2012 GIBs AlixPartners

DECEMBER 2012
From Steroids to Fair Play Global Investment Bankings Long Road to Industrialization
2012 AlixPartners, LLP
Table Of Contents:
INTRODUCTION: A NEW BALL GAME BASIC TRAINING: A NEED FOR REAL RESTRUCTURING THE OBJECT OF THE GAME: A FOCUS ON FUNDAMENTALS FINANCIAL STEROIDS: THE LONG-TERM COST OF SHORT-TERM RETURNS RUNNING THE SAME PLAYS: THE PERSISTENCE OF GIB BUSINESS MODELS THE NUMBERS GAME: TRENDS IN PERFORMANCE NEW RULES: RECOMMENDATIONS FOR GIBS IN THE PENALTY BOX: GROWING WITH SCARCE RESOURCES A NEW PLAYBOOK: 10 STEPS TOWARD INDUSTRIALIZATION WINNING THE GAME: THE FUTURE OF INVESTMENT BANKING 1 5 10 13 17 27 33 38 43 50
From Steroids to Fair Play: GIBs Long Road to Industrialization
Introduction: A New Ball Game

lobal investment banks (GIBs) have thrived for years. Over time, the industry developed a culture that defined a new era of prosperity. Images of the high-flying high-finance lifestyle, embodied in the fictional character Gordon Gekko in the movie Wall Street, came to define the publics perception of the industry. Conspicuously successful, GIBs attracted the best and brightest from across the world. Those days are over. Since the global economic crisis, GIBs and the bankers who run them have been denounced in the media as having contributed to if not having caused the largest financial meltdown since the Great Depression, triggering massive government-led bailouts. Today, the panic of the crisis years may have subsided, but the damage to the industry remains.
GIBs now face several serious threats: T he GIB industrys new normal is marked by an overcapacity problem shrinking revenue pools coupled with sub-scale cost structures; A s some encourage a return to GlassSteagall-era laws, as well the introduction of more innovative rules and regulations, various lines of GIB business are likely to suffer or disappear, and investment banks that have elected to focus on BIS III capital-light businesses (such as advisory and underwriting) are discovering that demand may still prove elusive in the confusedly ring-fenced postcrisis GIB world; A mid continued scandals and workforce reductions, GIBs reputational damage and resulting reduced attractiveness (both to clients and to talent) is harming its intangible goodwill.
Cover Illustration: Opus Artz Ltd.

Widely considered untouchable just a few years ago, GIBs face an uncertain future. Just look at the auto manufacturing and commercial aviation industries, where over the past two decades, changes in regulatory and operating environments combined to render formerly solid businesses into perpetual wards of the bankruptcy court. GIBs future could play out in a similar manner, only without the goodwill of a public and government who blame the industry for the excesses of the pre-crisis era. Still, the GIB industry was born and developed to perform crucial global financial functions that benefit the overall economy by steering it down the most optimal path to growth, wealth, and social wellbeing. For all of the weaknesses they may have shown, strong investment banks and bankers are essential. They must survive, but they also must transform. Having abandoned, whether by virtue or by necessity, many
of the past practices that led to outsized short-term profits despite unmanageable levels of risk, GIBs must now embrace a long road to the industrialization. They must revamp their main lines of business and raise front-to-back productivity at all levels. They must learn to do more with less and do it faster and more efficiently. GIBs will need to reach out into new revenue and profit pools, found mostly in middle markets and private clients, but also in certain alternative geographies, moving from financial to operational to commercial leverage. Bankers will have to chase more clients, with production factories and cost-to-serve structures at a fraction of previous ones. They will need to realize considerable cost synergies by sharing/ pooling cost structures and product/services platforms across multiple businesses or even among competing banks localizing the factories in the cheapest to deliver country, stretching their manufacturization as much as possible.

They must give up their version of steroidsthose performanceenhancing drugs of high leverage, principal investing, and conflicts of interestthat they had taken to such destructive effect. Like athletes today, GIBs that want to continue to compete must play fair. A new, holistic management of the overall GIB value chain is needed, with a dynamic approach focused directly on its truly value-added components, allowing some unbundling of the business model through open platforms. Given the need for a paradigm shift across the industry, merely focusing on sweet spots, low-hanging fruit, and new arbitrage opportunities wont suffice. CEOs will need to resist the temptation to look for quick fixes, and try instead to build their future performance on a more sustainable basis. To accomplish this, we propose 10 Steps Toward Industrialization. GIBs that address each of these points as part of a larger strategic plan can lead the way toward the future of their industry.

10 STEPS TOWARD INDUSTRIALIZATION
To impact the top line in the short to mid terms Smart investment banking Mid-market extension Proactive restructuring New intermediation corridors Continuous innovation Internal marketplace development Sharing and pooling of platforms Productivity benchmarking and revised compensation systems Objective strategic advice offerings New culture and new bankers
To impact the bottom line in the short to mid terms
To impact intangibles in the medium to long terms
The time for change has come. The GIB Industrial Revolution has begun.
Basic Training: A Need For Real Restructuring

A new regulatory framework, increasing compliance costs, and more stringent constraints are compounding the effects of a low-growth economy characterized by new and unforeseen risks. With a 31% fall in revenues, from 2009 to date 1, the once prosperous and powerful business of investment banking seems to have fallen through the floor, scaring debt-holders (with Lehman early on and MF Global more recently); scaring shareholders (with targeted, sustainable ROE collapsing from the high twenties to the low single digits); and, finally, scaring everyone, as governments and supranational institutions could be called in again to save the banks that are too big to fail in order to avoid a global financial meltdown. Investment-banker compensation has also come under close scrutiny. There is outrage at its current levels, but GIB compensation in the years before the global financial crisis was in fact much higher. This is true for all staff but especially for managing directors. Indeed, we estimate that what GIB critics might call an overpayment effect globally was approximately $24 billion in 2007; in 2011, it was still $18 billion, or 28% of aggregate profit before tax 2. This means that, even though average GIB compensation has been cut by more than 25% in the last five years, the gap between GIB employee compensation and that of comparable workers in other industries, such as asset management, is still 20-30%.
2
Total estimated investment banking revenues. Source: Deutsche Bank Applying the London-based inputs analyzed in table 1 to our universe of global investment banks: the Top 15 players representing over 80% of the global Capital Markets & Investment Banking market.

TABLE 1 - A PRELIMINARY GLOBAL INVESTMENT BANKING: PURE GAMBLING OR TABLE 1: GLOBAL INVESTMENT BANKING: PROFESSIONAL SOCCER REDUX SOCCER BUSINESS?
[Comprehensive also of Supporting Roles ] (2007 2011, %, Index, 2007 = 100)
Cost Per Employee
Wall Street Bankers Average Compensation

[Focus on Front Office roles] (2007 2011, %, Index, 2007 = 100)
- 27%
- 38%
100 73
100
62 81
- 56%
36
19
2007 2011 2007
+37%
26
2011
Base
Bonus
Barclays, RBS, Senior Vice President ,Vice President, Associate roles compensation TABLE 1Goldman - B Sachs, Morgan Stanley GLOBAL INVESTMENT BANKING: PROFESSIONAL SOCCER REDUX?
www.alixpartners.com
Source: AlixPartners analysis of GIB annual reports; panel analyzed is comprised of the following players: UBS, Credit Suisse, JP Morgan,
Source: AlixPartners analysis of Investment Banking Compensation Survey, PRELIMINARY Wall Street Comps 2007, 2009, 2011, based on weighted average of MD,
(2011, %, Index, GIB compensation =100)
GIB vs. Other Industries Front Office Roles Compensation
(2011, %, Index, GIB compensation =100)
GIB vs. Other Industries Supporting Roles Compensation
100 74
100
27
92
21
50
70
80
16
79
15
38
39 73 71 64 64
50
36
31
Asset Management
Global Investment Banking
Management Consulting
Global Investment Banking
Wealth Management & Funds
Insurance
Retail Banking
Base
Bonus
Base
Bonus
Source: AlixPartners benchmarking for front office employees based in London
Source: AlixPartners analysis on The Michael Page Financial Services Salary Survey, 2012; analysis focused on Compliance and Audit roles

For many years the GIB industry has been characterized by cost structures that are sometimes compared to professional soccer very high across the board, and especially for the star players. However, countering that, successive rounds of workforce reductions and cuts in overall GIB compensation have started to take effect. We estimate a crude 15X25 rule is being applied by the industry 15% layoffs 3, times 25% reductions in average compensation, with the noticeable exception of the City of London, which by the end of 2012 will apparently have lost 100,000 jobs since 2007 4 (a reduction of almost 30%). And even that may not be the end of it. This strategy does not, however, mean that things are working out. Front-to-back productivity is depressingly low, and the return on capital wont be healthy any time soon, especially as more
3 4
layers of red tape and regulation are implemented (table 2). Even the significant investments that have been made in regions such as Asia, on the premise of its inevitable boom given its substantial GDP growth, have yet to pay off and are being revisited in light of the structure of the regions industry (currently heavily dependent on IPOs and equity, and still lacking a large base of loyal, recurring buyers of investment banking products and services). The costcutting strategy is just buying time, protracting the slow, but inevitable, disappearance into irrelevance of a business that badly needs to be reinvented.
Based on public announcements of 10 large players in the industry Centre for Economics and Business Research, May 2012

