investment banking & capital markets quarterly · 2013-07-25 · investment banking &...
TRANSCRIPT
INVESTMENT BANKING & CAPITAL MARKETS
Market Report – Q4 2002 Edition
New York, Frankfurt
February 18th, 2003
THE BOSTON CONSULTING GROUP
-1-Q4 2002 Market Report-BR-AL-NYC-18Feb03.ppt
TABLE OF CONTENTS
Chapter Page
Executive summary
Overview of 4th quarter 2002
Lessons from 2002
Market review
• Fixed income origination
• Equity origination
• Mergers and acquisitions
• Equity trading
Data definitions
2
5
12
25
53
-2-Q4 2002 Market Report-BR-AL-NYC-18Feb03.ppt
Executive Summary
-3-Q4 2002 Market Report-BR-AL-NYC-18Feb03.ppt
SEVERAL INVESTMENT BANKS SHOW SURPRISING PROFITABILITY DESPITE A DIFFICULT MARKET
Pure investment banks fared better than integrated corporate and investment banks in 2002 with the exception of Citigroup
• Profit margins of pure investment banks(1) on average at 26.5% in 2002• High loan loss provisions at integrated players(2) lead to lower profit margins of 19.0%
Success of midsize players reflects strong focus on products or market segments• Bank of Montreal, Barclays Capital, and Wachovia achieved pre-tax profit margins of
over 30% despite the difficult market situation
4th quarter investment banking results continued to be driven by cost cutting activities• Revenues remained at 3rd quarter levels, slightly down by 1% on average• Profit margins improved by 5 percentage points from previous quarter
However, future earnings growth may require an increase of revenues from investment banking business and industry is in dire need of improving market conditions
• Average quarterly revenue of top banks has declined by 39% since 1st quarter 2001
(1) Goldman Sachs, Morgan Stanley, Merrill Lynch, Lehman Brothers(2) Citigroup, CSFB, Deutsche Bank, JPMChase, UBS
-4-Q4 2002 Market Report-BR-AL-NYC-18Feb03.ppt
SOME BANKS ACHIEVED PROFIT MARGINS OF OVER 30% DESPITE DISMAL MARKET IN 2002
2002Gross profitmargin (%)
2002 Revenues ($B)
0
10
20
30
40
0 5 10 15
Citi
JPMC
DBCSFB
GS
MSML
LB
ABN Amro
BNPP
US Bancorp
SocGen(1)
BofA
WachoviaBMO(1)
RBC
Pure Investment Banks
Midsize Investment Banks
SEBanken
CAI(1)CL(1)
BarclaysBearStearns
Integrated Investment Banks
UBS
(1) Includes investment banking as well as corporate banking businessNote: 2002 investment banking results unless stated otherwise; players which didn’t report full financial year 2002 results yet
were estimated based on first 9monthsSource: Company financial results, BCG analysis
-5-Q4 2002 Market Report-BR-AL-NYC-18Feb03.ppt
Overview of 4th Quarter 2002
-6-Q4 2002 Market Report-BR-AL-NYC-18Feb03.ppt
INVESTMENT BANKS’ 4TH QUARTER RESULTS DRIVEN BY COST CUTTING ACTIVITIES
BCG’s investment banking performance index improved 5% from 3rd quarter 2002
Though revenues declined slightly from 3rd quarter, additional cost cutting improved bottom line results for global investment banks
• Revenues remained steady at 3rd quarter levels, slightly down by 1% on average• Profit margins improved by 5% from previous quarter
Most investment banks in our group were able to improve margins, whereas rising credit costs hurt profitability at Citigroup and JPMC
Advisory and underwriting revenues improved while trading revenues lagged behind 3rd quarter 2002
• Advisory and underwriting revenues increased 12%• Trading-related revenues of top players declined 4% from previous quarter
(1) Goldman Sachs, Morgan Stanley, Merrill Lynch, Lehman Brothers
-7-Q4 2002 Market Report-BR-AL-NYC-18Feb03.ppt
BCG PERFORMANCE INDEX STAGNATING ON LOW LEVEL
BCG IB Performance IndexIndexed
44.642.648.651.4
56.956.1
80.171.469.8
108.2100
72.6
0
20
40
60
80
100
120
Q1/00 Q2/00 Q3/00 Q4/00 Q1/01 Q2/01 Q3/01 Q4/01 1Q/02 2Q/02 3Q/02 4Q/02
2000 2001 2002
Note: BCG IB performance index is calculated based on profitweighted volume trends in M&A, ECM, Equity Sales & Trading and Bond Origination
Source: Dealogic; SDC; Autex; BCG-analysis
-8-Q4 2002 Market Report-BR-AL-NYC-18Feb03.ppt
BOND UNDERWRITING AND M&A IMPROVED BUT EQUITY BUSINESS REMAINED SLUGGISH
020406080
100120140160
1Q00 3Q00 1Q01 3Q01 1Q02 3Q02
$BCorporate Bonds Origination
0100200300400500600700800
1Q00 3Q00 1Q01 3Q01 1Q02 3Q02
M&A Advisory(1)
$B
0
2
4
6
8
10
12
1Q00 3Q00 1Q01 3Q01 1Q02 3Q020
1020304050607080
1Q00 3Q00 1Q01 3Q01 1Q02 3Q02
Equity Origination Equity Trading
US
Asia
Europe
$B $tr
(1) Based on effective transactionsSource: Dealogic; SDC; FIBV, BCG-analysis
