The Outlook for Retail Banking in Europe and the US: The impact of the financial crisis on competitive positioning and market development

The Outlook for Retail Banking in Europe and the US: The impact of the financial crisis on competitive positioning and market development

The Outlook for Retail Banking in Europe and the US
The impact of the financial crisis on competitive positioning and market development

Report Overview

Global financial markets have suffered a serious impact from the financial crisis and economic recession. Only a few banks have escaped unscathed as the retail banking industry continues to adjust to shifts in the global financial and economic environment. The impact of these changes will drastically alter the retail banking landscape, with updated and coordinated international regulation, higher risk, capital shortages and a potential legislative separation of the retail and investment banking sectors.

‘The Outlook for Retail Banking in Europe and the US’ is a new report published by Business Insights that examines the impact of the financial crisis on the retail banking market in Europe and the US. It analyzes the current state of the sector, with an in-depth evaluation of the retail banking industry. Leading retail banks are assessed and ranked based on a variety of factors to compare performance, with key factors contributing to risk profiles and performance potential also provided. The report examines the influence of government intervention and explores the potential impact of future legislation upon the industry. It identifies the future implications for the retail banking market in Europe and the US in the next year and assesses emerging business models and corporate strategies for the future.

Key Findings

HSBC dominates the retail banking market in 2009, when assessed by total revenue. Citigroup’s total revenues have fallen by almost 40%, while Bank of America experienced a year-on-year increase of 10.8%.

The US is likely to lose its dominance of the retail banking market, while European banks are growing in stature and are better placed to take advantage of opportunities in 2009. However, concerns are rising in the UK over aggressive government intervention.

A separation of retail and investment activity is required to prevent a future crisis. Reducing proprietary activities that present particularly high risks has become a key regulatory issue for the retail banking industry.

The key challenges facing the banking industry over 2009-2010 will be shortages of capital liquidity/lack of funding, high credit costs, and global price volatility. A process of de-leveraging in most major banks will also result in increased pressure on balance sheets.

Smaller banks and new entrants may have a strategic advantage in the current financial climate. Recent data in the US suggests continued lending from smaller banks, as larger rivals retrench.

Use this report to

• Assess the condition of the retail banking market in 2009, understand the factors that led to the current financial situation and determine the retail banking outlook in Europe and the US over 2009/10.

• Identify how the competitive dynamics of the global retail banking market have changed by comparing and ranking leading banks across a number of variables including market share, total revenue, net income, retail revenue, safety and brand value.

• Evaluate the future prospects of leading retail banks by using this report’s matrix analysis to compare performance and risk exposure for HSBC, Bank of America, JP Morgan Chase, Citigroup and Banco Santander.

• Understand the impact of current and future regulation on the retail banking market by examining the impact of government intervention and exploring the effects of new legislation upon operational performance and future risk.

Key issues...

Government intervention to support weaker banks.

Identify:
• which banks have used government aid,
• how recipient banks have deployed government aid,
• which banks will require further assistance,
• the social and political issues surrounding the government aid supplied by the US, UK, and Europe.

The potential impact of new regulation.

Understand:
• the implications of recently introduced regulation,
• future EU and US legislation scenarios,
• the concerns over the impact aggressive regulation may have in restricting the recovery of the industry.

The debate surrounding the banking business model.

Understand:
• the flaws/benefits of balance sheet versus securitization intermediation,
• the call to separate future retail and investment activities.

Public confidence in the retail banking industry.

Analyse:
• the impact of lost consumer confidence
• the strain this is placing on the recovery of the financial sector
• the strategies that can restore public faith.