TABLE - A TAPE AND REGULATIONS TO COME (AND INCREASING BY THE HOUR) TABLE 2: 2 RED RED TAPE AND REGULATIONS TO COME (AND INCREASING BY THE HOUR)
Country/ Key aspects for GIBs Regulation Area Basel III Global Substantial increase of amount and quality of regulatory capital as (but with % of RWA notable local (1) exceptions) Potential impact Expected reduction in ROE given greater amount of equity requested and lower leverage allowed Expected timeline Gradual phase-in to January 2019 but markets/regulators have "forced" an early adoption and local ones are pushing higher finishes January 2018 NIM compression given January 2015 lower expected return from liquid assets Increased funding costs January 2018 given banks will have to term out funding Expected reduction in July 2014 trading revenues Reduced profitability of derivatives; lower volumes foreseen 2013?
PRELIMINARY
Introduction of a leverage ration based on total assets to control balance sheet growth that may not capture in RWA Introuction of a liquidity ratio to ensure banks can withstand a 30-day period of market illiquidity Introduction of a net stable funding ratio aimed at ensuring that most assets are supported by stable funds Dodd-Frank U.S. Adoption of the so called "Volcker Rule" to prevent or limit proprietary trading and direct investments in hedge and private equity funds by banks Requirement for most derivatives trading to be centrally cleared through a regulated approved clearing house and for all swaps subject to this requirement to be executed on a regulated exchange or through a "swap execution facility" Requirement for banks to retain a minimum tranche of each securitization executed Requirement for most derivatives trading to be centrally cleared through an approved clearing house and for all swaps subject to this requirement to be executed on a regulated exchange or through a "swap execution facility" Proposal by the European Commission to introduce a financial transaction tax (FTT) by 2014. The tax would impact transactions between financial institutions charging 0.1% for shares and bonds trading and 0.01% for derivative contracts Mandatory ring-fencing of U.K. banks retail banking operations coupled with higher capital requirements. Banks will be required to establish a separate legal entity to provide retail and commercial banking services and to have more capital than what is mandated by Basel III. All U.K. headquartered banks will be required to operate with a minimum leverage ratio of 3%. Proprietary trading and other significant trading activities should be assigned to a separate legal entity if these activities amount to a signi cant share of a banks business. Banks should build up a sufficiently large layer of potentially bail able in debt. Bail-in instruments should also be used in remuneration schemes for top management so as to better align decision-making with longer-term performance of their banks. Apply more robust risk weights in the determination of minimum capital standards and more consistent treatment of risk in internal models.
Country/ EMIR / MIFID II Europe
Potentially positive as it could re-open the securitization market Reduced profitability of derivatives; lower volumes foreseen Lower transaction volumes foreseeable / shift of business out of continental Europe Expected reduction in ROE given greater amount of equity requested 2013 2015 for MIFID?
Tobin Tax
Europe
Vickers Report
U.K.
11 member states have agreed to pursue the proposal; timing TBA; France has already introduced its own and Italy is planning to do same Complete necessary legislation by May 2015 Implementation by 2019
Liikanen Report
Europe
Expected reduction in trading revenues
Increased funding costs foreseen given investors will likely price in bail-in risk Expected reduction in ROE given potential increase of RWA
Still to be determined whether these suggestions will be endorsed by the Barniers commission and turned into legislation
(1) For instance in the U.K., the FSA recently informed banks that they will not be required to hold any extra capital against new U.K. loans that qualify for the funding for lending scheme. In addition, U.K. banks will no longer be required to achieve and maintain a core ratio of 10% by the end of next year but have been set a numerical target for capital. These countercyclical measures were taken to avoid rapid deleveraging and support lending to households and businesses.

TABLE 2-B TABLE 2 (CONTINUED) VOLCKER, VICKERS, LIIKANEN : A SUMMARY COMPARISON
VOLCKER RULE VICKERS REPORT LIIKANEN REPORT
Trading Entity
Bank
Prop Trading
Swap push out
Bank
Retail & Commercial Banking
Deposit Bank
> Derivatives trading to be operated from a separate entity > Substantial limits on proprietary trading and investment in hedge funds and private equity funds by banks > Some exemptions however apply Investments in govies, agencies or muni bonds are allowed Hedging activities are allowed > The distinction between proprietary trading and hedging is not entirely clear and could potentially allow GIBs to maintain significant market risk (and losses) as in recent hedging cases
1
> Primary focus is on retail and commercial banking activities, not on Investment Banking and trading > Retail and commercial banks should be ring-fenced via a separate legal entity within the Group > Such an entity would: Have to adhere to higher capital levels than what is mandated by Basel III Not be allowed to carry out prop trading and market making activities, or engage in derivatives transactions Have to limit its exposure to other parts of the Group
> Mandatory separation of trading activities only if they amount to a signi cant share of a banks business > Trading activities include market making, investment in private equity funds and exposures to hedge funds and Special Investment Vehicles > Deposit-taking and the offer of payment services are activities reserved to Deposit Banks > Deposit banks can also undertake limited trading activities: Client-driven transactions with narrow risks Securities underwriting
Over 100 bn or 15-25% of total assets
10
The Object Of Game: A Focus on Fundamentals

Advisors, practitioners, and commentators of all sorts have offered easy explanations for GIBs declining performance along with quick fixes for getting the banks back on track. Even restructuring is becoming a buzzword just another euphemism for cost-cutting. But the real question facing GIBs now isnt why arent they making as much money as they once did, but rather why were they so successful in the first place? Lets take a step back. Global financial systems, as is generally agreed at the academic level, are supposed to perform six fundamental functions for the benefit of the wider economic system: H elping to provide certainty and speed in clearing and settling payments related to the global commerce and capital trading that rest at the core of modern capitalism;
H elping to pool funds for large, indivisible projects and subdividing into shares of ownership and equity at risk of enterprises to facilitate diversification H elping to transfer excess financial resources across time and space via market-tradable instruments, as opposed to the traditional lending of commercial banks; H elping to manage risks through a variety of ways, including hedging and diversification to ultimately transfer them to their best available holder; H elping to source, develop and provide information to markets that help in performing valuations and in decentralising decision-making at the firm level; F inally, helping to address incentive problems when
11

one party to a transaction has exclusive valuable information, or when one acts as agent for another principal. These six functions, in turn, drive the strategic and operational behavior of the main financial market participants, down to the level of their offerings and service/product innovation. GIBs have traditionally played a significant role in almost all of them. Starting usually with the provision of just one or two of these fundamental functions, global investment banks have tended to get involved in as many areas as possible pursuing strategic visions that highlighted the benefit of one-stop shopping, selective conglomerate diversification, multi-business, multisynergies, and many other such buzzwords. In fact, as highlighted in table 3, most of the financial players are now doing (or trying to do) a bit of everything, with questionable results. In our view, the case for clear-cut synergies derived from
bringing everything under the same umbrella is far from clear, while the financial risks and the reputational issues are difficult to ignore. The fundamental goal underpinning the six fundamental functions the optimal allocation of scarce resources to maximize the sustainable growth rate of the world economy and the prosperity of its population has gotten lost in the development processes of the last few decades, because so many players wanted to contribute to so many functions, with all the conflicts of interest and lack of transparency such an ambition entails.
12

TABLE 3 PRELIMINARY FUNCTIONS AND PLAYERS AT THE CORE OF THE GLOBAL TABLE 3: FUNCTIONS AND PLAYERS AT THE CORE OF THE GLOBAL FINANCIAL SYSTEM FINANCIAL SYSTEM
FUNCTIONS PLAYERS
Clearing, Settlement & Payments Pooling Resources / Indivisible Projects Wealth Reallocation in Time / Space Risk Management / Diversification Best Market Information / Price Discovery Incentive Issues / Asymmetric Information Clearing, Settlement & Payments
Commercial Banks
N/M
Investment Banks
N/M
Pooling Resources / Indivisible Projects
Asset Managers
N/M
Wealth Reallocation in Time / Space
Life Insurance
N/M
Risk Management / Diversification
General Insurance Shadow Banking Players

Level of presence in any given function
N/M
Best Market Information / Price Discovery
N/M
Incentive Issues / Asymmetric Information
Synergies between functions None High Medium Low
Very High
High
Medium
Low
Focus of selective Business Models
13
Financial Steroids: The Long-Term Cost of Short-Term Returns

Investment banking, as we have come to know it, was based on an unsustainable model. High leverage, risky bets, and a period of poor oversight boosted the shortterm returns of GIBs, much as steroids enhance the shortterm performance of athletes. In particular, investment banks relied on: L everage. GIBs profited, as did many others, from the cheap funding enabled by the easy monetary policies set by the worlds major central banks (primarily the U.S. Federal Reserve). But much more than anyone else, they pushed leverage to its limits 5: not just in terms of quantity (measured by
5
ratios such as total assets/ shareholders equity), but also of quality (measured by such numbers such as the duration gap, building highly mismatched asset/ liabilities term structures, such as the kind that recently took down MF Global). The strategy was simple enough: until you make a basic, positive ROI on any business, you can multiply its related ROE, adding as much debt as you can, thus shifting the same equity risk to debtholders. And you can further carry trade that debt, if you borrow in the least yielding currency (e.g., the dollar or the yen) and invest in others that offer more priced reference interest rates (e.g., emerging markets). If you do
The explosion of financial assets and their growing proportion as a percentage of worlds GDP implied a quasi-automatic natural increase in revenues for GIB. Taking derivatives as an example, a very profitable area for investment banks; their total notional amount grew from $111 trillion in 2001 to $596 trillion in 2007 (source: Bank of International Settlements).
14

it on the short term, you can invest in longer maturities, given the typical upward sloping nature of the yields-tomaturities curve. P rincipal investing. GIBs profited, as did many other investors (most of them in the so-called shadow banking system of private investment funds), by directly putting their money at risk in any kind of asset, from financial instruments, to real estate, to commodities and so on, given the long expansion cycle that lasted until the early days of the crisis. This workeduntil it didnt. The enabling circumstance was the vast quantity of money being pumped into the economy by central banks and its multiplication by the banking system through cheap and easily available credit. But even more than the shadow players, the global investment banks were able to profit from these emergent asset bubbles by structuring, slicing, and selling them before it was
too late in a sort of assetmanagement version of musical chairs. They also profited by exploiting leverage and, more importantly, the very same conflicts of interest they were supposed to address for the benefit of the economy (i.e. the sixth of the global fundamental functions focused on incentive problems). C onflicts of interest. GIBs, it has been argued, profited from knowing more than they should and failing to be transparent about their market knowledge. Often, by stretching the notion of Chinese walls beyond any definition offered by compliance professionals, it has been said they used this knowledge to outsmart their counterparts in any single trade. It has even been said that investment banking is a business built on conflicts of interest, and cases of moral hazard and adverse selection were thus discussed for years in academia and played out on the Street for even longer.
15