-9-Q4 2002 Market Report-BR-AL-NYC-18Feb03.ppt
COST FOCUS LEAD TO INCREASED PROFITABILITY IN 4TH QUARTER Q4/02 vs. Q3/02
10%
15%
20%
25%
30%
35%
40%
45%
0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 4.5
Revenues($B)Ø –0.8%
Ø+4
.7%
LB
ML
GS
MS(2)
JPMC(3)Citi(1)
DB
Gross profitmargin (%)
Q3/02
Q4/02
(1) Q4/02 results exclude a $2b reserve set aside for settlement with regulators and the civil litigation(2) At Morgan Stanley, compensation payments accrued in earlier periods resulted in very high profit margins in Q4/02(3) JPMC’s 3Q02 results exclude $1.3b in loan loss provisionsNote: Ø calculated on a revenue weighted basis; Operating revenue for investment banking and institutional sales and trading;
extraordinary charge-offs excluded; CSFB, UBS results for Q4/02 not yet reported Source: Company reports, BCG analysis
-10-Q4 2002 Market Report-BR-AL-NYC-18Feb03.ppt
PROFIT MARGINS ALSO HIGHER THAN A YEAR AGOQ4/02 vs. Q4/01
15%
20%
25%
30%
35%
40%
45%
0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 4.5
Revenues($B)Ø –11.7%
LB
ML
GS
MS(2)
JPMC
Citi(1)
Ø+0
.7%
DB
Gross profitmargin (%)
Q4/01
Q4/02
(1) Q4/02 results exclude a $2b reserve set aside for settlement with regulators and the civil litigation(2) At Morgan Stanley, compensation payments accrued in earlier periods drove high profit margins in 4th Quarter 2001 and 2002Note: Ø calculated on a revenue weighted; Operating revenue for investment banking and institutional sales and trading;
extraordinary charge-offs excluded; CSFB, UBS results for Q4/02 not yet reported Source: Company reports, BCG analysis
-11-Q4 2002 Market Report-BR-AL-NYC-18Feb03.ppt
ADVISORY AND UNDERWRITING REVENUES IMPROVED BUT TRADING REVENUES LAGGED 3RD QUARTER
10%
15%
20%
25%
30%
35%
40%
0.2 0.4 0.6 0.8 1.0 1.2
Advisory/Underwriting Revenues
Q4/02 vs. Q3/02
GS
LB
CitiMS
ML
JPMC
Revenues($B)Ø +11.7%
DB
Trading Related RevenuesQ4/02 vs. Q3/02
60%
65%
70%
75%
80%
0.5 1.0 1.5 2.0 2.5 3.0 3.5
MS
LBCiti
GS
JPMCTradingrev as% of totalrevenueQ4/02
Revenues($B)Ø –4.4%
ML
DB
IBD rev as% of totalrevenueQ4/02
Q3/02
Q4/02
Note: CSFB, UBS results for Q4/02 not yet reported;Source: Company reports; BCG-analysis
-12-Q4 2002 Market Report-BR-AL-NYC-18Feb03.ppt
Lessons from 2002
-13-Q4 2002 Market Report-BR-AL-NYC-18Feb03.ppt
KEY MARKET OBSERVATIONS IN 2002
Pure investment banks fared better than integrated corporate and investment banks – with the exception of Citigroup
• 2002 profit margins of top investment banks on average at 26.5% whereas average margins of integrated players declined to 19.0%
Integrated corporate and investment banks who supported investment banking business with corporate loans were hurt by high loan loss provisions in 2002
• Loan loss provisions of integrated players doubled to more than $8b in 2002
Midsize players need a clear focus to be successful• Players who focused on a specific market segment or industry segment reached
higher profit margins than their unfocused competitors
-14-Q4 2002 Market Report-BR-AL-NYC-18Feb03.ppt
‘PURE’ INVESTMENT BANKS FARED BETTER THAN INTEGRATED PLAYERS
FY2002 vs. FY2001
2001
20025%
10%
15%
20%
25%
30%
35%
40%
2.5 5.0 7.5 10.0 12.5 15.0
Revenues($B)Ø –13.9%
Ø–4
.2% LB
ML
GS
MS
JPMC
Citi
CSFB
DB
(1) GS, LB, ML, MS(2) Citi, CSFB, DB, JPMC, UBSNote: Ø calculated on a revenue weighted; Operating revenue for investment banking and institutional sales and trading;
extraordinary charge-offs excludedSource: Company reports, BCG analysis
UBS
Avg. marginspure I-banks:
26.5%(1)
Avg. marginsintegratedI-banks(2):
19.0%
Gross profitmargin (%)
-15-Q4 2002 Market Report-BR-AL-NYC-18Feb03.ppt
THREE MAIN REASONS WHY PURE INVESTMENT BANKING PLAYERS FARED BETTER
Pure investment banks used flexible compensation expenses to adapt cost base quickly• Investment banks have high performance oriented share in overall compensation• E.g. Merrill Lynch’s compensation ratio declined from 50.5% in 1st quarter 2001 to
47.2% in 4th quarter 2002
Biggest global investment banks have superior deal economics
• Execution quality and top talent still the main selection criteria for investment banking mandates
Leading investment banks handed out credit more selectively and thus suffered less from loan loss provisions
• Pure investment banks avoided less profitable lending business during boom time
-16-Q4 2002 Market Report-BR-AL-NYC-18Feb03.ppt
