
29.8%
12.5%
102.7%
47.3%
44.6%
28.8%
9.2%
2.9%
5.4%
1.3%
54.1%
11.6%
334,795
3.3%
8.3%
10.6%
98.7% 123.7%
48.6% 48.7%
43.3% 43.3%
28.8% 28.8%
9.2%
9.2%
3.1%
4.0%
4.0%
5.4%
7.2%
7.2%
1.3%
1.1%
0.9%
57.4% 55.8% 55.8%
1.7% 27.7%
0.0%
349,300 335,838 420,886
4.3%
-3.9% 25.3%
9.0% 10.0% 10.8%
10.7% 11.7% 12.5%
215
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Kian Abouhossein
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Amit Ranjan
(44-20) 7325-4780
amit.x.ranjan@jpmorgan.com
FY09A
FY10A
FY11E
FY12E
14,290
18.0%
9,659
4,776
8.6%
5,055
-158.6%
17,943
12.5%
5,762
73.6%
-4,690
1,497
28.0%
(209)
14.0%
(322)
1,124
14,894
4.2%
7,196
4,896
2.5%
5,447
7.8%
20,130
12.2%
6,943
20.5%
-3,776
2,609
74.3%
(875)
33.5%
(489)
1,266
15,670
5.2%
7,950
5,190
6.0%
5,260
-3.4%
20,595
2.3%
7,136
2.8%
-4,884
565
-78.4%
(1,390)
246.1%
(382)
(1,193)
14,716
-6.1%
8,641
5,605
8.0%
5,536
5.3%
18,559
-9.9%
5,599
-21.6%
-4,124
2,622
364.2%
(664)
25.3%
(482)
1,476
FY09A
FY10A
FY11E
FY12E
Balance sheet
in millions, year end Dec
ASSETS
Net customer loans
% change Y/Y
Loan loss reserves
Investments
Other interest earning assets
% change Y/Y
Average interest earnings assets
Goodwill
Other assets
Total assets
LIABILITIES
Customer deposits
% change Y/Y
Long term funding
Interbank funding
Average interest bearing liabs
Other liabilities
Retirement benefit liabilities
Shareholders' equity
Minorities
Total liabilities & Shareholders Equity
Ratio Analysis
FY13E in millions, year end Dec
Per Share Data
16,260 EPS Reported
10.5% EPSAdjusted
8,641
% Change Y/Y
5,605 DPS
0.0%
% Change Y/Y
4,736 Dividend yield
-14.5% Payout ratio
- BV per share
19,015 NAV per share
2.5% Shares outstanding
- Return ratios
- RoRWA
6,262 Pre-tax ROE
11.9% ROE
-3,834 RoNAV
3,583 Revenues
36.7% NIM (NII / RWA)
(947) Non-IR / average assets
26.4% Total rev / average assets
(510) NII / Total revenues
2,126 Fees / Total revenues
Trading / Total revenues
FY13E in millions, year end Dec
Cost ratios
321,296 Cost / income
-5.0% Cost / assets
14,323 Staff numbers
- Balance Sheet Gearing
- Loan / deposit
- Investments / assets
-17,766 Loan / assets
- Customer deposits / liabilities
1,617,461 LT Debt / liabilities
Asset Quality / Capital
655,112 Loan loss reserves / loans
-4.8% NPLs / loans
603,701 LLP / RWA
214,996 Loan loss reserves / NPLs
717,443 Growth in NPLs
- RWAs
% YoY change
12,800 Core Tier 1
6,400 Total Tier 1
1,617,461
FY09A FY10A
0.49
0.53
-0.48
0.59
0.85
0.67
0.82
1.23
0.75
0.85
41.7% 22.2% 49.5% -39.0% 13.9%
0.45
0.45
0.00
0.00
0.00
0.0%
0.0% (100.0%)
9.2%
9.2%
0.0%
0.0%
0.0%
91.5% 84.2%
19
19
18
18
19
9.7
10.3
9.7
10.2
11.1
2,285.9 2,367.6 2,469.3 2,492.1 2,492.1
0.00
3.4%
2.6%
7.2%
0.01
5.8%
2.8%
8.3%
0.01
1.3%
-2.7%
12.4%
0.00
5.8%
3.3%
7.5%
0.01
7.6%
4.6%
8.0%
71.45%
0.23%
1.12%
79.64%
26.62%
27.21%
82.24%
0.33%
1.28%
73.99%
24.32%
11.43%
82.47%
0.29%
1.22%
76.09%
25.20%
13.40%
77.45%
0.22%
1.06%
79.29%
30.20%
16.36%
85.58%
0.17%
1.15%
85.51%
29.48%
15.97%
FY09A FY10A
68.5% 66.6%
0.0
0.0
71,725 77,648
85.3%
44.0%
45.0%
38.4%
11.5%
82.4%
43.3%
46.6%
38.4%
5.2%
87.8%
42.9%
46.9%
41.2%
10.7%
82.4%
43.1%
46.7%
38.5%
4.9%
82.5%
42.9%
46.8%
38.6%
4.5%