And, it has been argued that GIBs were more embedded in the gambling culture of winner takes all than any organizational arrangements, compliance procedures, or risk management systems could detect and prevent. This was the final touch that many say made the GIBs house of cards fall as leverage and principal investing were built on reputation. This is why GIB players wanted to put their fingers in so many pies: to get into the function of transferring resources across time and space (through, for example, the issuing of debt, its securitization and sale, or through an outright commercial banking aggregation), thereby further facilitating their own hyper-leverage. Providing market information (through, for example, their equity/ debt research and sales) also factored into this, enabling them to guide (or at times misguide) markets. And, finally, their investment banking and capital markets businesses (the so-called
private and public sides) were in a position to arbitrage away easy opportunities built on asymmetric information. Sensitive employees could in fact have been beyond the wall, but their bosses at some level were of course on the top of it, and with a clear incentive to look through it. Of course, these were the worst excesses and hubris of just a few (now mostly defunct) players. But that was enough to burst many of the asset bubbles and to initiate a chain reaction of systemic failures that threatened to destroy the global financial system. After the political interventions to save the too big to fail players and the reams of new regulations, the GIB industry is now on its knees because of its high costs, the low-growth macroeconomic environment, the dislocation of capital markets, the European debt crisis, the American fiscal cliff, and many, many other much-discussed factors. But
16

fundamentally, GIB is on its knees because it finally had to stopand stop for goodusing financial steroids and reverse its prioritization of short-term profit making over long-term viability and sustainability.
17
Running The Same Plays: The Persistence of GIB Business Models

Five years after the onset of the global financial crisis, the hangover appears to continue, compounded by a host of new regulations being written and rewritten almost daily. Revenues have decreased and continue to fall. At the same time, cost incomes have continued to rise, reducing net income and payable dividends.
PRELIMINARY
TABLE 4 BUSINESS AND THE VALUE CREATION IN GIB, PRE AND POST CRISIS TABLE 4: THE
Market Capitalization (1)
(2007 2011, %, billion)
THE BUSINESS AND THE VALUE CREATION IN GIB, PRE AND POST CRISIS
- 57%
327 1,042
776 593
2007
Asset-Driven Universal
Capital Raised
Market Loss
2011
102 549 167 224
56 355 58 124
Liability-Driven Universal
Pure Players Regional Players
(1) Of AlixPartners Global Investment Banking Universe Source: AlixPartners analysis of Capital IQ data for market capitalization, financial statements, press releases, Credit Suisse for capital raised.
Based on these crude numbers, market capitalizations have decreased significantly from over 1 trillion to ~600 billion (a 57% value destruction if we also take into account the
capital raised in the period) in the time horizon considered (table 4). Such loss of value is also the result of other detrimental factors, such as:
18

T he lower expected sustainable growth rate of the global economy and of the mature home markets that host many GIBs, and of the GIB industry itself; T he increased cost of risk (and of equity premiums) now considered for the global stock market and for this sector in particular compounded by higher capital requirements; F inally, the impaired intangible goodwill associated with the GIB industry, in the wake of the continuous stream of scandals that keep popping up by the week (table 5). Still, as they say, theres nothing new under the sun, and the major banks are still fighting for the few deals and businesses that are left in the market. In fact, it seems the current taxonomy
PRELIMINARY
TABLE 5 TABLE 5: RECENT MEDIA EVENTS THAT HAVE IMPACTED GIB BRAND EQUITY RECENT MEDIA EVENTS THAT HAVE IMPACTED GIB BRAND EQUITY
Player UBS MF Global Date Issue September 2011 Unauthorized trading incident in the ETF Equity desk November 2011 $6.3 billion proprietary investment in Peripheral European bonds via REPO agreements contributed to a massive liquidity crisis and mark-to-market losses February 2012 Banks apparently robo-signed thousands of foreclosure documents without properly reviewing paperwork May 2012 Inappropriate hedging activities of the CIO Office June 2012 Manipulation of LIBOR reference rates June 2012 Accused of covering up billions of dollars in fund transfers that violated U.S. sanctions against Cuba and Iran July 2012 August 2012 August 2012 Investigated by U.S. regulators for laundering funds of sanctioned nations including Iran and Sudan Under investigation for suspected LIBOR-rigging
BofA, Wells Fargo, JP Morgan, Citi JP Morgan Barclays ING

HSBC HSBC, RBS, Citi, DB, JPMorgan, UBS Standard Chartered BofA
Economic Impact $ 2.3 billion Company Bankruptcy and $1.6 billion of customers money $25 billion $5.8 billion $452 million $619 million $1.9 billion TBD
(*)
$667 million Allegations that the bank schemed to hide transactions that breached sanctions with Iran, Sudan, Libya and Burma $2.4 billion
September 2012 Some investors had argued that Bank of America made false or misleading statements about the financial health of the two banks at the time of the Merrill Lynch acquisition October 2012 Civil lawsuit charges against Bear Stearns, a bank bought by JPMorgan in 2008, arguing deception over mortgagebacked securities.
JPM
$297 million
Source: companies public announcements, press releases/articles (*) Potential additional $1.7billion in losses over the rest of the year as reported by the Company on July 2012
19

of business models could have been written in 2007, with just a few amendments. We grouped the top 15 GIBs 6 according to three key dimensions, namely business model, geographical scope, and scale (table 6). Logically, the greater the scale achieved and the greater the weight in emerging markets, the better off a banks position should be. However, neither is having an appreciable impact on productivity or profitability, as many GIBs have recently experienced first-hand in Asia and in the Middle East.
TABLE 6 TABLE 6: INVESTMENT BANKING BUSINESS MODELS: NOTHING NEW UNDER THE SUN INVESTMENT BANKING BUSINESS MODELS: NOTHING NEW UNDER THE SUN
Main Features
Global presence and complete/wide offering of services High Private Banking relevance Global presence and complete/wide offering of services Lending & Transaction Services presence Global players purely focused on CM&IB activities UBS CREDIT SUISSE
36%
PRELIMINARY
Analyzed Players
Revenue Mix CM&IB

21% 44% ~100%
% CM&IB 1
JP MORGAN BANK OF AMERICA MERRILL LYNCH HSBC BARCLAYS CITIGROUP DEUTSCHE BANK
Liability-Driven Universal
20% 16% 64% 21% 27%
15%
85% ~100%
Pure Players
GOLDMAN SACHS MORGAN STANLEY
52% 15%
Regional Players
Players focused and relevant just on a specific geographical region (macro-area) Players focused just on few CM&IB activities (e.g. advisory) and/or on a specific country
BNP PARIBUS STANDARD CHARTERED RBS NOMURA

24%
25%
SOCIETE GENERALE EVERCORE BANCA IMI MACQUARIE

10
60%
FICC & S&T Equities & S&T Advisory & Underwriting
75%
Pure CM&IB Revenues Rest of Business Units Revenues
BTG PACTUAL JEFFERIES
The Others
CHINA CITIC BANK
Primary Research Focus
Representing over 80% of the global Capital Markets & Investment banking market.
20

Our analysis, then, is focused on the main business models taken into consideration: Liability-driven global universal/investment banking groups. This cluster, which includes JP MorganChase, Bank of America-Merrill Lynch, HSBC, Citigroup, Deutsche Bank, and Barclays, is characterised by global reach, product breadth, and scale. In addition, the existence of commercial banking and investment banking under the same roof should allow synergies, driven by the exploitation of the lending power of the commercial parent and of the global connectivity of its transaction services business, to enable cross- and up-selling of investment banking products and services. A sset-driven global universal/investment banking groups. This cluster, made up by the two big Swiss banks, UBS and Credit Suisse, is characterized by
synergies that are sought at the intersections of investment banking and private banking and, potentially, asset management, with a much lighter recourse to the lever of balance-sheet lending to try to originate (and usually subsidize) GIB mandates. Of course, while multiple business and organizational solutions have at least on paper been tried by these and other players, a full-blown execution of this idea appears unfinished. P ure investment banking players or whatever is left of them. This cluster is the one that suffered the most from the crisis. Apart from Goldman Sachs and Morgan Stanley in the United States, it appears that there are no other global players of scale left (given Nomuras retreat to Japan). A number of minor players, specializing in the pure broker-dealer business model (comprising capital markets and investment banking, e.g. Jefferies (table 7) in the United States ) are rapidly
21

rising through the ranks, and with some success in profitability and market value, often specializing in their home domestic markets (either mature or emerging) or in mid-market clients, or both. They are therefore trying to intermediate the ongoing reallocation between the old stocks of wealth accumulated in the developed countries (in need of redeployment at interesting expected yields) and the new flows of wealth
TABLE 7 TABLE 7: SUCCESS STORY: JEFFERIES SUCCESS STORY: JEFFERIES
Key Information Jefferies is a global investment bank founded over 50 years ago as an equity trading company focused on serving large institutions that wanted to trade without impacting the public market. Later Jefferies specialized in helping to grow mid-sized corporates In its history Jefferies has progressively diversified its portfolio of activities in terms of geographies and businesses, including: Buying a global commodities and financial derivatives brokerage in 2011 (Bache Global Commodities) from Prudential Financial Investing together with the government of Singapore in a commercial real estate initiative Je eries goal is to become one of the top 10 U.S. investment banks, taking advantage of the issues faced by many leading players Today Jefferies has 30 offices globally, ~3,900 employees and a market cap of ~$3 billion It has substantially improved its league table position in the recent past, moving from 32nd for global IB fees in 2009 to 17th in 2011, with best rankings in M&A and American Investment Banking (12th in both) 1,
1Source:
being created in developing countries (in need of the debt financing and equity capital required for sustaining growth).
PRELIMINARY
Revenues ($ million)
2.500
2.100 2.200 1.500
2009
2010
2011
H1 2012
Net Profit ($ million)
310 240
290
170
Thomson Reuters Global Investment Banking Review
2009
2010
2011
H1 2012
22

Regional players. This cluster is made up of players with a main focus and particular relevance 7 in a certain geographical area whether EMEA (e.g. Socit Gnrale and BNPP or Unicredit and Santander), North America (Royal Bank of Canada, Wells Fargo), Japan (Nomura), or the emerging markets (Standard Chartered). Also, players in this cluster have total revenues of $3 - 10 billion and are generally ranked 11th or lower in the global league tables, in contrast with the $10 billionplus turnover (and consistent Top 10 ranking) of global universals and pure players. As mentioned above, and as illustrated by the success of Standard Chartered (table 8), a leading position in emerging markets is a key ingredient for revenue growth and profits.
TABLE 8 TABLE 8: SUCCESS STORY: STANDARD CHARTERED SUCCESS STORY: STANDARD CHARTERED
Key Information Standard Chartered is a global retail and commercial bank with a strong wholesale division. Founded over 150 years ago, it rapidly expanded in emerging markets and today is one of the top banks in Asia, Middle East, and Africa. Its geographical footprint is a clear differentiator of its offering Its strategy is to focus on these fast growing geographies, offering a complete range of services. Over time, it has developed businesses such as capital markets, corporate finance, and transaction services hosted within its Wholesale Banking Division In 2011 this division contributed to over 75% of the total profit before tax Standard Chartered leverages its global client relationships to supply a comprehensive set of products and services, among which a significant role is played by transaction services ($3.2 billion) and sales and trading of FX/rates (which represent a substantial portion of the $3.7 billion generated by the FM division) Lower contribution and rankings (generally below Top 10) in advisory and underwriting, except for Asian Debt and Islamic Banking1
1Source:
PRELIMINARY
Wholesale Division Revenues ($ billion)