SUPERIOR DEAL ECONOMICS OF PURE INVESTMENT BANKS IN ADVISORY AND UNDERWRITING
M&A Global ECM Global DCM GlobalAveragedeal size($M)
0
500
1000
1500
2000
0 100 200 300Number of deals
ABN
ML
MS
LB
DB
RothschildBNPP
Cazenove
Citi
ING
GS
JPMC
CIBC
UBS
SocGen
Coba
Lazard
CSFB
DKWHSBC
BS
BoA
Nomura0
50
100
150
200
250
300
350
400
0 50 100 150 200 250Number of deals
CSFBABN
CitiDB
DKW
GS
MS
UBS
MLJPMC
BS
LB
BoA
SocGen
Nomura
HSBC
CazenoveBNPP
ING
DaiwaCIBCWachovia
Coba
Averagedeal size($M)
Averagedeal size($M)
0
50
100
150
200
0 400 800 1200 1600Number of deals
JPMC
LB
ABN
HSBC
Citi
CSFB
DB
GS
MS
Mizuho
CIBCING
UBS
BNPPDKW
BoABS
Nomura
WachoviaDaiwaBaclays
WachoviaUSBC
-17-Q4 2002 Market Report-BR-AL-NYC-18Feb03.ppt
LOAN LOSS PROVISIONS AT INTEGRATED CORPORATE AND INVESTMENT BANKS DOUBLED IN 2002
Credit loss provisions
-100%
-50%
0%
50%
100%
150%
4Q02 vs3Q02
4Q02 vs4Q01
2002 vs 2001
Growth
-38% -4%
DB
JPMC
Total
Citi
99%
CSFB
UBS
270 286 212671 611 455
710 829164
328 210 438
681 372
167268
618
282 306
1315
489
172 198
469
199 252
549
333
-19
3195
57
-200
200
600
1,000
1,400
1,800
2,200
2,600
3,000
3,400
3,800
1Q01 2Q01 3Q01 4Q01 1Q02 2Q02 3Q02 4Q02
$M
474805
666
2119
13261467
3270
2041
(1)
Support of investment banking business by lending without tight risk control backfired in recession
Support of investment banking business by lending without tight risk control backfired in recession
(1) Q4/02 loan loss provisions for UBS, CSFB estimated based on avg. first 9 months averageSource: Company reports
-18-Q4 2002 Market Report-BR-AL-NYC-18Feb03.ppt
FOCUSED MIDSIZE PLAYERS OPERATED SUCCESSFULLY IN 2002FY2002 vs. FY2001
Revenues($B)
-30%
-20%
-10%
0%
10%
20%
30%
40%
50%
0.0 1.0 2.0 3.0 4.0 5.0 6.0
BNPP
BMO(1)
CAI(1)
ABNAmro
BarclaysCapital
BofA
CIBCWorldmarkets
CL(1)
RBCCapital
S-E Banken
SocGen(1)
Wachovia
U.S.Bancorp
Gross profitmargin (%)
2001
2002
Note: 2002 results; players which haven’t reported full financial year 2002 results yet, were estimated based on first 9 months.Investment banking results only unless other stated
(1) Includes investment banking as well as corporate banking businessSource: Company financial results, BCG analysis
-19-Q4 2002 Market Report-BR-AL-NYC-18Feb03.ppt
SUCCESS OF STRONG MIDSIZE PLAYERS REFLECTS FOCUS
Wachovia leveraged large corporate product capabilities to serve their middle market customer franchise
• Limited exposure to large corporates• Aligned investment banking cost base to economics of middle market segment• Achieved profit margin of almost 40% in 2002
Bank of Montreal focused successfully on middle market customers and selected industry sectors
• Concentrated on middle market franchise in the Midwest• Continued to build historic market niche in media, communications, and energy• Improved investment banking margins by 8 percentage points in 2002
Barclays Capital continued to profit from its concentration on the debt business• Thereby benefiting from the current market conditions• One of the only banks which increased investment banking revenues in 2002
Focus on core business segments and align all resources behind them• Successful midsize players cooperate with global banks in the front office
while they outsource back office operations and IT
Focus on core business segments and align all resources behind them• Successful midsize players cooperate with global banks in the front office
while they outsource back office operations and IT
-20-Q4 2002 Market Report-BR-AL-NYC-18Feb03.ppt
2003 INVESTMENT BANKING AGENDA
From product focused to customer centric investment banking• Increased emphasis on client facing activities in investment banking as well as sales
and trading divisions
Improve cooperation between corporate and investment banking• Maximize overall client profitability• Reduce exposures in unprofitable segments and lower grade credits
Manage economics of equity research• Adjust analyst compensation to market environment• Reflect regulatory context in terms of cost allocation changes• Streamline sector coverage by merging some sectors and withdrawing from non-core
sectors – align with sector focus in investment banking division
-21-Q4 2002 Market Report-BR-AL-NYC-18Feb03.ppt
FROM PRODUCT FOCUSED TO CUSTOMER CENTRIC INVESTMENT BANKING
Increased client demand for structured products requires a combined equity and debt offering approach (e.g. structured equity derivatives, convertible bonds, etc.)
