#DisruptingBanking

by Ziad AwadHow Technology, Regulation and Market Forces are

Disrupting Banking and creating new winners in Financial Services

About the speaker: Ziad Awad CEO of Awad Capital Ltd., a Dubai based, DFSA regulated

financial services firm specialising in M&A, Corporate Finance and the Capital Markets. Founded in 2013.

Previously worked with Goldman Sachs, Merrill Lynch and Bank of America for 18 years in Paris, London and Dubai

Started career in 1993 as a Fixed Income trader with Goldman Sachs and participated in the Electronic Commerce revolution that took place in Europe in the early 2000’s

Was Board Member and Executive Director of MTS Associated Markets, an Electronic Trading platform, between 2004 and 2006

What is disrupting banking?

Regulators Technology Market Forces Customers Expectations

What do customers Want ?

“Good Service” Attentive Fast Understanding

Cost efficient service Why pay a bank for a transfer if it can be done by

email? Access to products and services

Many potential customers are being excluded by the system

What is Banking ?The Banking Pyramid

Advising

Investing

Trading

AdvisingProprietary

Investing in companies

Trading financial instruments

Underwriting Stock and Bonds Issuance by

corporates

Lending to riskier corporates including SMEs

Lending to Prime Households, Governments and Corporates

Deposit Taking

Underwriting

HY Lending

HG Lending

Deposits

What is Banking ?How it used to be done – One Stop Shop

Investment Banking DivisionPrincipal

Investments, Private Equity ,

AMGlobal Markets

Division

Capital Markets Division

Commercial Banking Division

Corporate Banking Division

Retail Division

AdvisingProprietary

Investing in companies

Trading financial instruments

Underwriting Stock and Bonds Issuance by

corporates

Lending to riskier corporates including SMEs

Lending to Prime Households, Governments and Corporates

Deposit Taking

What is Banking ?The trouble with the One Stop Shop

IB DivisionPrincipal

Investments

Global Markets Division

Capital Markets Division

Commercial Banking Division

Corporate Banking Division

Retail Division

Conflicts

Access to capital

Pricing

Pricing and Quality of Service

What is Banking ?The Alternatives to the One Stop Shop

Investment Banking Division

Principal Investments, Private Equity and Asset Management

DivisionsGlobal Markets Division

Capital Markets Division

Corporate Banking Division

Corporate Banking Division

Retail Division

Boutique Investment BanksPrivate Equity Funds,

Independent AssetManagers, including Hedge

FundsHedge Funds

Independent Advice + Direct Placement

Non-Bank Lending – SMEs and High Yield

Non-Bank Lending - High Grade

Online Deposit, Transfer and Lending

Who will be the winners and losers?The One Stop Shop model is the big loser

Regulatory pressure to separate and spin-off non-banking activities Governments do not want another bailout

Cost of Capital makes lending and trading very expensive

Significant reduction in risk appetite Political pressure on compensation

structures accelerates the brain drain

The Winners are seeing rapid growthFintech is revolutionising retail banking

Picture credit: TransferWise Blog

“Banking will always be needed but banks as we know them could easily disappear” – Bill Gates 2,000 bank branches closed

in the UK over the last decade

A multitude of digital money transfer platforms are emerging, effectively cutting the cost of transfers close to zero Square Cash, Venmo, Paypal,

TransferWise …

The Winners are seeing rapid growthNon-Bank Lending is exploding

Non-Bank lending in the US is just above 50% of total lending In Europe the proportion is still closer to 25%

Technology is a huge enabler of non-bank lending Allows lower cost and more efficient connection of

lenders and borrowers A variety of winners will emerge, including

credit funds, peer-to-peer lending, social lending etc.

Picture credit: Graham Rowan Blog

A variety of winners will emerge, including credit funds, peer-to-peer lending, social lending etc.