9,9
10,8
9,3
5,9
2009
2010
2011
H1 2012
Wholesale Division PBT ($ billion)
4,7 4,0
5,2
2,9
Thomson Reuters
2009
2010
2011
H1 2012
Generally reflected in a Top 10 position in the so-called league tables.
23
From Steroids to Fair Play: GIBs Long Road to Industrialization T he others. This remaining
cluster is much lighter in weight if measured by total revenues generated. It comprises players that focus on selected activities/products (e.g. financial advisory) and/ or one or only a few countries. Among them, the pure advisory boutiques can be very light in capital, focusing mostly on M&A and, with marginal variances, on debt restructuring and eventually on private banking and asset management. In addition to legacy brand names such as Rothschild and Lazard, the number of specialty boutiques (from Greenhill to Evercore (table 9), from Moelis to Perella Weinberg) has skyrocketed, luring a number of top investment bankers away from their previous positions at global bulge bracket banks. In general, while their profitability has been highly skewed (measured in terms of revenues per partner, and not as ROE), their offerings have been pretty traditional, with competitive strategies
just focused on outsmarting the global behemoths that are distracted by their fight for survival and talent retention in the new regulatory environment. These specialty boutiques have also marketed their transparency and lack of conflicts of interest quite well as value propositions. In other cases, some players have focused their strategies on exploiting a leading position in one or few countries whether mature or emerging where they enjoy some competitive advantage. And there have been a number of success stories, from Banca IMI (table 10) to BTG Pactual (table 11).
24

TABLE 9 TABLE 9: SUCCESS STORY: EVERCORE SUCCESS STORY: EVERCORE
Key Information
Founded in 1996, Evercore is an investment banking boutique which has grown substantially since the beginning of the global nancial crisis, leveraging its independent advice value proposition While financial advisory is its core activity (~80% of total revenues) it is also active in institutional equities, wealth and investment management ($13 billion in assets under management) Since its opening, Evercore has attracted senior finance professionals with distinguished reputations on the market and has hired 5-7 MDs per year in the recent past
PRELIMINARY
Revenues ($ million)
520 373 278
313
2009
2010
2011
H1 2012
Today Evercore is pursuing a global markets expansion strategy via a combination of:
Direct presence (U.S., U.K., Mexico, Hong Kong, and Brazil) and Strategic alliances (China, Japan, Korea, and Argentina) always leveraging on its independent advisory key asset The Company was ranked 14th globally1 in Thompson Reuters 2011 M&A review, behind Lazard and Rothschild but well ahead of all other advisory boutiques It has achieved the highest fee growth for the period 20082011
2009 33
Net Profit ($ million)
63
38 26
Worldwide completed transactions ranking
2010
2011
H1 2012
TABLE 10 TABLE 10: SUCCESS STORY: BANCA SUCCESS STORY: BANCA IMI IMI
Key Information Banca IMI is part of Intesa Sanpaolo Corporate and Investment Banking (CIB) Division Intesa Sanpaolo (ISP) is a leading banking group in Italy with a widespread distribution capacity (5,600 branches) and a high market share (15%+ in customer loans/deposits) Banca IMI was established in 2007 from the merger between two leading Italian players (Banca Caboto and Banca IMI). It operates in three main business areas: Investment Banking, Capital Markets, and Structured Finance Leading position in Italy1 in DCM (#1 bookrunnner for each of the past five years) and Structured Finance (over 27 billion of structured and arranged transactions from 2007 to 2011 Capital Markets: Market Making on ~6,500 securities Revenues ( million)
1.171
PRELIMINARY
1.059
1.103
860
2009
2010
2011
H1 2012
Net Profit ( million)

517 547
512
401
1 for cash instruments transactions volumes on domestic market (MOT)

2 Italian govies specialist
2009 2010 2011 H1 2012
A market leader for M&A transactions in Italy (>100 transactions in the last three years)
1Source:
Banca IMIs Corporate Presentation
25

TABLE 11 TABLE 11: SUCCESS STORY: BTG PACTUAL SUCCESS STORY: BTG PACTUAL
Key Information BTG Pactual, dominant franchise in Brazil, is an investment bank, asset and wealth manager Its business units include: Sales and Trading (32% of revenues), Investment Banking (12%), Asset Management (16%), Corporate Lending (11%), and Wealth Management (5%). Pactual, established in 1983, was sold to UBS in 2006 for $3.1 billion and then bought back by BTG (a Brazilian investment bank founded by Pactuals former CEO) in 2009, creating BTG Pactual
2.3
PRELIMINARY
Revenues (R$ billion)

3.2
2.4
3.2
2009
2010
2011
H1 2012
Since then BTG Pactual pursued significant growth both in domestic and other South American markets, with offices in four continents: South America (So Paulo, Rio de Janeiro, Braslia, Recife, Porto Alegre, and Belo Horizonte), North America (New York), Europe (London), and Asia (Hong Kong)
In 2012 the company listed in Brazil raising $1.96 billon, for a market cap of ~ $14 billion - the largest IPO in Brazil since 2009 Since 2006, BTG Pactual helped advise on seven of every 10 stock sales in Brazil and on one in every four merger deals1. In 2011, it led Thomson Reuters' M&A advisory rankings in Brazil and ranked #9 in Brazilian debt2.
1Source:
Net Profit (R$ billion)
1.9 1.4 1.1 1.6
Reuters. 2Thomson Reuters.
2009
2010
2011
H1 2012
S hadow banking players. This final cluster is not addressed in our analysis and covers a significant number of very diverse players from hedge funds to structured investment vehicles, from nonbank money lenders (including supermarket chains and P2P websites) to specialized lending houses (including manufacturers financing arms), from money market funds to securities lenders. This cluster has enjoyed mixed results, with wide variations
across sub-taxonomies and players. Still, with all the worry about the systemic risks that could originate from this opaque and usually highly leveraged segment of finance, it is experiencing continuous growth as a consequence of the looming GIB regulations, starting with the proposed Volcker rule. For the purposes of this discussion, we provocatively propose including in this already extended universe of players Chinese banks and others
26

that are significantly influenced by a national government (table 12). Such players act as national champions pursuing not only economic but also political objectives (such as targeted economic growth, full employment, or social stability). These players tend to be fairly opaque in their actions, reporting, and compliance with (or, possibly circumvention of) global regulations. Shadow players could therefore become more and more interesting counterparts (as clients, partners, and allies) of GIBs or (in our extended definition) even become their major competitive threat.
TABLE 12 TABLE 12: FORGOTTEN SHADOW PLAYERS: THE CHINESE BULGE BRACKETS ARISING FORGOTTEN SHADOW PLAYERS: THE CHINESE BULGE BRACKETS RISING
Key Facts None of the Chinese investment banks has made it (yet) into the Top 25 list of global investment banks Many of them have, however, established leading positions in: Products (equities) Geographical areas (Asia, on the back of their dominance in China) Some of these players have JVs/strategic relationships with western names, such as China International Capital (co-founded in 1995 by Morgan Stanley), the first domestic investment bank Citic, that counts BBVA as a significant shareholder and partner Given Asias growing share of GIB business (from 5% in 2005 to 10% in 20111), it may seem just a matter of time before they make it into the Top 25 The recent announcement by China Construction Bank of $15 billion available for investing in a European bank may also herald the beginning of an era of geographic expansion for Chinese banks (both commercial and investment), further enhancing their growing role
1Source:
PRELIMINARY
Ranking of Chinese Players

Global
Equity
Asia-Pacific
Investment Banking
Equity & Equity-Related
Asia
PING AN OF CHINA
# 13
# 14 -
# 10
# 12 # 14 # 17 # 19 # 20
# 11
#5 #9 # 13 # 18 #7
GUOSEN
CHINA CITIC BANK CHINA MERCHANTS SECURITIES BANK OF CHINA CICC
Dealogic
27
The Numbers Game: Trends In Performance

Our analysis of the top 15 GIB players shows how little has been done that is really new until very recently (and still, not sufficiently) to cope with the new market conditions. Instead, the 2009 market rebound prompted most of the players to revert to business as usual, rebuilding their headcounts and cost bases as swiftly as they downsized them after the fall of Lehman Brothers. We feel that the recent rebound in the real estate sector in the United States could provide some with another excuse to postpone what needs to be done. Indeed, only after the emergence of the Eurozone debt crisis (starting in August 2011 with the widening of the BTP and Bonos spreads over the Bund) have major GIB players slowly started to realize that the pre-crisis salad days might, alas, be over. Still, the actions taken so far appear off track and insufficient.
According to our analysis, capital markets and investment banking revenues have steadily declined from about $360 billion in 2009 to about $250 billion in 2011 (although with different trends in its main three businessesrevenues slightly up for advisory and underwriting, down marginally in equities, and decreasing substantially in FICC). At the same time, market concentration (table 13) has grown substantially in FICC to the benefit of global universal players (which have integrated along the way most of the failed or crippled institutions including Bear Stearns, Lehman, and Merrill Lynch), while decreasing in other businesses, from advisory to equities, to the advantage of boutiques and smaller, dedicated operators). This latter phenomenon is particularly interesting given that the scarcity of lending, placing power, and good credit ratings
28

would in theory suggest that the leading global universal players should have been able to lever these advantages to get a growing share of these businesses.
TABLE 13 TABLE 13: MARKET BY CLUSTER AND BUSINESS(2009-1H 2012) MARKET SHARESHARE BY CLUSTER AND BUSINESS
Market Share FICC & S&T (2009 1H 2012, %)
PRELIMINARY
Market Share Total