• Merge equity and debt capital markets divisions• Centralize information flow to maximize client penetration• Opportunity to improve client coverage at given headcount and to eliminate
redundancies
Reduced number of industry sector groups creates critical mass and scale • Merge or focus industry sectors: Wider scope definition of industry sector increases
flexibility within group• Resize capacity• Raise the number of people directly serving the client and allow more creative deal
structuring
-22-Q4 2002 Market Report-BR-AL-NYC-18Feb03.ppt
MAXIMIZE CLIENT FACING ACTIVITIES IN INVESTMENT BANKING DIVISION
Productspecialists
ClientCRM
Productspecialists
SectorGroups
ClientCRM
SectorGroups
EquityCapitalMarkets
GlobalCapitalMarkets
DebtCapital markets
Increase client coverage with fewer or same headcount Increase client coverage with fewer or same headcount
-23-Q4 2002 Market Report-BR-AL-NYC-18Feb03.ppt
COOPERATION OF INVESTMENT BANKING AND ‘CREDIT’ IS BASED ON FOUR PILLARS
Increase credit risk transparency of credit risk via an integrated credit risk management system
Knowledge of credit risk allows adequate pricing or decline of investment banking business
Risk-based pricing of investment banking deals improves client profitability across products and across the complete business cycle
Implement client specific planning and target setting
Maximize client profitability and penetration of focus clientsMaximize client profitability and penetration of focus clients
Transparency
Risk-base pricing
Client profitability
Strategic prioritization
-24-Q4 2002 Market Report-BR-AL-NYC-18Feb03.ppt
STRATEGIC LEVERS TO IMPROVE ECONOMICS IN EQUITY RESEARCH
Revisit analyst compensation• Analysts acted and were paid like movie stars in the heydays of the dot-com
bubble
Reflect regulatory context in terms of cost allocation changes• Regulatory and business changes diminish the value of equity research to the
investment banking division
Align sector focus and quality of research with equity trading strategy• Meet demand of core buy-side clients
Increase cooperation between research analysts and equity sales people• Equity research not a stand-alone product but an integrated component of the
equity sales and trading strategy
-25-Q4 2002 Market Report-BR-AL-NYC-18Feb03.ppt
Market Review:
Fixed Income Origination
-26-Q4 2002 Market Report-BR-AL-NYC-18Feb03.ppt
Fixed Income Origination
BOND ORIGINATION IMPROVED SLIGHTLY IN 4TH QUARTER 2002Fixed Income Origination
Bond originations recovered slightly from 3rd quarter 2002 helped by declining interest rate spreads and another round of interest rate cuts by Central Banks in Europe and the U.S.