1.1%
0.8%
1.0%
0.8%
0.7%
3.6%
4.3%
4.0%
4.0%
4.0%
1.4%
1.1%
1.3%
1.0%
0.9%
42.9% 33.0% 33.0% 32.4% 31.8%
22.7% 30.2% (0.2%)
2.0%
2.0%
326,400 371,700 385,700 417,843 415,608
-3.6% 13.9%
3.8%
8.3% -0.5%
9.3%
8.4%
8.1%
8.2%
8.5%
9.5% 10.6%
9.8%
9.8% 10.1%
216
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Kian Abouhossein
(44-20) 7325-1523
kian.abouhossein@jpmorgan.com
Amit Ranjan
(44-20) 7325-4780
amit.x.ranjan@jpmorgan.com
FY11A
FY12E
FY13E
12,689
-10.6%
10,832
8,484
3.4%
3,636
-33.6%
24,809
-11.0%
-15,778
-5.6%
9,031
-19.1%
7,439
0
-1,010
27.5%
1,250
(123.8%)
28
(1,997)
12,578
-0.9%
9,854
7,786
-8.2%
3,337
-8.2%
23,701
-4.5%
-14,758
-6.5%
8,942
-1.0%
5,098
0
2,050
-303.0%
940
45.9%
28
782
12,445
-1.1%
9,694
6,791
-12.8%
2,911
-12.8%
22,147
-6.6%
-13,296
-9.9%
8,851
-1.0%
3,990
0
4,312
110.3%
1,568
36.4%
28
2,316
FY11A
FY12E
FY13E
454,112
-9.7%
19,451
753,881
478,430
14,858
1,506,867
468,147
3.1%
18,505
718,340
461,130
14,858
1,476,730
436,146
-6.8%
16,451
732,206
452,147
14,858
1,461,962
414,143
-3.4%
162,621
69,113
645,877
1,234
-
443,701
7.1%
151,548
64,407
659,655
1,234
-
437,733
-1.3%
149,513
63,542
650,788
1,234
-
Ratio Analysis
in millions, year end Dec
Per Share Data
EPS Reported
EPSAdjusted
% Change Y/Y
DPS
% Change Y/Y
Dividend yield
Payout ratio
BV per share
NAV per share
Shares outstanding
Return ratios
RoRWA
Pre-tax ROE
ROE
RoNAV
Revenues
NIM (NII/Loans)
Total rev / average assets
NII / Total revenues
Fees / Total revenues
Trading / Total revenues
in millions, year end Dec
Cost ratios
Cost / income
Cost / assets
Balance Sheet Gearing
Loan / deposit
Investments / assets
Loan / assets
Customer deposits / liabilities
LT Debt / liabilities
Asset Quality / Capital
Loan loss reserves / loans
NPLs / loans
LLP/ Loans
Loan loss reserves / NPLs
Growth in NPLs
RWAs
% YoY change
Core Tier 1
Total Tier 1
FY11A
FY12E
FY13E
-1.85
(0.19)
-133.5%
0.00
0.0%
68
47.7
110,228.0
0.72
1.79
-1029.3%
0.00
68
48.1
111,028.0
2.11
2.35
31.3%
0.00
70
49.8
111,828.0
(0.4%)
(3.7%)
-2.7%
-3.7%
0.2%
1.0%
1.5%
0.5%
3.0%
4.2%
2.65%
1.68%
51.15%
34.20%
14.66%
2.73%
1.59%
53.07%
32.85%
14.08%
2.75%
1.51%
56.19%
30.67%
13.14%
FY11A
FY12E
FY13E
56.8%
0.0
55.5%
0.0
59.8%
0.0
109.7%
0.0%
30.1%
27.5%
10.8%
105.5%
0.0%
31.7%
30.0%
10.3%
99.6%
0.0%
29.8%
29.9%
10.2%
4.5%
8.1%
(1.7%)
53.0%
(5.0%)
439,000
-5.7%
10.6%
13.0%
4.1%
6.3%
(1.1%)
63.1%
(20.0%)
473,923
8.0%
10.5%
12.8%
3.9%
5.4%
(0.8%)
70.1%
(20.0%)
504,458
6.4%
10.3%
12.5%
217
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Kian Abouhossein
(44-20) 7325-1523
kian.abouhossein@jpmorgan.com
Amit Ranjan
(44-20) 7325-4780
amit.x.ranjan@jpmorgan.com
FY11A
FY12E
FY13E
40,662
3.1%
43,385
17,160
-1.1%
8,537
18.4%
2,735
68,119
-0.6%
-41,545
10.2%
2,735
42,502
0.4%
-12,127
21,872
14.9%
(3,928)
18.0%
(1,147)
16,224
38,703
-4.8%
39,507
17,034
-0.7%
7,190
-15.8%
3,029
67,620
-0.7%
-39,530
-4.9%
3,029
38,681
-9.0%
-10,233
24,436
11.7%
(4,977)
20.4%
(1,189)
17,676
38,651
-0.1%
39,249
17,284
1.5%
6,976
-3.0%
3,247
68,369
1.1%
-38,442
-2.8%
3,247
39,458
2.0%
-9,204
24,848
1.7%
(5,123)
20.6%
(1,240)
17,865
FY11A
FY12E
FY13E
940,429
-1.9%
17,511
1,107,730
2.2%
2,048,159
29,034