(2009 1H 2012, %)
44.9%
46.0%
49.0%
52.8%
53.4%
18.0% 15.5% 14.4% 6.1%
41.7%
41.7%
43.4%
2009
13.4% 15.4% 14.6% 7.6%
8.8% 17.5% 12.2% 8.7%
9.7% 16.1%
2010
2011
2012
11.8% 9.0%
35.9%
Market Share Equities (2009 1H 2012, %)

33.6% 30.2% 21.6% 18.0% 16.0% 14.2% 17.3% 17.5% 16.6% 15.0%
33.1%
20.3% 14.9% 14.8% 8.3%
19.5% 14.4% 14.8% 9.6%
16.2% 15.4% 14.6% 10.4%
18.3% 13.8% 13.1% 9.9%
20.0% 19.0%
21.3%
17.4% 14.6% 13.6%
17.2% 7.9%
2009
2010
2011
2012
2009
2010
2011
2012
38.6% Asset-Driven Universal Pure Player Others Liability-Driven Universal Regional Player
Market Share Advisory & Underwriting (2009 1H 2012, %)

33.0% 36.5% 33.3% 37.1%
34.4% 37.7%
31.8% 13.3% 12.1% 10.0% 8.4% 11.9% 9.3% 8.4% 12.0% 8.3% 7.6%
8.9% 7.4%
Source: AlixPartners analysis based on Deutsche Bank data and Annual Reports
2009
2010
2011
2012
In terms of profitability (table 14), the industry has experienced a significant contraction (-23% p.a. for our universe) due to both
17
lower revenues and until the first half of 2012 higher costs and headcounts (as measured by cost to income).
29

TABLE 14 TABLE 14: P&L OF GIB UNIVERSE CONSIDERED P&L EVOLUTION OF GIB UNIVERSE CONSIDERED
(2009 2011, Index, 100 = Revenues 2009)
PRELIMINARY
Economics Evolution
(1H- 2011 1H-2012, Index, 100 = Revenues 1H 2011)

100
Economics Evolution(1)
100 55 35
91 59 31
81 59
88 58 25
64 37
23
2009
Revenues
2010
OPEX
2011
Pre-Tax Earnings
1H - 2011
Revenues OPEX
1H - 2012
Pre-Tax Earnings
(2009 2011, %, Index, 100 = Operating Expenses 2009)
Cost/Income Evolution
(1H-2009 1H-2012, %, Index, 100 = Operating Expenses 2009)
Cost/Income Evolution(1)
54.7%
64.8%
72.7%
63,9%
66.5%
2009
Operating Expenses
2010
108
2011
108 Operating Expenses
1H - 2011
100
1H - 2012
91
100
Source: AlixPartners analysis based on Annual Reports (1) Nomura not considered in this players analysis
18
Given that overall assets have also risen (counter-intuitively, given the greater costs and constraints introduced by the new proposed regulations, but understandably, given
the continuous temptation of GIB to go back to the dope of leverage), the ROA of GIB has particularly suffered, almost halving its levels between 2009 and 2011 (table 15).
30

TABLE 15 TABLE 15: ASSETS AND ROA EVOLUTION OF GIB UNIVERSE CONSIDERED ASSETS E ROA EVOLUTION OF GIB UNIVERSE CONSIDERED
(2009 2011, %, Index, 100 = Assets 2009)
PRELIMINARY
Assets and ROA Evolution(1)
(1H-2011 1H-2012, %, Index, 100 = Assets 2009)
Assets and ROA Evolution(2)
0.69%
0.62%
0.42%
0.36% 0.23%
2009
Total Assets 100
2010
102
2011
112 Total Assets
1H - 2011
117
1H - 2012
113
(1) ROA computed as PBT / IB Division Assets at the end of the year; Nomura not considered in this players analysis Source: AlixPartners analysis based on Annual Reports
(2) ROA computed as PBT / IB Division Assets at the end of the year; Nomura, RBS and BNP not considered in this players analysis
Of course, as the various success stories included in this discussion show, opportunities for growth and profitability are nonetheless available for players that lever and focus on some competitive advantage. On average, however, the trends do not favor the number crunchers in any single taxonomy of their main business models as described above. Exploring the
19
Cartesian axis of cost/income and ROA suggests, in fact, that the crunch is yet to come, with the asset-driven universal group leading the way, followed by regionals and liability-driven universal group (table 16). Pure players are apparently better placed, but in any event, the outlook across the GIB sectors is worrisome.
31

TABLE 16 TABLE 16: COST AND BALANCE SHEET PRODUCTIVITY: TRENDS BY CLUSTERS COST AND BALANCE SHEET PRODUCTIVITY: TRENDS BY CLUSTERS
Cost/Income 100%
PRELIMINARY
80%
60%
40%
20%
0% 0.00%
(1) (2)
0.50%
Liability Driven Universal Pure Player
1.00%
Regional Player (2)
1.50%
Average Revenue
ROA (1)
2011 2009
ROA computed as PBT / IB Division Assets at the end of the year Nomura not considered in this analysis
The consequences could be quite stark. The targeted ROE of GIB expected by market practitioners may remain well below its cost of capital (heroically assumed to be in the range of 10-12%). Such ROE projections should therefore translate into a modest recovery of the stock market capitalization of the GIB players, if we optimistically
20
assume the multipliers linking profitability and market value notwithstanding the damage to brand equity and intangibles will hold true (table 17).
32

TABLE 17 TABLE 17: ESTIMATED ROE AND MARKET CAPITALIZATION FOR GIB ESTIMATED ROE AND MARKET CAPITALIZATION FOR GIB
(2011 2015E, %)
PRELIMINARY
ROE Evolution
Market Capitalization Evolution

(2007 2014E, %, Bn )
Estimated cost of equity: 10-12%
- 44%
327 776
7.9 6.1 6.8
8.4
1,042 593
2007
AssetDriven Universal LiabilityDriven Universal Pure Players
169 762
Market Gain 2014
60 478 72 152
Capital Raised
Market Loss
2011
56 355 58 124
102 549 167 224
2011
2012
2013
2014
Regional Players
Source: AlixPartners analysis of Thomson One data
Source: AlixPartners analysis on Capital IQ data for market capitalization, financial statements, press releases, Credit Suisse for capital raised.
21
33
New Rules: Recommendations For GIBs

Is the current taxonomy of business models sufficient to enable the GIB industry to withstand the global crisis and solve its structural profitability and reputational issues? Are the few identifiable success stories robust and diverse enough to allow for the proper functioning of the global financial system? Would marginal strategic adjustments, incremental operational improvements, and some pre-crisis financial tricks be enough for the overall GIB industry to survive the upcoming wave of (at least partially) politically-driven regulations? We believe not. Instead, GIB players should change proactively, before any Volcker-Vickers-Liikanen-Barnier rule, report, or commission forces change upon them. And they should change quickly and decisively. GIB players, we would argue, need to solve, in a business-minded way, their
own fundamental steroiddriven contradictions and design new businesses and operating models for the future. This is a significant and potentially painful challenge, but the benefits would be significant and lasting. It could bring radical improvements in the industrys productivity, a relatively quick rebuilding of its reputation and brand equity, and a higher, more stable (and socially acceptable) profit sharing among its stakeholders. It could even become the biggest booster for the recovery of the global economys growth trajectory letting the financial system work its optimal allocation function in the best way. Lets consider some examples driven by the three performance-enhancing drugs previously described: T hrough excessive leverage, GIB supported asset bubbles,
34

and multiplied systemic risk. But the amount of leverage was driven by lax monetary policies and a wrong valuation and pricing of the risks involved. Solutions of the GlassSteagall variety may reduce this risk, but at a huge first impact cost to the industry. More simply, universal banks could price lending independently, taking into consideration all the risks involved and not allowing the indirect subsidization of investment bankings (once) heftier mandates. Universal banks may continue to exist if they create an internal, competitive marketplace where business units can trade or approach the same client at prevailing market conditions. Rigid governance rules should therefore be coupled with clean and direct incentive systems, with single business units acting like independent entities. If this kind of fabric fails to produce the synergies so often touted in the past, independent business units could be spun off, split out,
floated in the stock market, or sold to private equity investors or pooled with similar competing operations to become even more productive, via greater scale, specialization, and focus on core activities. In any case, such a scheme would also help GIB players address all kinds of conflicts of interest driven by the challenge of asymmetric information that naturally arises when an investment bank is an advisor in a deal where it is also a directly or indirectly interested counterparty, or a (supposedly) independent information provider, or whatever other role is being played; T hrough excessive risk taking, GIBs realized quite asymmetric payoffs in the way their shareholders, debt holders, and key employees were financially rewarded. These, in turn, drove moral hazard throughout the industry. The risk coming from the gambling business was then compounded by the mistaken
35

evaluation of where the economy was going hubris and the paper gains associated with stock options fuelled a sense of infallibility among the industrys best and brightest. Volckers or Liikanens kind of solution can define exactly how much and what kind of risk to undertake, but that again could be proactively addressed if GIBs decided on their own to segregate client business from other principal businesses. Theoretically, their shareholders capital is better reinvested if given back to investors who can then choose to diversify their wealth by themselves, or through the asset management industry. The only equity remaining in the GIB business should therefore be used as operating capital to support flows and advisory businesses. Principal finance and proprietary trading units could be spun off/split out to become independent hedge funds or asset managers, or converted to client business (advising clients on how to
actively manage their capital and balance sheets); T hrough unresolved conflicts of interest, GIBs drove a number of scandals that were at the heart of the beginning of the crisis, compounding its disastrous effects on the overall economy. The global crisis was based on macro fundamentals, but, we may argue, it exploded because of micro investment bankers. And this has not helped the GIB industry in protecting its reputation and intangible value. The detailed regulations being written on compensation systems (with caps on annual remuneration, rules on vesting periods, and bonus-malus systems) could be actually anticipated by GIBs and designed and implemented on principles that make much more economic sense. GIB players could, for example, compensate their employees for the value they truly bring, calculated on the basis of strict productivity benchmarks with similar functions operated
36

in other industries, from professional services, to retail, to manufacturing, to civil service. For example, is the M&A professional more comparable with a strategic consultant or with a real estate agent? Or is a GIB back-office employee more comparable with the back-office employee at a car manufacturer or at the Internal Revenue Service? All these arguments bring us to consider the following strategic forays: G IBs could consider breaking up their business models before actually being compelled to do so by the forces of regulation. This does not necessarily mean at least in the short term an actual, full-blown separation of businesses and of their shareholders (as in the Glass Steagall world). The creation of an internal, competitive marketplace, managing the interplay of diverse business units and the optimal allocation of scarce resources, could
create economic transparency and avoid subsidization, fostering more direct accountability at the single-unit level; G IBs could therefore consider unbundling their value propositions and commercial value chain, providing their best objective advice to clients on the basis of an open platform approach. This would allow them to play the trusted and unbiased advocate role for their core clients if they are then committed to source in the market the best and cheapest products that are required to implement the best solution recommended; G IBs could therefore refocus their product/service platforms on their relative comparative advantages, allowing further consolidation in the industry at the platform level: swapping operating assets, pooling them together, or clubbing to negotiate together, in the best way of trade, their outsourcing to a non-bank third party;
37