• Overall bond originations volumes improved 8% from previous quarter
• Corporate bond issuance picked up 29% in 4th quarter
Bond issuance supported investment banking results throughout 2002
• Fixed income volumes down by only 5% from record year 2001
European investment banks regained market share back U.S. investment banks in Europe
• Barclays, ABN Amro and Société Generale particularly strong in 2002
Market leader positions fairly stable in 2002
• Citigroup, JPMC, Deutsche Bank and Nomura remained strongest players in bond underwriting
-27-Q4 2002 Market Report-BR-AL-NYC-18Feb03.ppt
Fixed Income OriginationFixed Income Origination
BOND ORIGINATION VOLUMES IMPROVED SLIGHTLY
Market volumes
-13%-6%
12%
-3%
15%5%
-4%-12%
9%
-100%
-80%
-60%
-40%
-20%
0%
20%
40%
60%
80%
100%
4Q/02 vs. 3Q/02 4Q/02 vs. 4Q/01 12M02 vs 12M01
Growth
Global
US
Asia
Europe
8%
-5%-11%
272 226148
223 233 221 170 195
524551
449
523568
493
437460
43 95
39
5543
66
5661
0
100
200
300
400
500
600
700
800
900
1000
Q1/01 Q2/01 Q3/01 Q4/01 Q1/02 Q2/02 Q3/02 Q4/02
$B839
872
636
801844
780
663715
Source: Dealogic; SDC; BCG-analysis
-28-Q4 2002 Market Report-BR-AL-NYC-18Feb03.ppt
Fixed Income OriginationFixed Income Origination
BOND TRANSACTION SIZES IN EUROPE AND ASIA STILL RELATIVELY SMALL
Number of transactions
1178 1168 894 1115 1224 1220 1153 1354
27473175
23412452 2466 2607 2465 2236
531
1059
475426 486 500 554 610
0
1000
2000
3000
4000
5000
6000
Q1/01 Q2/01 Q3/01 Q4/01 Q1/02 Q2/02 Q3/02 Q4/02
41764456
5402
37103993
41724327 4200
Average transaction size
0
50
100
150
200
250
300
Q1/01 Q2/01 Q3/01 Q4/01 Q1/02 Q2/02 Q3/02 Q4/02
$M
Global
US
Asia
Europe
202188
161 171201
180159
170
Note: Number of transactions in the US and Asia includes double countingof domestic and international tranches
Source: Dealogic; SDC; BCG-analysis
-29-Q4 2002 Market Report-BR-AL-NYC-18Feb03.ppt
Corporate BondsCorporate Bonds
CORPORATE BOND MARKET GREW BY 30% FROM 3TH QUARTER
Market volumes
-31%-42%
35%
27%
-41%-52%
-12%
-13%
24%
-100%
-80%
-60%
-40%
-20%
0%
20%
40%
60%
80%
100%
4Q/02 vs. 3Q/02 4Q/02 vs. 4Q/01 12M02 vs 12M01
Growth
29%
-44%
Global
US
Asia
Europe
-35%
79 7841
66 53 6328 38
132 146
87
116
93 90
4355
2529
19
25
1828
18
22
0
50
100
150
200
250
300
Q1/01 Q2/01 Q3/01 Q4/01 Q1/02 Q2/02 Q3/02 Q4/02
$B
236253
147
207
164181
89
115
Source: Dealogic; SDC; BCG-analysis
-30-Q4 2002 Market Report-BR-AL-NYC-18Feb03.ppt
Corporate BondsCorporate Bonds
BUT AVERAGE TRANSACTION SIZE REMAINED SMALL
Number of transactions
221 238148 204 186 207 138 165
364472
240
342255
312
206230
268
292
294
219
225202
147224
0
200
400
600
800
1000
1200
Q1/01 Q2/01 Q3/01 Q4/01 Q1/02 Q2/02 Q3/02 Q4/02
853
1002
682
765
666
491
721
619
Average transaction size
0
50
100
150
200
250
300
350
400
450
500
Q1/01 Q2/01 Q3/01 Q4/01 Q1/02 Q2/02 Q3/02 Q4/02
$M
Global
US
Asia
Europe
246277252
215270
250
182186
Note: Number of transactions in the US and Asia include double countingof domestic and international tranches
Source: Dealogic; SDC; BCG-analysis
-31-Q4 2002 Market Report-BR-AL-NYC-18Feb03.ppt
Fixed Income Origination
EUROPEAN INVESTMENT BANKS REGAINED SHARE FROM BULGE BRACKET IN EUROPE
Fixed Income Origination
All bonds US
0%
20%
40%
60%
80%
100%
0% 20% 40% 60% 80% 100%Relative market-position 2001
Barclays
Gained share
Lost shareHSBC
GS
DB
CSFB
ML
MS
Citi
JPMC
LB
UBS
BS
Wachovia
ABN
BoA
All bonds Europe
0%
20%
40%
60%
80%
100%
0% 20% 40% 60% 80% 100%Relative market-position 2001
BNP
ABN
HSBCSG
Nomura
Barclays
Gained share
Lost share
GS
DB
CSFBML
MS
Citi
DKW
JPMC
LB
UBS
Coba
BoAMizuhoDaiwa
Relativemarket-position2002
Relativemarket-position2002
Source: Dealogic; SDC; BCG-analysis
-32-Q4 2002 Market Report-BR-AL-NYC-18Feb03.ppt
Fixed Income OriginationFixed Income Origination
JAPANESE BANKS CONTINUED TO DOMINATE ASIAN BOND UNDERWRITING
All bonds Asia
0%
20%
40%
60%
80%
100%
0% 20% 40% 60% 80% 100%Relative market-position 2001
HSBC
Gained share
Lost share
MitsubishiTokyo
Mizuho
Daiwa
Nomura
GSCSFB
ML
Citi
JPMCUBS
MS
ABN
DB
SG BNP
Barclays
Relativemarket-position2002
Source: Dealogic; SDC; BCG-analysis
-33-Q4 2002 Market Report-BR-AL-NYC-18Feb03.ppt
Corporate BondsCorporate Bonds
JPMC STRONGEST CORPORATE BOND UNDERWRITER IN THE U.S.