2,555,579
986,051
4.9%
17,375
1,125,392
1.6%
2,111,443
29,034
2,639,850
1,038,860
5.4%
16,755
1,208,999
7.4%
2,247,859
29,034
2,776,367
1,253,925
2.1%
161,619
7,368
2,555,579
1,339,639
6.8%
161,619
7,368
2,639,850
1,425,047
6.4%
161,619
7,368
2,776,367
Ratio Analysis
$ in millions, year end Dec
Per Share Data
EPS Reported
EPSAdjusted
% Change Y/Y
DPS
% Change Y/Y
Dividend yield
Payout ratio
BV per share
NAV per share
Shares outstanding
Return ratios
RoRWA
Pre-tax ROE
ROE
RoNAV
Revenues
NIM (NII/Loans)
Total rev / average assets
NII / Total revenues
Fees / Total revenues
Trading / Total revenues
$ in millions, year end Dec
Cost ratios
Cost / income
Cost / assets
Balance Sheet Gearing
Loan / deposit
Investments / assets
Loan / assets
Customer deposits / liabilities
LT Debt / liabilities
Asset Quality / Capital
Loan loss reserves / loans
NPLs / loans
LLP/ Loans
Loan loss reserves / NPLs
Growth in NPLs
RWAs
% YoY change
Core Tier 1
Total Tier 1
FY11A
FY12E
FY13E
0.92
0.71
-3.7%
0.40
17.7%
5.2%
43.6%
9
7.1
17,868.0
0.98
0.83
17.9%
0.45
12.5%
5.0%
46.0%
9
7.7
18,287.0
0.96
0.95
14.2%
0.50
11.1%
5.6%
51.8%
10
8.2
18,763.5
1.4%
14.3%
10.6%
10.4%
1.4%
14.8%
10.7%
11.4%
1.3%
13.9%
10.0%
12.2%
4.28%
2.72%
59.69%
25.19%
11.10%
4.02%
2.60%
57.24%
25.19%
13.09%
3.82%
2.52%
56.53%
25.28%
13.44%
FY11A
FY12E
FY13E
49.4%
-0.0
50.5%
-0.0
49.3%
-0.0
75.0%
36.8%
49.1%
-
73.6%
37.4%
50.7%
-
72.9%
37.4%
51.3%
-
1.4%
42.1%
48.0%
1,209,514
9.7%
10.1%
11.5%
1.4%
81.3%
(48.6%)
1,233,692
2.0%
11.0%
12.4%
1.2%
80.4%
(2.4%)
1,448,190
17.4%
10.3%
11.4%
218
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Kian Abouhossein
(44-20) 7325-1523
kian.abouhossein@jpmorgan.com
Amit Ranjan
(44-20) 7325-4780
amit.x.ranjan@jpmorgan.com
FY11A
FY12E
FY13E
10,153
7,484
17,637
9.8%
-9,917
9.9%
7,720
9.7%
-908
-111
6,775
10.7%
(1,842)
(185)
4,748
12.2%
10,934
8,239
19,173
8.7%
-10,665
7.5%
8,508
10.2%
-1,092
0
7,515
10.9%
(2,179)
(230)
5,105
7.5%
11,921
9,081
21,003
9.5%
-11,570
8.5%
9,433
10.9%
-1,201
0
8,349
11.1%
(2,421)
(264)
5,664
11.0%
FY11A
FY12E
FY13E
263,765
599,070
295,374
660,633
342,701
661
599,070
382,339
661
660,633
Ratio Analysis
$ in millions, year end Dec
Per Share Data
EPS Reported
EPSAdjusted
DPS
BV per share
NAV per share
Shares outstanding
Return ratios
RoRWA
ROE
RoNAV
Revenues
NIM (NII / Average Loans)
NII / Total revenues
Total rev / average assets
FY11A
FY12E
FY13E
2.05
1.98
68
17.08
14.12
2,384
2.18
2.10
83
18.31
15.39
2,420
2.38
2.29
90
19.61
16.75
2,463
14.6%
14.4%
14.4%
FY11A
FY12E
FY13E
270,510
10.4%
11.8%
294,302
8.8%
12.0%
341,527
16.1%
11.5%
219
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Kian Abouhossein
(44-20) 7325-1523
kian.abouhossein@jpmorgan.com
Amit Ranjan
(44-20) 7325-4780
amit.x.ranjan@jpmorgan.com
FY09A
FY10A
FY11E
FY12E
17,616
-9.1%
9,956
7,781
-14.4%
1,803
-191.6%
373
27,572
2.6%
-9,098
-8.3%
(6,227)
12,248
20.3%
-8,313
-609
3,300
-39.5%
(1,009)
30.6%
(332)
1,702
16,128
-8.5%
9,946
8,455
8.7%
1,053
-41.6%
438
26,074
-5.4%
-9,205
1.2%
(6,119)
10,750
-12.2%
-6,892
-1,128
2,412
-26.9%
(595)
24.7%
(321)
1,321
15,959
-1.1%
9,628
8,542
1.0%
758
-28.0%
328
25,587
-1.9%
-9,325
1.3%
(6,197)
10,065