G IB could be guided, in this deeply transformative process, by the pole star of productivity learning how to do more with less, in a shorter timeframe, and with better results. Breaking up their business model (at least, virtually, through an internal marketplace) and unbundling their value proposition and commercial value chain would be instrumental, as this would allow a more direct and immediate benchmarking with other non-banking sectors, suggesting the route ahead towards the industrialization of the GIB industry.
38
In The Penalty Box: Growing with Scarce Resources

On the basis of our analysis of the current business models, we could have easily argued, as many others have done time and again, some minor tweaks to business as usual. Such proposals include: L iability-driven universal banks could better exploit (with a carrot and stick approach) their lending capabilities and hyper bundle the richer GIB offering with the now much-in-need financing; if they push global scale and international scope to its limits, consolidating weaker players; or even gambling in new ventures with shadow partners covered as they are by the too big to fail stop-loss insurance. A sset-driven universal banks could exploit even more of their conflicts of interest and hyper bundle the richer private banking offering with more interesting-to-know
information coming from the investment banking or asset management businesses and, if they reach global coverage, with a better footprint in emerging and growing markets. P ure investment banks could succeed if they dominate the market, reducing the few remaining into a monopoly or duopoly and arbitraging among different jurisdictions to basically do more of the same through new loopholes. They may also buy time entering into new, less sophisticated and protected markets intermediating the still unsolved geopolitical imbalances on the commercial, financial, and fiscal sides. But, we believe these kinds of strategies would, at most, buy time and enable only short-term gains. They would not solve the structural issues of overcapacity, of shrinking revenue pools,
39

and of disgruntled customers; they would recover neither productivity nor profitability. Instead, banks much choose to break up and unbundle business models. This would allow: The refocusing of GIBs into categories such as designer, assembler, specialized monoliner, and mega factory. Some of the players (perhaps the strategic boutiques) may be better off just refocusing on strategic advice finding and developing the right solution to the financial needs of the customers or its design. Others (perhaps the regional commercial banks) may just assemble the required constituents, given the design, leveraging their local presence and relationships. Others may focus on very specific products (say, commodity derivatives) to reach barriers of know-how, flows and scale-scope; still others may just become even bigger, dominating multiple flow businesses, where technology and scale-scope are central. Some, however, may be able to
compete in multiple roles, if they pursue the internal market-based break-up, creating independent champion units; T he transformation of the top-to- bottom profit and loss statement: 1. H orizontally, GIBs could leverage products and service platforms across business units (e.g. the derivatives desk across investment banking and private banking) or even counterparts (e.g. the IT/ back-office factory across all European GIB) to drive a massive reconfiguration of cost structures. This could lead to lower, more variable costs driven by pay per u se driving productivity to levels achieved in manufacturing. Unbundling would, therefore, overcome t he limits of most of the integrated business models that had developed through complicated crosssubsidization to the point that it was unclear who, if anyone, was making money;
40
TABLE 18 PRELIMINARY SHARING AND POOLING OF OPERATING PLATFORMS IN OTHER INDUSTRIES SUCCESSFUL CASE STUDIES PLATFORMS IN OTHER INDUSTRIES: TABLE 18: SHARING AND POOLING OF OPERATING
SUCCESSFUL CASE STUDIES
Scope of the initiative: Implement a shared purchasing platform to achieve significant cost savings for the two players involved
e.g. scaling up volumes and reduce unit component prices
Large global TMT players
Targets/results: Implemented a Procurement Alliance (PA) that eventually led to a 10% saving of common spending 1.5 years from design to the up-and-running organization
Global strategic sourcing entity with the target to negotiate large volume contracts Local procurement units in charge of purchasing activities leveraging larger scale supply agreements
Scope of the initiative: Implement a Procurement Shared Services (PSS) platform for the indirect spend of the two companies
Aerospace and defense players
Targets/results: Reduce purchasing spending by 20-40% in the first three years and keep a 3-5% continuous yearly cost reduction after the fourth
Leverage pure efficiency increase, push towards standardization and industrialization and permanent benchmarking Enhance quality through professionalization of services and bigger critical mass per function Generate tangible benefit to the organization through a full customer orientation approach
www.alixpartners.co m
2. V ertically, GIBs could leverage other distribution networks, such as the ones already in place and run by local commercial banks that could sell more at their SME and private clients through some kind of gray or white label alliance with a GIB. This approach to smart investment banking aimed at middle-market clients could be successful only if both GIBs and local banking partners can deliver on a very efficient cost to serve basis with a proposition that is highly personalized
22
but still consistent with the different (and much lower) target revenues attainable per client. We may call this mass customization of the GIB market offerings something that has already been successfully achieved in most manufacturing industries, from apparel to technical equipment to food;
41

TABLE 19: THE TABLE 19 LOGIC AND POTENTIAL BENEFITS OF SMART INVESTMENT BANKING
PRELIMINARY
THE LOGIC AND POTENTIAL BENEFITS OF SMART INVESTMENT BANKING

The Opportunity Set
Checklist for Product Selection
Huge number of commercial banks with significant lending activities to SME but lacking an investment bank in house Given limited (if any) value creation of these activities, such intermediaries could cross-/up-sell investment banking products and services to their clients The concept of Smart Investment Banking aims to provide value to both the Investment (IB) and the Commercial Bank: The former gets access to a new distribution network for its products/ services The latter realizes a new revenue stream via a commission-sharing agreement with the former In order to be successfully executed, this strategy requires a number of carefully planned steps, including the appropriate identification and selection of: The sub-segment of corporate clients that may be interested in this additional offering The products/ services that are more suitable to be offered in a cost-effective way to such corporates Execution itself should take place in a cost-efficient way, either by standardization/limited customization of the offer and/or the maximum exploitation of digital channels
1. 2. 3. 4. 5.
Clients appetite Ease of sale Profitability Reputational risks Competitive edge
Checklist for Client Selection
Quantitative items, such as: 1. Turnover 2. Geographical scope 3. Number of employees Qualitative items, such as: 1. Propensity to innovation/new investments 2. Industry attractiveness 3. Current stage in companys life cycle
3. F inally, from a client-centric point of view, GIBs could augment brand equity and the intangibles of their value propositions, thus reinforcing the bottom-line synergies addressed horizontally and the top-line ones targeted vertically. They could do this by delivering objective advice focused more broadly than on just M&A. GIBs could offer a broader strategic agenda in the dialogue with their clients, including options for restructuring and
23
growth, globalization, and digitalization of their business, and any kind of opportunity linked to active balance-sheet management (with greater focus on real estate and on other non-performing assets). As explained, objective strategic advice should finally be able to deliver products and other structured solutions through an open platform, e.g., not necessarily with captive products of the bank.
42

TABLE TABLE 20: 20 A NEW APPROACH TO STRATEGIC NOT INTERMEDIATION ADVICE
The Opportunity Set
PRELIMINARY
A NEW APPROACH TO STRATEGIC NOT INTERMEDIATION ADVICE

The Growing Importance of Advice: Market Share of 401k Plans in the U.S. 7% 9% 50%
2007
Offering strategic advisory services could help GIB rebuild customers trust and differentiate among competitors Strategic advice goes beyond traditional financial advisory and incorporates two key features: Strategic advice, including all kinds of financial, industrial, operational, and commercial aspects Risk/capital advice, including advanced services such as active balance sheet management and regulatory and compliance aspects (virtual CFO) The strategic advice would focus on strategy and restructuring, with greater relevance to industrial skills and know how around financial engineering and M&A Risk solution advisory and structuring should have a greater focus on advice and a proposition of open market to source the best financial products that are part of the solution Strategic advice units could generate revenues: Directly, thanks to fees from strategic advice and/or risk management
16%
7% 12% 42%
2009
11% 11% 38%

2011
22%
Others (Investment Banking Divisions, Regional Players, Banks and Insurance) Dually Registered: Individual registered with both a registered investment advisor and a broker-dealer, paid in advisory fees and/or product commissions Registered investment adviser (RIA): An advisor or firm engaged in the investment advisory business and registered either with SEC or state securities authorities, paid via an advisory fee and not by product commissions Wirehouse: A licensed, full-service securities broker directly affiliated with a major, multibranch brokerage firm (e.g., Morgan Stanley, BofA, Wells Fargo, )
Source: Cerulli Associates, 2011
The Growing Importance of Advice: Management Consulting Revenues in Europe ( B)

Revenues of other MC activities (e.g. It consulting) Revenues % of Business Consulting activities
Indirectly, via better/ larger opportunities for traditional products (M&A, ECM, etc.) derived from offering 24 innovation and becoming the customers trusted adviser
86,7
83,7
86,2
89
The potential of strategic and truly independent advice is already apparent in adjacent industries, such as Private Banking, Asset Management/Gathering distribution, and Management Consulting
42% 2008
43%
2009
574
50%
2010
659
>
2011E
N/A
Total MC Staff (.000)
557
Source: Survey of the European Management Consultancy 2011/2010, FEACO
These strategies will need to be implemented on the basis of scarce resources and a number of tight constraints overcoming traditional paradigms, such as the internalized IT as competitive advantage, or the 80/20 rule of top clients covered, or the crossselling driven by M&A advice. We believe the challenge
is worth it and, most of all, urgently required by current circumstances.
43
A New Playbook: 10 Steps Toward Industrialization