Corporate bonds Europe
0%
20%
40%
60%
80%
100%
0% 20% 40% 60% 80% 100%
HSBC
SG
Barclays
BNP
Gained share
Lost share
ABNGS
DB
CSFB
ML
MS
Citi
DKW
JPMC
LBUBS
BoA
Coba
Relative market-position 2001
INGMizuho
Corporate bonds US
0%
20%
40%
60%
80%
100%
0% 20% 40% 60% 80% 100%
Gained share
Lost shareBarclays
GS
DBCSFB
MLMS
CitiJPMC
LB
BS
UBS
Wachovia
BoA
Relative market-position 2001
Relativemarket-position2002
Relativemarket-position2002
Source: Dealogic; SDC; BCG-analysis
-34-Q4 2002 Market Report-BR-AL-NYC-18Feb03.ppt
Corporate BondsCorporate Bonds
JAPANESE BANKS LOST SHARE IN ASIAN CORPORATE BONDS
Corporate bonds Asia
0%
20%
40%
60%
80%
100%
0% 20% 40% 60% 80% 100%
Nomura
MitsubishiTokyo
Gained share
Lost share
Daiwa
BarclaysGS DB
CSFBML
MS
Citi
JPMC
Mizuho
UBS
Relative market-position 2001
ABN
HSBC
Relativemarket-position2002
Source: Dealogic; SDC; BCG-analysis
-35-Q4 2002 Market Report-BR-AL-NYC-18Feb03.ppt
Market Review:
Equity Origination
-36-Q4 2002 Market Report-BR-AL-NYC-18Feb03.ppt
ECMECM
2002 A TERRIBLE YEAR FOR EQUITY CAPITAL MARKETS
Equity origination in 4th quarter again hit by economic downturn and uncertain stock markets• Equity issuance in 4th quarter down by 17% from previous quarter• Asian equity origination declined by almost 50% from 3rd quarter
Global equity underwriting volumes declined by 18% in 2002 compared with last year
Citigroup won biggest U.S. equity mandates and took the top market position from the bulge bracket
Goldman Sachs became top European equity underwriter in 2002• Winning the lead from Merrill Lynch
-37-Q4 2002 Market Report-BR-AL-NYC-18Feb03.ppt
ECM
ECM VOLUMES DECLINED DESPITE SLIGHT INCREASE IN U.S. ECM
Market volumes
-39%-48%
-19%
1%
-11%-21%
9%
-23%
-54%
-100%
-80%
-60%
-40%
-20%
0%
20%
40%
60%
80%
100%
4Q/02 vs. 3Q/02 4Q/02 vs. 4Q/01 12M02 vs 12M01
Growth
-17% -18%
Global
US
Asia
Europe
44%
2840
1624 24 30
17 15
26
36
15
3224
31
13 15
15
9
13
10
11
13
158
0
20
40
60
80
100
Q1/01 Q2/01 Q3/01 Q4/01 Q1/02 Q2/02 Q3/02 Q4/02
$B
69
85
44
6659
74
4537
Source: Dealogic; SDC; BCG-analysis
-38-Q4 2002 Market Report-BR-AL-NYC-18Feb03.ppt
ECMECM
AVERAGE ASIAN TRANSACTION SIZE REMAINED VERY SMALL
Number of transactions Average transaction size
0
50
100
150
200
250
300
Q1/01 Q2/01 Q3/01 Q4/01 Q1/02 Q2/02 Q3/02 Q4/02Global
US
Asia
Europe
137
13897
108
106
105
112
87
$M
156 19073 122 105
15964 78
142179
116
209162
206
4799
200
244
262
280
290
343
290249
0
100
200
300
400
500
600
700
800
Q1/01 Q2/01 Q3/01 Q4/01 Q1/02 Q2/02 Q3/02 Q4/02
557498
613
451
611
708
401 426
Note: Number of transactions in the US and Asia includes double countingof domestic and international tranches
Source: Dealogic; SDC; BCG-analysis
-39-Q4 2002 Market Report-BR-AL-NYC-18Feb03.ppt
ECM
CITIGROUP WON LEAD FROM GOLDMAN IN U.S. -GOLDMAN TOOK LEAD FROM MERRILL IN EUROPE
ECM
0%
20%
40%
60%
80%
100%
0% 20% 40% 60% 80% 100%
Gained share
Lost share
ECM US
GS
DB
CSFB
ML
MS
Citi
JPMC
LB
UBSBS
BoA
Relative market-position 2001
0%
20%
40%
60%
80%
100%
0% 20% 40% 60% 80% 100%
Gained share
Lost share
ECM Europe
ABN
SG
GS
DB
CSFBML
MS
Citi
DKW
JPMC
UBS
CazenoveHSBC
LBBNP
Relative market-position 2001
ING
Relativemarket-position2002
Relativemarket-position2002
Source: Dealogic; SDC; BCG-analysis
-40-Q4 2002 Market Report-BR-AL-NYC-18Feb03.ppt
ECMECM
UBS SUCCESSFUL IN ASIA
0%
20%
40%
60%
80%
100%
0% 20% 40% 60% 80% 100%
Gained share
Lost share
ECM Asia
Nomura
DaiwaGSML
Citi
JPMC
UBS
DBCSFB
MS
Relative market-position 2001
ABN
BNP
Relativemarket-position2002
Note: Some local players were not trackedSource: Dealogic; SDC; BCG-analysis
-41-Q4 2002 Market Report-BR-AL-NYC-18Feb03.ppt
Market Review