-6.4%
-6,366
-9,520
-6,377
-364.4%
(1,652)
(25.9%)
(352)
(9,180)
16,503
3.4%
10,000
8,929
4.5%
743
-2.0%
328
26,503
3.6%
-9,296
-0.3%
(6,054)
11,153
10.8%
-6,070
-260
4,827
-175.7%
(1,866)
38.6%
(357)
2,285
FY09A
FY10A
FY11E
FY12E
Balance sheet
in millions, year end Dec
ASSETS
Net customer loans
% change Y/Y
Loan loss reserves
Investments
Other interest earning assets
% change Y/Y
Average interest earnings assets
Goodwill
Other assets
Total assets
LIABILITIES
Customer deposits
% change Y/Y
Long term funding
Interbank funding
Average interest bearing liabs
Other liabilities
Retirement benefit liabilities
Shareholders' equity
Minorities
Total liabilities & Shareholders
Equity
564,986
555,653
567,550
583,109
-7.8%
-1.7%
2.1%
2.7%
8,313
6,892
6,366
6,070
133,894,000,0 122,551,000,0 122,551,000,0 122,551,000,0
00
00
00
00
64,273
96,148
96,148
96,148
-1.5%
49.6%
0.0%
0.0%
853,409
850,981
862,878
878,437
25,823
25,592
16,693
16,693
49,528
928,760
52,913
929,486
52,913
932,484
52,913
948,042
381,623
-1.8%
214,773
106,800
888,409
34,336
0
59,689
3,202
390,239
2.3%
193,000
111,735
827,177
38,965
0
64,224
3,479
381,104
-2.3%
176,618
149,402
828,895
38,965
0
55,070
3,479
378,944
-0.6%
190,508
141,151
836,709
38,965
0
67,150
3,479
928,760
929,488
932,484
948,042
Ratio Analysis
FY13E in millions, year end Dec FY09A FY10A FY11E
Per Share Data
17,322 EPS Reported
0.10
0.07
-1.59
5.0% EPSAdjusted
0.11
0.07 (0.08)
10,292
% Change Y/Y
-73.8% -35.1% -224.5%
9,221 DPS
0.03
0.03
0.00
3.3%
% Change Y/Y
0.0% (100.0%)
743 Dividend yield
1.7%
1.7%
0.0%
0.0% Payout ratio
29.6% 43.8%
328 BV per share
2
20
7
27,614 NAV per share
2.0
20.0
6.6
4.2% Shares outstanding
16,779.7 1,929.0 5,789.1
-9,335
0.4% Return ratios
(5,968) RoRWA
0.00
0.00
-0.02
12,311 Pre-tax ROE
5.4%
3.7% (10.1%)
10.4% ROE
2.9%
1.9% -0.8%
-5,987 RoNAV
5.7%
3.6% -1.3%
-260
6,067 Revenues
25.7% NIM (NII / RWA)
3.89% 3.53% 3.44%
(2,085) Non-IR / average assets
34.4% Total rev / average assets
2.79% 2.81% 2.75%
(404) NII / Total revenues
63.89% 61.85% 62.37%
3,259 Fees / Total revenues
28.22% 32.43% 33.38%
Trading / Total revenues
6.54% 4.04% 2.96%
FY13E in millions, year end Dec FY09A FY10A FY11E
Cost ratios
599,874 Cost / income
55.6% 58.8% 60.7%
2.9% Cost / assets
0.0
0.0
0.0
5,987 Staff numbers
122,551,000,0
00
96,148 Balance Sheet Gearing
0.0% Loan / deposit
148.0% 142.4% 148.9%
895,202 Investments / assets
6.9% 10.3% 10.3%
16,693 Loan / assets
60.8% 59.8% 60.9%
Customer deposits /
52,913 liabilities
44.1% 45.3% 43.6%
964,808 LT Debt / liabilities
24.8% 22.4% 20.2%
Asset Quality / Capital
376,910 Loan loss reserves / loans
5.3%
5.9%
6.2%
-0.5% NPLs / loans
9.7% 11.4% 11.5%
205,008 LLP / RWA
1.8%
1.5%
1.4%
142,648 Loan loss reserves / NPLs
51.5% 49.0% 50.7%
845,431 Growth in NPLs
37.9% 16.9%
2.8%
38,965 RWAs
452,388 456,662 463,876
0
% YoY change
-7.2%
0.9%
1.6%
69,951 Core Tier 1
7.6%
8.5%
8.6%
3,479 Total Tier 1
8.6%
9.4%
9.5%
FY12E
FY13E
0.39
0.45
-627.6%
0.08
3.0%
20.0%
9
8.7
5,789.1
0.56
0.62
37.6%
0.11
42.6%
4.3%
20.0%
9
9.2
5,789.1
0.00
7.5%
4.2%
6.1%
0.01
8.4%
5.2%
7.1%
3.09%
2.82%
62.27%
33.69%
2.80%
3.13%
2.89%
62.73%
33.39%
2.69%
FY12E
FY13E
57.9%