Table of Contents
The Outlook for Retail Banking in Europe and the US Executive summary 10
Introduction 10
Current market position 10
Competitive dynamics 10
Competitive benchmarking 11
Legislation & regulation 12
The outlook for 2009-2010 12
Chapter 1 Introduction 16
What is this report about? 16
Methodology 17
Chapter 2 Current market position 20
Summary 20
Introduction 20
The origins of the Financial Crisis 20
Financial Crisis Timeline: 2007-2009 21
1. US Sub-Prime Crisis & the start of the 2007 Credit Crunch 21
2. An attempt at recovery 21
3. The first big losses 21
4. The start of the 2008 Global Financial Crisis 22
5. The banks begin to fall 22
6. Black September 23
7. Rescue Plans 23
8. A Financial Crisis becomes an Economic Crisis 24
9. The New Year brings no relief 25
The continuing risk 26
The retail banking market as of Q1 2009 27
Public trust has suffered 27
Uncertainty characterizes the market 27
The retail banking market has contracted 28
Chapter 3 Competitive dynamics 32
Summary 32
Introduction 32
Change in leading retail bank rankings 33
Market share increases of the top ten global banks 34
HSBC dominates retail banking in 2009 when compared by total revenue 35
European banks dominate when compared by total net income 36
Bank of America earned the highest revenue from retail sales in 2009 37
BBVA saw the highest net income from retail sales in 2009 38
Other performance ranking metrics 40
HSBC comes first in terms of Brand Value 40
German banks dominate when ranked by safety 41
Chapter 4 Competitive benchmarking 44
Summary 44
Introduction 45
Key performance indicators in the global retail market 45
HSBC 47
Summary 47
Recent activity 47
Financial strength 48
Performance analysis 49
Risk analysis 50
SWOT 53
Bank of America 54
Summary 54
Recent activity 54
Financial strength 56
Performance analysis 57
Risk analysis 58
SWOT 60
JP Morgan Chase 61
Summary 61
Recent activity 61
Financial strength 63
Performance analysis 64
Risk analysis 65
SWOT 66
Citigroup 67
Summary 67
Recent activity 67
Financial strength 69
Performance analysis 69
Risk analysis 70
SWOT 71
Banco Santander 72
Summary 72
Recent activity 72
Financial strength 74
Performance analysis 75
Risk analysis 76
SWOT 78
Consolidated performance matrix 79
Consolidated risk matrix 80
Shifting regional and competitive dominance 81
US banks face growing fears of nationalization 81
The “Bad Bank” strategy is growing more popular 82
Bank of America and Citigroup are unlikely to survive intact 82
JP Morgan Chase and Wells Fargo are the best-placed US banks in 2009 83
Canadian banks are growing increasingly dominant 83
European banks face a worrying capital deficit 84
UK banks are losing their autonomy 85
Nationalization has permanently altered the UK banking landscape 85
Organic diversification is preferable to acquisition 87
Chapter 5 Legislation & regulation 90
Summary 90
Introduction 90
The current banking model is under debate 91
Balance sheet versus securitization intermediation 91
Should retail and investment banking activities be separated? 93
Expansionist policies are a priority 96
Short term goals are needed to limit impact of crisis 96
Long term goals must be implemented to prevent future crises 97
Lessons can be learned from past mistakes 99
The Swedish banking crisis offers valuable lessons 99
Japan failed to act swiftly enough to prevent its own crisis 101
Are we learning from their mistakes? 102
Regulation must centralize 103
An idiosyncratic approach is no longer practicable 103
Greater sectoral analysis is needed 104
Fragmented European approach must be made into unified front 104
France and Germany call for stringent regulation while UK and US push for fiscal stimulus 105
G20 vetoes international regulator 106
A new Financial Stability Board will monitor cross-border consistency 106
Regulation of the financial industry will be extended 106
New legislation may impact banks’ ability to function 107
Free market vs. state intervention 107
Strict capital & liquidity requirements will restrict banking activity 108
Compensation will be more tightly controlled 109
Operational challenges creating an open playing field 110
The US will no longer dominate retail banking 111
Key legislation 111
Selected Government intervention as a result of the 2008 crisis 112
The US Financial Stability Plan 112
The UK Banking Act 2009 113
Economic Recovery Plan 113
Chapter 6 The outlook for 2009-2010 116
Summary 116
Introduction 116
Forecast for economic growth in 2009-2010 117
World growth is expected to decline 117
The retail sector is now having an adverse effect on banks 118
Governments will continue providing fiscal stimulus through 2010 119
Key risks facing the banking industry 120
Banks must update their business models to survive 121
New criteria for success 122
Consolidation may hold hidden dangers 123
Smaller banks may have a strategic advantage 124
The road lies open for new enterprise 125
Multinational scope of banking may reduce 125
Long-term implications for the retail banking industry 126
Risk is vital in predicting future performance 127
Regulation will have the biggest impact on retail banking in 2009-2010 127
Chapter 7 Appendix 130
Research methodology 130
Retail Revenue & Net income Data, Chapter Two 130
Consolidated performance & risk matrices, Chapter 4 131
Exchange Rates 131
Glossary 132
Index 134
List of Figures
Figure 2.1: Retail banking market value 2007 compared to 2009 ($bn) 28
Figure 3.2: Change in leading retail bank rankings, 2008 and 2009 33
Figure 3.3: Top ten global retail banks by total revenue ($bn), 2007 and 2008 36
Figure 3.4: Top ten retail banking brands 2009 (brand value in $bn) 40
Figure 4.5: HSBC SWOT analysis 53
Figure 4.6: Bank of America SWOT 60
Figure 4.7: JP Morgan Chase SWOT 66
Figure 4.8: Citigroup SWOT 71
Figure 4.9: Banco Santander SWOT 78
List of Tables
Table 2.1: Top ten worldwide banks by market capitalization at Jan 15th 2009 29
Table 3.2: Top ten global retail banks by market share, 2008 34
Table 3.3: Top ten global banks by market share, 2009 (estimated) 35
Table 3.4: Leading global retail banks by total net income ($bn), 2009 37
Table 3.5: Global banks by retail revenue ($bn), 2009 38
Table 3.6: Global banks by net income from retail segments ($bn), 2007 and 2008 39
Table 3.7: Top ten safest banks in the world, 2009 41
Table 4.8: HSBC summary 47
Table 4.9: Bank of America summary 54
Table 4.10: JP Morgan Chase Summary 61
Table 4.11: Citigroup Summary 67
Table 4.12: Banco Santander summary 72
Table 4.13: Consolidated performance matrix of top ten global retail banks by revenue 79
Table 4.14: Consolidated risk matrix of top ten global retail banks by revenue 80
Table 7.15: Business segments by bank 130
Table 7.16: Exchange rates used in this report 131