Mergers and Acquisitions
-42-Q4 2002 Market Report-BR-AL-NYC-18Feb03.ppt
M&AM&A
M&A ADVISORY BUSINESS HAD A DIFFICULT YEAR
Global advisory volume in 2002 plunged by 41% from last year• Announced merger volumes returned back to 1994 levels
Upward trend in announced mergers and acquisitions continued in 4th quarter• Mainly driven by European and Asian mergers• 4th quarter volumes still 24% below last year’s 4th quarter level
Deutsche Bank gained market share in Europe and the U.S. • Top advisor in European m&a 2002
Goldman continues to be strongest advisory house globally
Dresdner Bank lost market share after departure of Bruce Wasserstein to Lazard
-43-Q4 2002 Market Report-BR-AL-NYC-18Feb03.ppt
M&A
M&A VOLUMES CONTINUED TO RECOVER –2002 VOLUMES STILL DOWN BY 40% FROM 2001
M&A
Market volumes: Effective deals
28%42%
-16%
33%
12%
-54%
-28%-35%
25%
-100%
-80%
-60%
-40%
-20%
0%
20%
40%
60%
80%
100%
4Q/02 vs. 3Q/02 4Q/02 vs. 4Q/01 12M02 vs 12M01
Growth
Global
US
Asia
Europe
20%
-3% -41%
163 137 131 106 90 112 110 141
451
208 257220
116 113 141158
52
120 45
42
2635
4860
0
100
200
300
400
500
600
700
800
Q1/01 Q2/01 Q3/01 Q4/01 Q1/02 Q2/02 Q3/02 Q4/02
$B666
465433
368
232260
299358
Note: Market volumes reflect true transaction volumes single-countedSource: Thomson SDC; BCG-analysis
-44-Q4 2002 Market Report-BR-AL-NYC-18Feb03.ppt
M&AM&A
AND ANNOUNCED DEALS DON’T INDICATE A STRONG REBOUND
Market volumes: Announced deals
60%
-31%
26%
-20%
41%
-52%-58%
-17%
5%
-100%
-80%
-60%
-40%
-20%
0%
20%
40%
60%
80%
100%
4Q/02 vs. 3Q/02 4Q/02 vs. 4Q/01 12M02 vs 12M01
Growth
Global
US
Asia
Europe
8%
-24% -37%
217 185110 109 108 138
96154
261
210305
245
106133
149103
61
64 42
46
33
5838 48
0
100
200
300
400
500
600
Q1/01 Q2/01 Q3/01 Q4/01 Q1/02 Q2/02 Q3/02 Q4/02
$B
539
459 457
400
247
329283 306
Note: Market volumes reflect true transaction volumes single-countedSource: Thomson SDC; BCG-analysis
-45-Q4 2002 Market Report-BR-AL-NYC-18Feb03.ppt
M&A
MORE DEALS COMPLETED IN 4TH QUARTER 2002 ESPECIALLY IN ASIA
M&A
Number of effective transactions(1)
531 504366 401
281 313 368 398
461337
352373
301 308326 311
253
228
175221
169212
221 264
0
200
400
600
800
1000
1200
1400
Q1/01 Q2/01 Q3/01 Q4/01 Q1/02 Q2/02 Q3/02 Q4/02
751
1245
1069
893995
833915
973
Average transaction size(1)
0
200
400
600
800
1000
Q1/01 Q2/01 Q3/01 Q4/01 Q1/02 Q2/02 Q3/02 Q4/02
$M
Global
US
Asia
Europe
278
499
398
449
338
277302
339
Note: (1) Only deals with advisorSource: Dealogic; SDC; BCG-analysis
-46-Q4 2002 Market Report-BR-AL-NYC-18Feb03.ppt
M&AM&A
DEUTSCHE BANK GAINED MARKET SHARE IN ADVISORY
0%
20%
40%
60%
80%
100%
0% 20% 40% 60% 80% 100%
M&A Europe
Lost share
Lazard
Rothschild
BNP
ABN
GSDB
CSFB
ML
MS
Citi
DKW
JPMC
LB
UBS
Gained share
SG
HSBC
INGCoba
Relative market-position 2001
Cazenove
M&A US
0%
20%
40%
60%
80%
100%
0% 20% 40% 60% 80% 100%
GSGained share
Lost share
DB
CSFB
ML
MS
Citi
DKW
JPMC
LBUBSBS
Rothschild
BoA
Relative market-position 2001
LazardCIBC
Relativemarket-position2002
Relativemarket-position2002
Note: Based on effective transactionsSource: Thomson SDC; BCG-analysis
-47-Q4 2002 Market Report-BR-AL-NYC-18Feb03.ppt
M&AM&A
CITIGROUP INCREASED ASIAN MARKET SHARE
M&A Asia
0%
20%
40%
60%
80%
100%
0% 20% 40% 60% 80% 100%
Lost share
GS
DB CSFB ML
MSCiti
JPMC
UBS
Nomura
Gained share
Rothschild
Daiwa
Mizuho
ING
ABNLB
Relative market-position 2001
Lazard
MitsubishiTokyo
Greenhill
Relativemarket-position2002
Note: Based on effective transactions; some local players were not trackedSource: Thomson SDC; BCG-analysis
-48-Q4 2002 Market Report-BR-AL-NYC-18Feb03.ppt
Market Review:
Equity Trading
-49-Q4 2002 Market Report-BR-AL-NYC-18Feb03.ppt