0.0
-
55.4%
0.0
-
153.9%
10.1%
61.5%
159.2%
10.0%
62.2%
43.2%
21.7%
42.3%
23.0%
6.3%
6.3%
11.1%
10.5%
1.1%
1.1%
53.5%
56.4%
(1.0%) (2.0%)
534,152 554,086
15.2%
3.7%
9.3%
9.5%
10.5%
10.6%
964,808
220
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Kian Abouhossein
(44-20) 7325-1523
kian.abouhossein@jpmorgan.com
Amit Ranjan
(44-20) 7325-4780
amit.x.ranjan@jpmorgan.com
FY10A
FY11A
FY12E
16,010
-11.3%
20,869
14,160
6.6%
3,166
-29.5%
288
36,879
-11.3%
23,951
-5.0%
0
12,928
-21.1%
1,837
11,105
155.2%
(2,521)
22.7%
(53)
6,745
16,952
5.9%
20,837
14,185
0.2%
3,564
12.6%
-110
37,789
2.5%
23,225
-3.0%
0
14,564
12.7%
-982
15,546
40.0%
(3,045)
19.6%
(37)
11,124
17,733
4.6%
22,373
14,696
3.6%
3,869
8.6%
468
40,106
6.1%
23,385
0.7%
0
16,721
14.8%
1,198
15,523
-0.2%
(3,570)
23.0%
(48)
11,905
FY10A
FY11A
FY12E
Balance sheet
Skr in millions, year end Dec
ASSETS
Net customer loans
% change Y/Y
Loan loss reserves
Investments
Other interest earning assets
% change Y/Y
Average interest earnings assets
Goodwill
Other assets
Total assets
LIABILITIES
Customer deposits
% change Y/Y
Long term funding
Interbank funding
Average interest bearing liabs
Other liabilities
Retirement benefit liabilities
Shareholders' equity
Minorities
Total liabilities & Shareholders Equity
Ratio Analysis
FY13E Skr in millions, year end Dec
Per Share Data
18,497 EPS Reported
4.3% EPSAdjusted
23,617
% Change Y/Y
15,428 DPS
5.0%
% Change Y/Y
4,243 Dividend yield
9.7% Payout ratio
461 BV per share
42,114 NAV per share
5.0% Shares outstanding
23,896
2.2% Return ratios
0 RoRWA
18,218 Pre-tax ROE
9.0% ROE
1,275 RoNAV
16,943 Revenues
9.2% NIM (NII / RWA)
(3,897) Non-IR / average assets
23.0% Total rev / average assets
(63) NII / Total revenues
12,983 Fees / Total revenues
Trading / Total revenues
FY10A
FY11A
FY12E
FY13E
3.07
3.97
261.8%
1.50
50.1%
3.2%
48.8%
45
39.3
2,194.0
5.07
5.68
43.0%
1.75
16.7%
3.7%
34.5%
50
43.6
2,194.0
5.43
5.43
-4.5%
2.00
14.3%
4.2%
36.9%
53
47.0
2,194.0
5.92
5.92
9.1%
2.25
12.5%
4.7%
38.0%
57
50.7
2,194.0
0.01
11.2%
8.8%
10.1%
0.02
14.9%
11.9%
13.7%
0.02
13.7%
10.5%
12.0%
0.02
14.0%
10.8%
12.1%
0.76%
0.93%
1.64%
43.41%
43.41%
8.58%
0.79%
0.92%
1.66%
44.86%
44.86%
9.43%
0.77%
0.94%
1.68%
44.22%
44.22%
9.65%
0.80%
0.98%
1.74%
43.92%
43.92%
10.08%
FY10A
FY11A
FY12E
FY13E
64.9%
0.0
-0
61.5%
0.0
-0
58.3%
0.0
-0
56.7%
0.0
-0
151.1%
3.2%
49.3%
34.2%
25.5%
137.7%
2.5%
50.2%
38.2%
26.2%
139.0%
2.5%
51.2%
38.7%
26.5%
140.3%
2.6%
52.7%
39.6%
26.8%
221
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Kian Abouhossein
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Amit Ranjan
(44-20) 7325-4780
amit.x.ranjan@jpmorgan.com
FY09A
FY10A
4,795
5,633
5.1% 17.5%
454
1,574
662
813
1.1% 22.9%
-636
484
-760.2% -176.0%
428
277
5,248
7,207
-13.1% 37.3%
-2,407 -3,131
-11.2% 30.1%
0
0
2,842
4,076
-14.6% 43.4%
-4,873 -1,699
-2,152
2,341
-396.0% -208.8%
274
(537)
12.7% 22.9%
(120)
112
(1,997)
1,916
FY09A
FY10A
FY11E
FY12E
7,057
8,575
25.3% 21.5%
2,640
2,889
1,260
1,718
54.9% 36.4%
129
650
-73.4% 404.4%
1,251
520
9,696 11,464
34.6% 18.2%
-4,359 -5,191
39.2% 19.1%
0
0
5,338
6,273
31.0% 17.5%
-1,203 -1,745
4,183
4,528
78.7%
8.3%
(938)
(906)