From the financialization of industry, preached and practiced by many strategic consultancies at the turn of the century (with such success stories as Enron), the banking system has to move collectively in the opposite direction, towards the industrialization of finance. Benchmarking with global, bestin-class manufacturers could be a good start; they had to reinvent themselves a number of times simply to survive, and they can now demonstrate some examples of truly successful transformation not just to the benefit of their shareholders and top managers, but also to the benefit of their customers and to the global economy. GIBs should be at the forefront of such a move for a number of reasons: T heir top line is decreasing rapidly, as are their customers (because of the misapplication of the 80/20 rule). Also,
the breadth and depth of their traditional offering is shrinking because of regulation often fuelled by media and client backlash; T heir bottom line is getting more rigid and thus more unsustainable with each passing quarter, despite the cost-cutting programs that have negatively impacted their intangibles and brand equity. And, after several rounds of cuts, they still do not seem able to close their productivity gap; T heir goodwill (as measured by the expected growth rate, by the required cost of capital, or by sustainable price/ earnings commanded in the market) is at one of the lowest points in history and they are unlikely to improve it by staying the course. To overcome, GIBs should lead the way, boldly and proactively,
44

and foster an industrialization of their main business for the benefit of their stakeholders and of the global economy. To do more with less, we propose the following Agenda of 10 Top Action points (table 21):
PRELIMINARY
TABLE TABLE 21:21 10 STEPS TOWARD INDUSTRIALIZATION 10 STEPS TOWARD INDUSTRIALIZATION

Main Area of Impact Top 10 Priorities
1 2 3 4 5 6 7 8
Revenues
Costs
Risk & Capital
Reputation / Brand Equity
Smart Investment Banking Mid-market extension Proactive restructuring New intermediation corridors Continuous innovation Internal marketplace development Sharing and pooling of platforms Productivity benchmarking Objective strategic advice New culture and people
9
10
Five main actions could be considered and realized in the short to mid term to impact the top line: Smart investment banking. Forging alliances with small financial institutions groups (FIGs) and other commercial bank partners could allow GIBs to exploit
their customer bases and branch networks, to reach SME and private/top affluent clients previously not addressed (or at least not with the GIBs own coverage/origination model). This could allow (as in many other manufacturing industries now thanks to the revolution brought by 3D-printing) GIBs to reach millions of customers,
45

with billions of personalized products mostly tailored (or collaboratively created, as made possible today through digital media and mobile/ tablet banking) at the point of use, with an extremely sensible value-for-money proposition and an ability to leverage production and distribution facilities that are already in place. For clients, this could result in new and better choices and solutions. For GIBs and their partners, it could produce new sources of revenue and in turn ignite new innovation in product development and service delivery; M id-market extension. Consistent with the previous proposition, GIB players could reconsider the application of the 80/20 rule addressing specific segments and markets that, from time to time, may present opportunities. Just as global manufacturing has addressed specific ethnic groups, regional markets, or a combination of both in a
swift and effective way, the GIB industry should look to enhanced methods of market segmentation. For example, small to mid-sized FIGs may soon require M&A advice, financial restructuring, assetliability management (ALM) rebalancing and equity recapitalization (not to mention assistance with the high volume of new and complex regulations). GIBs could therefore offer a full virtual CFO service, leveraging their heavy and hyper-qualified internal structures and transforming them from cost centers into profit centers; P roactive restructuring. Given the global economic outlook and the long journey still ahead, one of the few markets that will likely keep growing is restructuring for financial and real estate assets, operating companies, and entire countries. The GIB industry could play a bigger role in that, leveraging its internal financial and risk management skills, global
46

scope, and relevance in addressing issues that transcend any individual reorganization. In this way, GIBs could directly and critically participate in the optimal global reallocation of viable resources that are still tied to troubled situations the most fundamental function of the global financial system. We believe there is a great alpha in this activity, with no need of principal finance or strong leverage to enhance it; N ew intermediation corridors. New intermediation opportunities should be sought and realized as a way to exploit new revenue opportunities and perform fewer relevant financial functions in an effective and efficient way. Two major imbalances are clearly visible and only partially addressed by investment bankers. The first, geopolitical in nature, concerns the intermediation of the old/ stock-based wealth of developed countries with the
new/flow-driven wealth of emerging and growing countries. The second, intergenerational in nature, concerns the retiring baby boomers vis--vis future generations who are unable to sustain the social safety nets given the demographic projections for Europe, the U.S., and Japan, just to name a few. The huge reallocation of resources that needs to take place could be driven in a better way by markets, and any market-based solution would benefit from the expertise of the global investment banks. Continuous innovation. Success, in most industries, is driven by innovation. GIBs have seen a great deal of innovation, particularly given the top talent the industry attracted during the precrisis era. However, there is a catch. Innovation can be premised on the wrong goals (such as exploiting asymmetric information for easy shortterm financial benefits),
47

or it can be motivated by healthier concerns (such as innovating to benefit clients or to create a more stable path of value creation for the longer term (see other global manufacturing industries, e.g. personal computing). Referring back to the fundamental functions of GIBs, the industry will have to focus more on solving hard problems for its end users. For instance, leveraging digital innovation and its digital wallet application could lead to more efficient consumer transactions. Wherever there is an inefficient industry activity, there may be an opportunity for GIBs. This could include asset management, guarantee/ hedging products, and advisory services around ALM and families financial life cycles as an alternative to standardized, unsustainable pension systems. Three additional points could be considered and realized in the short to medium term to impact GIB bottom lines:
I nternal marketplace The development of an internal market system, able to price the contribution of any business or service unit to the open market, is an important prerequisite to the break-up and unbundling of most (now fully integrated) value chains. An internal marketplace would mean more transparency for the top management and the financial community, clearer targeting and accountability of key managers, and the end of overly complicated subsidies that were born in the wake of the financial-supermarket management phase. Even Sandy Weill, the father of everything under the same (Citi) umbrella, has now come out in favor of some kind of rerun of the GlassSteagall Act! Customers may appreciate the ability to buy everything from the same supplier, but they would appreciate it even more if all the single components were proposed at their true price. Digitalization may inevitably lead the way to this tipping point.
48

S haring and pooling of platforms. The case for sharing, pooling, or even f ully outsourcing most of the I T, back office, and other service and production platforms is extremely compelling. At this point, its just a matter of how (across business divisions or among multiple players), of where (in their home markets or in the cheapest to deliver markets), and when (the first mover will likely be prompted by force majeure, and then we would expect the others to quickly follow). As with other industries (from car manufacturing to aviation, f rom telecom to retail), the banks best positioned to succeed will be led by a tight focus on strategic execution o f win-win solutions that benefit all stakeholders, f rom customers to shareholders to regulators. Reverting to M &A alone wont suffice; solutions need to be created t o fit the unique situation of each bank.
P roductivity benchmarking and revised compensation systems. In the low-growth, high-volatility developed world, the name of the game will be productivity, especially as businesses grapple with scarce resources and a growing number of constraints. Investment banking, which has famously been the last industry to care about savings and recycling, will need to change rapidly, benchmarking itself across the full cost spectrum with other, savvier manufacturing industries. On the employee side, GIB p layers could consistently integrate the productivity benchmarking with other industries. Finally, if the GIB industry is to evolve into a fair-play good citizen, incentives will have to change, incorporating soft variables such as ethical behavior and contribution to the firms intangibles. Finally, two more points could be addressed for the mediumto-long term strengthening of
49

intangibles the franchise and knowledge capital of GIB players to rebuild goodwill: O bjective strategic advice. The development of truly objective strategic advice offering (rather than basic agency M&A, rubber stamping fairness opinions, and fiscal optimization) will be a crucial step in the rebuilding of the goodwill of GIB players (and in shaking off the negative reputation they have recently earned). More than that, strategic advice could develop profitably, given the breath of technical and global expertise GIBs can muster, with just a little additional expertise required. Well-paid objective advice could pave the way for the required unbundling and would nurture a more positive longer-term relationship between the bank and its core clients. Also, some standardization of the strategic advice offering would allow greater access to mid-market clients, focusing on industrial
organic and inorganic components to growth and profitability and on active financial balance sheet management and virtual CFO. N ew culture and new bankers. Still, regardless of how many bright ideas for industrialization of GIBs CEOs may think of, nothing will be achieved and retained for the long term if the basic culture of the industry and its people fails to change significantly. The aspiring investment banker of the future will need to focus on providing the greatest value to the client, even if it requires third-party products and services and even if if it doesnt directly contribute to the shortterm profitability of the bank. This investment banker will have more industry knowledge and fewer financial rocket scientist ambitions. And rewards will have to be calculated accordingly.
50
Winning The Game: The Future of Investment Banking

To borrow from Mark Twain, the rumors of the industrys death have been greatly exaggerated. However, to stay alive, GIB players must make bold decisions now. Leverage is neither as cheap nor as available as it once was. Principal finance is better left to shadow players, where the risks are localized and manageable. Conflicts of interest are also now offlimits, and financial steroids must be abandoned permanently, under the watchful eyes of revitalized regulators. As revenues continue to shrink, cost structures continue to become more and more unsustainable, and capital and other compliance requirements continue to increase, GIBs will need to choose between two paths: O n one path, GIBs will work harder to find new tricks and sweet-spots, while lobbying the relevant political parties. This is precisely what many advisors are now suggesting; O n the other path, GIBs will have to find a new way of doing business, even if it requires difficult decisions and revolutionary thought and action. We recommend the second path. A global sector that was once synonymous with fortune and glory now risks losing both. The industry will have to work proactively to consider competitive propositions that anticipate the substance if not the letter of Volckers, Vickers, Liikanens and Barniers moves. The break-up and unbundling of GIB business models could
51

enable the industrialization of the industry. A lot of soft restructuring and hard innovation will be required to allow this successful transformation, as has already happened in other heavily hit industries, from steel to publishing. Most important, the easy profits of the pre-crisis era premised on opaque prices, illiquid finances, dislocated markets, and troubled customers must be abandoned as a sustainable model for the future. Time is short and missteps could be fatal. A balanced approach should integrate an attention to bottom-line productivity, an understanding of the need for innovation, a focus on the technical nuts and bolts, and an ability to recruit and retain talent. An evolution based on sounder values and harder training and not on short-term performance alone is required to get the industry not just back on track but on a viable path to the future. Like so many before it, the global investment banking industry must finally face its own Industrial Revolution.
52

