miklooo
April 11, 2013
BLUE PAPER
MORGAN ST ANLEY RESEARCH
Global
Banks
1
Huw van Steenis
+44 (0)20 7425 9747
Bruce Hamilton
1
+44 (0)20 7425 7597
Betsy Graseck
2
+1 212 761 8473
1
Hubert Lam
+44 (0)20 7425 3734
Michael Cyprys
2
+1 212 761 7619
Ted Moynihan
+44 (0)20 7852 7555
James Davis
+44 (0)20 7852 7631
Wholesale & Investment Banking Outlook
Global Banking Fractures: The Implications
Maria Blanco
The bad news: The fracturing of global banking driven by Balkanisation has become one of the largest challenges for wholesale banks, taking 2-3% points off RoEs. Disjointed international policies pose the biggest threat. This presents a major challenge for non-US players who face higher costs to access the single most profitable market in the world – the US. It makes a profitable hub and spoke model in Asia and emerging markets much more challenging.
Hiten Patel
The good news: We think the market has overestimated the impact of the transformation of OTC markets on banks earnings. We estimate a 3-5% point base case fall in sales and trading revenues by 2015 vs. investors pricing in 10-20%, a thesis supported by our recent investor survey. We also see potential for collateral management earnings to offset lost revenues, though we think only a small number of firms will really benefit.
The fixed cost challenge: Much higher fixed costs against subdued revenues are proving a huge challenge. Many banks have started to embrace our “Decision Time” thesis, but the focus must shift from RWAs, capital and funding to managing the operational gearing. The quest for economies of scale/scope, and lower platform costs will lead to more tough portfolio decisions, particularly for mid-sized wholesale banks.
The bottom line: We think 12-14% returns on allocated capital are plausible in 2014-16 through restructuring and some cyclical recovery, but that the skew of winners and losers will be even greater as
BLUE PAPER
MORGAN ST ANLEY RESEARCH
Global
Banks
1
Huw van Steenis
+44 (0)20 7425 9747
Bruce Hamilton
1
+44 (0)20 7425 7597
Betsy Graseck
2
+1 212 761 8473
1
Hubert Lam
+44 (0)20 7425 3734
Michael Cyprys
2
+1 212 761 7619
Ted Moynihan
+44 (0)20 7852 7555
James Davis
+44 (0)20 7852 7631
Wholesale & Investment Banking Outlook
Global Banking Fractures: The Implications
Maria Blanco
The bad news: The fracturing of global banking driven by Balkanisation has become one of the largest challenges for wholesale banks, taking 2-3% points off RoEs. Disjointed international policies pose the biggest threat. This presents a major challenge for non-US players who face higher costs to access the single most profitable market in the world – the US. It makes a profitable hub and spoke model in Asia and emerging markets much more challenging.
Hiten Patel
The good news: We think the market has overestimated the impact of the transformation of OTC markets on banks earnings. We estimate a 3-5% point base case fall in sales and trading revenues by 2015 vs. investors pricing in 10-20%, a thesis supported by our recent investor survey. We also see potential for collateral management earnings to offset lost revenues, though we think only a small number of firms will really benefit.
The fixed cost challenge: Much higher fixed costs against subdued revenues are proving a huge challenge. Many banks have started to embrace our “Decision Time” thesis, but the focus must shift from RWAs, capital and funding to managing the operational gearing. The quest for economies of scale/scope, and lower platform costs will lead to more tough portfolio decisions, particularly for mid-sized wholesale banks.
The bottom line: We think 12-14% returns on allocated capital are plausible in 2014-16 through restructuring and some cyclical recovery, but that the skew of winners and losers will be even greater as