22.4% 20.0%
39
(81)
3,284
3,541
FY11E
FY12E
173,056
20.2%
-10,709
19,792
31,946
14.3%
191,279
4,633
21,351
250,778
FY09A
FY10A
FY11E
FY12E
FY13E
-0.46
0.37
0.63
0.68
0.89
(0.46)
0.37
0.63
0.68
0.89
-910.8% -178.8% 71.4%
7.8% 30.9%
0.04
0.04
0.06
0.07
0.09
27.0% (1.6%) 62.7% 12.3% 27.7%
0.8%
0.8%
1.3%
1.5%
1.9%
-8.3% 10.4%
9.9% 10.3% 10.0%
3.15
3.35
2.99
3.76
4.58
3.1
3.3
3.0
3.8
4.6
5,230.3 5,230.3 5,230.3 5,230.3 5,230.3
-0.02
(14.4%)
-14.5%
-14.5%
0.02
13.4%
11.3%
11.3%
0.02
21.9%
19.8%
19.8%
0.02
20.4%
20.1%
20.1%
0.02
22.1%
21.2%
21.2%
FY10A
FY11E
FY12E
FY13E
45.9%
0.0
40,447
43.4%
0.0
51,781
44.9%
0.0
64,726
45.3%
0.0
64,726
42.5%
0.0
64,726
222
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Kian Abouhossein
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Amit Ranjan
(44-20) 7325-4780
amit.x.ranjan@jpmorgan.com
FY08A FY09A
123
-41.1%
2,032
1,620
-5.8%
85
-74.3%
2,220
-14.1%
-913
11.7%
1,242
-28.1%
-148
1,095
-32.2%
(101)
9.3%
(60)
933
Balance sheet
E in millions, year end Dec
ASSETS
Net customer loans
% change Y/Y
Loan loss reserves
Investments
Other interest earning assets
% change Y/Y
Average interest earnings assets
Goodwill
Other assets
Total assets
LIABILITIES
Customer deposits
% change Y/Y
Long term funding
Interbank funding
Average interest bearing liabs
Other liabilities
Retirement benefit liabilities
Shareholders' equity
Minorities
Total liabilities & Shareholders Equity
75
-39.2%
1,345
772
-52.3%
136
61.0%
1,463
-34.1%
-743
-18.6%
676
-45.6%
-58
618
-43.6%
(20)
3.2%
(46)
552
FY08A FY09A
0
0
5,945 6,494
699
701
1,883 2,213
10,419 11,020
0
0
737
696
0
0
1,496 1,383
214
206
10,419 11,020
Ratio Analysis
FY10E FY11E FY12E E in millions, year end Dec
Per Share Data
828
981 1,043 EPS Reported
1010.2% 18.4% 6.3% EPSAdjusted
2,273 1,731 2,109
% Change Y/Y
1,123 1,487 1,841 DPS
45.5% 32.4% 23.8%
% Change Y/Y
1,145
238
261 Dividend yield
738.9% -79.2% 9.7% Payout ratio
- BV per share
4,558 4,303 4,890 NAV per share
211.6% -5.6% 13.7% Shares outstanding
-1,346 -1,419 -1,510
81.1%
5.4% 6.4% Return ratios
- RoRWA
1,756 1,293 1,641 Pre-tax ROE
159.8% -26.4% 26.9% ROE
-178
-101
-85 RoNAV
1,578 1,192 1,557 Revenues
155.4% -24.4% 30.6% NIM (NII / RWA)
(364) (173) (227) Non-IR / average assets
23.1% 14.5% 14.6% Total rev / average assets
(198) (216) (239) NII / Total revenues
1,016
803 1,091 Fees / Total revenues
Trading / Total revenues
FY10E FY11E FY12E E in millions, year end Dec
Cost ratios
8,945 10,370 11,805 Cost / income
- 15.9% 13.8% Cost / assets
- Staff numbers
20,052 21,083 21,835
- Balance Sheet Gearing
- Loan / deposit
- Investments / assets
2,233 2,233 2,233 Loan / assets
3,401 3,698 4,002 Customer deposits / liabilities
43,516 46,063 48,492 LT Debt / liabilities
Asset Quality / Capital
30,143 32,275 34,085 Loan loss reserves / loans
7.1% 5.6% NPLs / loans
696
658
642 LLP / RWA
441
530
636 Loan loss reserves / NPLs
- Growth in NPLs
2,208 2,609 2,763 RWAs
% YoY change
- Core Tier 1
1,024 1,024 1,024 Total Tier 1
43,516 46,063 48,492
FY08A
FY09A
2.41
1.44
2.41
1.44
-27.7% -40.1%
0.64
1.00
(41.1%) 57.3%
2.2%
3.4%
26.4% 69.4%
21
23
18.8
21.0
387.9
382.7
12.7%
10.8%
11.3%
7.4%
6.6%