Claudio Scardovi, the author of this report, is a managing director of AlixPartners who specializes in the FIG sector in the EMEA markets. Claudio has 18 years of experience in the financial services sector, having worked as senior partner and managing director for strategic and industrial global consultancies and for American and Asian investment banks and private equity funds. Claudio has also been a serial entrepreneur who has launched a number of companies providing professional services and investing in the FIG and real estate sectors. Claudio is Professor of Financial Systems at Bocconi University and visiting professor at SDA Bocconi, in Milan, where he has taught Capital Markets. He has written 12 books (three of which are financial thrillers authored under the pen name John Stitch) and more than 200 papers, essays, and articles on the most relevant strategic, industrial, and financial subjects global facing FIGs today. He has been named by Euromoney as one of the top 200 FIG advisors worldwide for several years running. He is also a frequent lecturer at industrial and professional associations.
53

For further information, please contact: Claudio Scardovi Managing Director cscardovi@alixpartners.com +39 02 360 12018 C.V. Ramachandran Head of Asia and Managing Director cramachandran@alixpartners.com +852 2236 3550 Stefano Aversa Co-President and Managing Director saversa@alixpartners.com +44 20 7098 7569 Bob Hedges Managing Director rhedges@alixpartners.com +1 (617) 692-2801
Special thanks to Paolo Angeloni, Marcello Bellitto and Paolo Pucino for their support.
About AlixPartners AlixPartners conducts a broad range of surveys and research in industries around the globe. To learn more about our publications, or to contact the AlixPartners professional nearest you, please visit www.alixpartners.com/whatwethink.aspx. AlixPartners, LLP is a global business advisory firm offering comprehensive services in four major areas: enterprise improvement, turnaround and restructuring, financial advisory services, and information management services. The firm was founded in 1981 and can be found on the Web at www.alixpartners.com.
54

REFERENCES Additional data from the following sources were used in the analysis underlying the conclusions reached in this paper.
FINANCIAL REPORTS (2007 TO 2011) AND OTHER COMPANY-RELEASED INFORMATION Bank of America, Barclays, BNNP, Citigroup, Credit Suisse, Deutsche Bank, Goldman Sachs, HSBC, JP Morgan, Morgan Stanley, Nomura, Royal Bank of Scotland, Standard Chartered, Socit Gnrale, UBS, Bear Sterns (2007), Lehman Brothers (2007), Merrill Lynch (2007), Banca IMI, BTG Pactual, Evercore, Jefferies OTHER SOURCES Al Jazeera. (2012, October 30). UBS to Lay Off 10,000 Employees. Al Jazeera. BBC. (2012, September 28). Bank of America Pays $2.4 Billion to Settle Merrill Lynch Lawsuit. BBC. Brush, S. & Hopkins, C. (2012, November 15). Corzine Decisions Felled MF Global, House Republicans Say. Bloomberg. Cerulli Associates. (2011, October 27). MFEA IDC Forum; Distribution Evolution. Comfort, N. & Weisbach, A. (2012, August 1). Deutsche Bank Cuts Pay as Workers See Fewer Exits. Bloomberg. Daneshkhu, S. & Jenkins, P. (2012, January 5). SocGen Plans to Cut Investment Staff. Financial Times. Credit Suisse (2011, September 15). European Banks Spick, M and O Connor, M. (2012, August 30). Global Investment Banking: Industry Update. Deutsche Bank. Farrell, M. (2012, July 13). JP Morgans Trading Loss: $5.8 billion. CNN Money. Farrell, M. (2012, August 15). Wall Street Prepares for More Layoffs. CNN Money. FEACO. (2011). Survey of the European Management Consultancy 2010/2011. Griffin, D. (2012, July 19). Citigroup Said to Plan 350 Job Cuts in Securities Division. Bloomberg.
55

NASDAQ. (2012, October 5). FT: Morgan Stanley Plans More Job Cuts, Smaller Bonuses. NASDAQ. Michael Page. (2012). Financial Services Salary Survey 2012. Rothacker, R. (2012, September 20). BofA cutting 16,000 jobs by year end in cost-plan acceleration: WSJ. Reuters. Mollenkamp, C. and Wolf, B. (2012, December 11). HSBC to pay record $1.9 billion U.S. fine in money laundering case. Reuters. Schfer. D. (2012, September 6). Investment Banks Eye Europe Job Cuts. Financial Times. Scuffman, M. & Slater, S. (2012, November 5). HSBC fears U.S. Money Laundering Fines to Top $1.5 billion. Reuters. SEC (2012, November 16). SEC charges J.P. Morgan Securities LLC with misleading investors in RMBS offerings. Stenger, I. (2012, August 15). Tallying Up U.S. Regulators Money-Laundering Fines. The Wall Street Journal. Thomson Reuters. (2011). Equity Capital Markets Review - Full Year Review 2011. Thomson Reuters. (2011). Global Investment Banking Review - Full Year Review 2011. Wall Street Comps Survey. (2007; 2011). Annual Investment Banking Compensation Survey. Wilson, H. (2012, April 25). HSBC Targets Back Office Workers in 2,000 UK Job Cuts. The Telegraph. Viswanatha, A. (2012, February 10). U.S. Banks Agree to $25 Billion in Homeowner Help. Reuters. Zacks Investment Research. (2012, September 24). Nomura Announces Job Cuts. Zacks Investment Research.
56

DISCLAIMER IMPORTANT INFORMATION REGARDING THIS WHITE PAPER This white paper regarding Global Investment Banks (White Paper) was prepared by AlixPartners, LLP (AlixPartners) for general information and distribution on a strictly confidential and non-reliance basis. The White Paper does not constitute legal or professional advice, nor does it prescribe any strategy that should be tested without the advice of a professional. This White Paper is for information purposes only. The recipients of the White Paper accept that they will make their own investigation, analysis and decision relating to any possible transactions and/or matter related to such and will not use or rely upon this White Paper to form the basis of any such decisions or actions. Accordingly, no liability or responsibility whatsoever is accepted by AlixPartners and its employees, partners or affiliates for any loss whatsoever arising from or in connection with any use of the White Paper. Statements and opinions expressed in this White Paper reflect conditions and our views as of this date, all of which are subject to change. We undertake no obligation to update or provide any revisions to the White Paper to reflect events, circumstances or changes that occur after the date the White Paper was prepared. In preparing the White Paper, we have not acted on any instructions from any of the Global Investment Banks referenced herein and while every care has been taken in the compilation of this information and every attempt made to present up-to-date and accurate information, we cannot guarantee that inaccuracies will not occur. In preparing this White Paper, AlixPartners has relied upon and assumed, without independent verification, the accuracy and completeness of all information available from public sources or which was otherwise provided to us. AlixPartners has not audited or verified the data reviewed in connection with the preparation of this White Paper. This White Paper may be based, in whole or in part, on projections or forecasts of future events. A forecast, by its nature, is speculative and includes estimates and assumptions which may prove to be wrong. Actual results may, and frequently do, differ from those projected or forecast. Those differences may be material. Items which could impact actual results include, but are not limited to, unforeseen micro or macro economic developments and/or business or industry events. This White Paper is the property of AlixPartners, LLP, and neither the White Paper nor any of its contents may be copied, reproduced, disseminated, quoted or referred to in any presentation, agreement or document with or without attribution to AlixPartners, at any time or in any manner other than for the internal use of the recipient, without the express, prior written consent of AlixPartners.

2012 GIBs AlixPartners

Transféré par

Informations du document

Copyright

Formats disponibles

Partager ce document

Partager ou intégrer le document

Options de partage

Avez-vous trouvé ce document utile ?

Ce contenu est-il inapproprié ?

Droits d'auteur :

Formats disponibles

2012 GIBs AlixPartners

Transféré par

Droits d'auteur :

Formats disponibles

DECEMBER 2012

2012 AlixPartners, LLP

From Steroids to Fair Play: GIBs Long Road to Industrialization

Introduction: A New Ball Game

Cover Illustration: Opus Artz Ltd.

From Steroids to Fair Play: GIBs Long Road to Industrialization

From Steroids to Fair Play: GIBs Long Road to Industrialization

2012 AlixPartners, LLP

From Steroids to Fair Play: GIBs Long Road to Industrialization

To impact the bottom line in the short to mid terms

To impact intangibles in the medium to long terms

2012 AlixPartners, LLP

From Steroids to Fair Play: GIBs Long Road to Industrialization

Basic Training: A Need For Real Restructuring

2012 AlixPartners, LLP

From Steroids to Fair Play: GIBs Long Road to Industrialization

Cost Per Employee

Wall Street Bankers Average Compensation

(2011, %, Index, GIB compensation =100)

GIB vs. Other Industries Front Office Roles Compensation

(2011, %, Index, GIB compensation =100)

GIB vs. Other Industries Supporting Roles Compensation

Global Investment Banking

Global Investment Banking

Wealth Management & Funds

Source: AlixPartners benchmarking for front office employees based in London

2012 AlixPartners, LLP

From Steroids to Fair Play: GIBs Long Road to Industrialization

2012 AlixPartners, LLP

From Steroids to Fair Play: GIBs Long Road to Industrialization

Country/ EMIR / MIFID II Europe

Expected reduction in trading revenues

2012 AlixPartners, LLP

From Steroids to Fair Play: GIBs Long Road to Industrialization

Swap push out

Retail & Commercial Banking

Over 100 bn or 15-25% of total assets

2012 AlixPartners, LLP

From Steroids to Fair Play: GIBs Long Road to Industrialization

The Object Of Game: A Focus on Fundamentals

From Steroids to Fair Play: GIBs Long Road to Industrialization

From Steroids to Fair Play: GIBs Long Road to Industrialization

Pooling Resources / Indivisible Projects

Wealth Reallocation in Time / Space

Risk Management / Diversification

General Insurance Shadow Banking Players

Best Market Information / Price Discovery

Incentive Issues / Asymmetric Information

Synergies between functions None High Medium Low

Focus of selective Business Models

2012 AlixPartners, LLP

From Steroids to Fair Play: GIBs Long Road to Industrialization

Financial Steroids: The Long-Term Cost of Short-Term Returns

2012 AlixPartners, LLP

From Steroids to Fair Play: GIBs Long Road to Industrialization

From Steroids to Fair Play: GIBs Long Road to Industrialization

From Steroids to Fair Play: GIBs Long Road to Industrialization

2012 AlixPartners, LLP

From Steroids to Fair Play: GIBs Long Road to Industrialization

Running The Same Plays: The Persistence of GIB Business Models

102 549 167 224

2012 AlixPartners, LLP

From Steroids to Fair Play: GIBs Long Road to Industrialization

BofA, Wells Fargo, JP Morgan, Citi JP Morgan Barclays ING