GLOBAL EQUITY TRADING VOLUME DOWN AGAIN
Fear of war with Iraq and economic slow-down depressed global stock market activity in 2002• Global equity trading volumes declined by 18% in 2002
Uncertain stock market environment continues in 2003• Global stock markets lost another 5% of their value in January 2003
Institutional equity trading is further commoditizing• Commissions decline• Electronic connectivity makes brokers interchangeable
Trading houses focus on high-margin businesses• Prime-brokerage services to alternative investors
Deutsche Bank lost share to competition in 2002 but remained dominant European institutional equity trading house
-50-Q4 2002 Market Report-BR-AL-NYC-18Feb03.ppt
Equity tradingEquity trading
EQUITY TRADING VOLUME DECREASED FURTHER
-6% -9%
6%
-22%-20%
-3%-19%-18%-6%
-100%
-80%
-60%
-40%
-20%
0%
20%
40%
60%
80%
100%
4Q/02 vs. 3Q/02 4Q/02 vs. 4Q/01 12M02 vs 12M01
Growth
Global
US
Asia
Europe
3.6 3.2 2.8 2.9 2.4 2.7 2.4 2.3
7.36.0
4.6 5.25.1 4.9
4.4 4.3
0.9
0.9
0.70.9
1.0 1.00.8 0.8
0
2
4
6
8
10
12
14
Q1/01 Q2/01 Q3/01 Q4/01 Q1/02 Q2/02 Q3/02 4Q/02
$tr 11,8
10,1
8,28,9
8,4
-5% -18%8,6
-18%
7,6
(1)
7,4
Market volumes
(1) Europe revised due to change in Euronext and Spanish Exchanges (BME) calculating method
Note: Single counted, includes investment funds traded at exchangesSource: FIBV; BCG-analysis
-51-Q4 2002 Market Report-BR-AL-NYC-18Feb03.ppt
Equity tradingEquity trading
DEUTSCHE REMAINED TOP PLAYER IN EUROPE BUT LOST SHARE TO COMPETITION
Institutional equity trading US
0%
20%
40%
60%
80%
100%
0% 20% 40% 60% 80% 100%
Fleet Boston
KnightGained share
Lost share
GS
DB
CSFB
ML
MSCiti
JPMC
LBUBS
BS BoA
ABN
Relative market-position 2001
CBICSG
Institutional equity trading Europe
0%
20%
40%
60%
80%
100%
0% 20% 40% 60% 80% 100%
ABN
HSBCBoA
Gained share
Lost share
GS
DB
CSFBMLMS
CitiDKW
JPMC
LB
UBS
Coba
Relative market-position 2001
Cazenove
SG
Relativemarket-position2002
Relativemarket-position2002
Note: ML includes HHG; GS includes SLK; DB includes NDB; ABN includes ING US;relative market positions are based on number of traded shares relative to market leader
Source: Autex; BCG-analysis
-52-Q4 2002 Market Report-BR-AL-NYC-18Feb03.ppt
Equity trading
CITIGROUP TOOK OVER LEAD IN ASIAN EQUITY TRADING –UBS ALSO STRONG
Equity trading
Institutional equity trading Asia
0%
20%
40%
60%
80%
100%
0% 20% 40% 60% 80% 100%
HSBC
ABN
Gained share
Lost share
ING
GS
DB
ML
MS
Citi
DKW
JPMC
LB
UBS
CSFB
Relative market-position 2001
Relativemarket-position2002
Note: Does not include Japanese players not reporting to Autex;relative market positions are based on number of traded shares relative to market leader
Source: Autex; BCG-analysis
-53-Q4 2002 Market Report-BR-AL-NYC-18Feb03.ppt
Data Definitions
-54-Q4 2002 Market Report-BR-AL-NYC-18Feb03.ppt
DATA DEFINITION OVERVIEW
Regional deal allocation is based on issuer’s country (parent issuer’s country where available). M&A deals are allocated by target nation.
European data are sourced from Dealogic; U.S. and Asian data from Thomson Financial Securities Data
Relative market shares are based on bookrunner league tables
Equity origination data include common stock IPOs and secondary issues
Bond origination data contain all convertible and non-convertible bonds including ABS, MBS, municipals, agency, and corporate bonds
Corporate bonds are limited to industrials and utilities excluding financial services issuers
Equity trading market data reflects institutional block trades as advertised in Autex Blockdata
Goldman Sachs’, Lehman Brothers’, and Morgan Stanley’s 4th quarter ended in November, all others in December 2002