7.2%
FY10E
FY11E
FY12E
2.65
2.10
2.65
2.10
84.1% -21.0%
1.19
1.05
19.5% (12.2%)
4.1%
3.6%
45.0% 50.0%
24
23
17.7
17.6
382.7
382.7
2.85
2.85
35.9%
1.43
35.9%
4.8%
50.0%
24
18.6
382.7
17.8%
11.5%
13.7%
17.0%
11.9%
15.8%
13.3%
8.9%
11.9%
FY09A
FY10E
FY11E
FY12E
42.4%
0.1
-
52.4%
0.1
-
43.4%
0.0
-
52.3%
0.0
-
47.9%
0.0
-
57.1%
-
58.9%
-
29.7%
46.1%
20.6%
90.0%
-
32.1%
45.8%
22.5%
89.5%
-
34.6%
45.0%
24.3%
89.4%
-
223
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Kian Abouhossein
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Amit Ranjan
(44-20) 7325-4780
amit.x.ranjan@jpmorgan.com
FY10
2.3%
93.2%
2.2%
FY11
2.5%
94.3%
2.3%
FY12E
2.6%
95.1%
2.4%
FY13E
2.8%
95.3%
2.7%
81,141
66,115
52,001
90,169
68,501
59,259
106,805
75,352
65,185
134,586
86,654
74,963
14,114
147,256
9,242
158,670
10,166
182,157
11,691
221,241
Operating costs
-58,598
-66,172
-77,461
-89,150
Pre-Prov. Profits
Provisions
Other Inc/Exp. (treasury Income)
Exceptionals
88,658
-43,969
8,662
0
92,498
-22,868
-2,023
0
104,696
-16,473
-2,500
0
132,091
-34,406
2,000
0
53,351
13,103
40,248
FY10
36.10
12.00
33.2%
462.99
1,114.89
67,607
16,093
51,514
FY11
44.72
14.00
31.3%
478.29
1,151.82
85,723
22,717
63,006
FY12E
54.70
19.00
34.7%
510.77
1,151.82
99,684
27,413
72,271
FY13E
62.75
24.00
38.2%
545.43
1,151.82
FY10
1,924,847
56,395
1,868,451
94,807
523,247
192,807
3,461,539
3,634,655
FY11
2,316,197
76,269
2,239,928
100,333
696,384
163,476
3,630,570
4,062,336
FY12E
2,730,603
88,742
2,641,860
113,772
765,857
171,650
4,166,192
4,702,057
FY13E
3,160,553
112,234
3,048,319
143,890
838,887
205,717
4,824,275
5,424,745
Deposits
Long-term bond funding
Other Borrowings
Avg. IBL
Avg. Assets
Common Equity
RWA
Avg. RWA
2,020,826
942,635
252,559
3,039,247
3,713,832
516,184
2,941,806
3,253,218
2,256,021
1,095,543
312,172
3,157,512
3,848,496
550,909
3,414,980
3,178,393
2,614,497
1,315,407
357,172
3,640,734
4,382,197
588,311
4,029,676
3,722,328
3,167,013
1,418,074
357,172
4,257,495
5,063,401
628,239
4,634,128
4,331,902
Pre-tax
Tax
Minorities
Other Distbn.
Attributable Income
Per Share Data Rs
EPS
DPS
Payout
Book value
Fully Diluted Shares
Growth Rates
FY14E
2.8% Loans
95.3% Deposits
2.7% Assets
Equity
161,023 RWA
105,718 Net Interest Income
91,455 Non-Interest Income
of which Fee Grth
14,263 Revenues
266,741 Costs
Pre-Provision Profits
-103,972 Loan Loss Provisions
Pre-Tax
162,770 Attributable Income
-40,739 EPS
2,000 DPS
0
Balance Sheet Gearing
124,030 Loan/deposit
34,108 Investment/assets
- Loan/Assets
- Customer deposits/liab.
89,922 LT debt/liabilities
FY14E Asset Quality/Capital
78.07 Loan loss reserves/loans
29.00 NPLs/loans
37.1% Specific loan loss reserves/NPLs
589.57 Growth in NPLs
1,151.82 Tier 1 Ratio
Total CAR
FY14E Du-Pont Analysis
3,853,094 NIM (as % of avg. assets)
135,535 Earning assets/assets
3,717,559 Margins (as % of Avg. Assets)
173,763 Non-Int. Rev./ Revenues
935,986 Non IR/Avg. Assets
254,956 Revenue/Assets
5,705,767 Cost/Income
- Cost/Assets
6,552,346 Pre-Provision ROA
LLP/Loans
3,982,889 Loan/Assets
1,628,355 Other Prov, Income/ Assets
357,172 Operating ROA
5,098,165 Pre-Tax ROA
5,988,545 Tax rate
679,079 Minorities & Outside Distbn.