Beyond their success at managing money and generating returns, Hedge Funds are also increasingly taking the role of liquidity providers as Banks’ risk appetite reduces

The Winners are seeing rapid growthHedge Funds are becoming mainstream

'90 '95 '00 '05 '10 '14-0.250.250.751.251.752.252.75

Estimated ass...

Hedge-fund assets have grown sharply since the early 1990s Values in $ trillion

Source: Hedge Fund Research

The Winners are seeing rapid growthPrivate Equity AUMs at a record highs

Dec-

00

Dec-

01

Dec-

02

Dec-

03

Dec-

04

Dec-

05

Dec-

06

Dec-

07

Dec-

08

Dec-

09

Dec-

10

Dec-

11

Dec-

12

Dec-

13

Jun-

14

0

500

1,000

1,500

2,000

2,500

3,000

418 374 360 465 554 675 898

1,265 1,204 1,413

1,783 2,029

2,332 2,546 2,644

All Private Equity: Unrealized Value, 2000 - 2014

Source: Preqin Performance Analyst

Unre

alize

d Va

lue

($bn

)

9 out of the top 20 advisers on M&A in the US in 2014 were independents, versus 5 in Europe

The Winners are seeing rapid growthThe big come-back of the M&A boutiques

United States Announced Deals (Any Involvement)

2014(1/1/14 - 12/31/14 )

Firm Rank MKTShare

VolumeUSD (bn)

Goldman Sachs & Co 1 33.8% 655.0 Bank of America Merrill Lynch 2 25.7% 496.8 JP Morgan Chase & Co 3 25.1% 486.2 Citigroup Inc 4 22.9% 444.8 Barclays PLC 5 22.2% 429.2 Morgan Stanley 6 22.1% 427.9 Lazard Ltd. 7 15.8% 305.1 Deutsche Bank AG 8 11.6% 224.6 Centerview Partners LLC 9 11.5% 222.2 Credit Suisse Group AG 10 11.3% 218.6 Evercore Partners Inc 11 5.5% 106.5 UBS AG 12 5.1% 99.6 Jefferies LLC 13 5.1% 99.5 Allen & Co Inc 14 4.6% 89.0 RBC Capital Markets 15 4.1% 79.7 Wells Fargo & Co 16 4.0% 77.5 Perella Weinberg Partners LP 17 4.0% 76.9 PJT Capital LP 18 3.9% 75.7 Rothschild Ltd 19 2.8% 54.1 Greenhill & Co Inc 20 2.3% 43.6

Total     $1,937.0

Europe Announced Deals (Target or Seller)

2014(1/1/14 - 12/31/14 )

Firm Rank MKTShare

VolumeUSD (bn)

Morgan Stanley 1 29.7% 268.4 Goldman Sachs & Co 2 29.3% 265.2 Lazard Ltd. 3 23.9% 216.3 Deutsche Bank AG 4 23.2% 210.4 Bank of America Merrill Lynch 5 19.1% 172.6 JP Morgan Chase & Co 6 18.4% 166.9 Rothschild Ltd 7 16.6% 150.3 Credit Suisse Group AG 8 15.8% 143.1 Citigroup Inc 9 15.6% 141.5 Barclays PLC 10 15.3% 138.3 BNP Paribas SA 11 13.1% 118.6 UBS AG 12 9.0% 81.2 Societe Generale SA 13 8.5% 76.7 HSBC Bank PLC 14 7.6% 68.7 Credit Agricole Corporate & IB SA 15 6.3% 56.6 Centerview Partners LLC 16 5.6% 50.9 Perella Weinberg Partners LP 17 4.3% 39.1 Zaoui & Co LLP 18 4.1% 37.5 Ernst & Young 19 3.2% 29.0 Banco Santander SA 20 2.3% 20.3

Total     $905.3 Includes Mergers, Acquisitions, Divestitures, Self-tenders and spinoffs. Excludes Open Market Transactions; Total Volume represents all announced transactions in US$ billions

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