5,653,636 ROA
5,143,882 RORWA
Equity/Assets
ROE
FY10
-16.4%
0.4%
-4.2%
4.2%
-17.5%
-3.0%
5.0%
-12.8%
(7.4%)
-16.8%
16.3%
15.5%
7.1%
6.9%
9.1%
FY11
19.9%
7.8%
11.8%
6.7%
16.1%
11.1%
3.6%
14.0%
11.6%
12.9%
4.3%
-48.0%
28.0%
23.9%
16.7%
FY10
92.5%
14.4%
49.9%
64.8%
25.9%
FY10
-3.0%
5.1%
-59.5%
-1.8%
14.0%
19.4%
FY10
2.3%
93.2%
2.2%
41.0%
1.8%
4.0%
39.8%
-1.6%
2.4%
-2.1%
55.2%
0.2%
2.4%
1.4%
0.0%
1.1%
1.2%
13.6%
8.0%
FY11
99.3%
17.1%
53.3%
64.3%
27.0%
FY11
-3.4%
4.5%
-76.0%
5.8%
13.2%
19.5%
FY11
2.5%
94.3%
2.3%
40.8%
1.8%
4.1%
41.7%
-1.7%
2.4%
-1.1%
53.4%
-0.1%
2.4%
1.8%
0.0%
1.3%
1.6%
13.9%
9.7%
FY12E
101.0%
16.3%
54.3%
63.6%
28.0%
FY12E
-3.4%
4.3%
-78.0%
13.4%
13.2%
20.3%
FY12E
2.6%
95.1%
2.4%
39.2%
1.7%
4.2%
42.5%
-1.8%
2.4%
-0.7%
55.7%
-0.1%
2.4%
2.0%
0.0%
1.4%
1.7%
13.0%
11.1%
FY13E
96.3%
15.5%
54.1%
66.0%
26.1%
FY13E
-3.7%
4.7%
-78.0%
26.5%
12.3%
18.5%
FY13E
2.8%
95.3%
2.7%
37.2%
1.7%
4.4%
40.3%
-1.8%
2.6%
-1.2%
56.2%
0.0%
2.6%
2.0%
0.0%
1.4%
1.7%
12.0%
11.9%
FY14E
93.3%
14.3%
54.7%
67.8%
24.9%
FY14E
-3.6%
4.7%
-78.0%
20.8%
11.0%
16.1%
FY14E
2.8%
95.3%
2.7%
37.6%
1.8%
4.5%
39.0%
-1.7%
2.7%
-1.2%
56.5%
0.0%
2.7%
2.1%
0.0%
1.5%
1.7%
10.9%
13.8%
224
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Kian Abouhossein
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Amit Ranjan
(44-20) 7325-4780
amit.x.ranjan@jpmorgan.com
FY11A
49,614
(1,4423)
35,191
19,047.0
3,540
(32,621)
(3,840)
191
21,508
(5,860)
(192)
(813)
(20)
14,623
14,643
4387.34
FY11A
FY12E
53,229
(1,6548)
36,681
21,340.6
4,103
(34,511)
(3,941)
100
23,773
(6,419)
(357)
(780)
0
16,217
16,217
5676.10
FY12A
FY13E
59,046
(1,8256)
40,790
23,688.1
4,578
(37,617)
(4,296)
0
27,143
(7,600)
(407)
(842)
0
18,293
18,293
7317.39
FY13E
3.24
1.80
15.81
0.97
8.47
0.52
3.59
1.96
18.14
1.26
10.08
0.70
4.05
2.19
20.57
1.62
10.83
0.85
12.6%
11.4%
10.1%
17.1%
19.7%
10.9%
12.0%
5.8%
15.1%
15.8%
12.8%
11.0%
9.0%
14.6%
15.9%
11.7%
(58.4%)
6.5%
(0.07)
1.14
(39.6%)
1.4
40.6%
0.1
30.0%
10.7%
(61.8%)
6.4%
(0.07)
1.15
(38.7%)
1.4
41.1%
0.1
35.0%
10.5%
(63.0%)
6.2%
(0.07)
1.15
(38.0%)
1.4
41.7%
0.1
40.0%
Balance Sheet
Securities
Cash and Due from Banks
Interbank Investment
Loan and Leasing Operatings
Other Receivables and Assets
Permanent Asset
Total assets
Total deposits
Demand deposits
Savings deposits
Interbank deposits
Time deposits
Interest bearing liabilities
Other Current Liabilities
Total Liabilities
Shareholders' equity
Valuation, Macro
P/E
P/BV
Dividend yield
ROE
ROA
Shares
ADRs
FY11A
187,880
10,633
21,5005
319,711
106,193
11,910
851,332
242,638
2,8933
6,7170
2066
14,4469
381,587
155,760
779,985
71,347
FY12E
211,461
11,968
24,1990
368,537
119,521
12,892
966,368
281,052
3,3101
7,6845
2364
16,8743
421,176
182,252
884,480
81,888
FY13E
236,836
13,404
27,1029
423,344
135,059
14,181
1,093,852
325,642
3,8066
8,9141
2694
19,5742
463,293
212,052
1,000,988
92,864
FY11A
11.9
2.3
2.5%
22.7%
1.9%
FY12A
10.7
2.0
3.3%
21.6%
1.8%
FY13E
9.5
1.8
4.2%
20.9%
1.8%
4,514
4,514
4,514
4,514
4,514
4,514
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Coverage Universe: Abouhossein, Kian: Credit Suisse Group (CSGN.VX), Deutsche Bank (DBKGn.DE), Deutsche Postbank
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J.P. Morgan Equity Research Ratings Distribution, as of January 6, 2012
Overweight
(buy)
47%
52%
45%
72%
Neutral
(hold)
42%
45%
47%
62%
Underweight
(sell)
12%
36%
8%
58%
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