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Financial Assessment of the Global Investment Banking Industry

  • December 2013
  • -
  • Frost & Sullivan
  • -
  • 88 pages

Conservatism, Stability, and Lower Returns—The New Norm for the Industry?

Executive Summary

The landscape of the investment banking industry has changed significantly since the financial crisis. The high-growth industry, half a decade ago, is now transformed to a single-digit or a stagnant growth industry. Investment banks that are claimed “too big to fail” are facing litigation issues that transfer into huge costs affecting profitability. Most investment banks have either already announced or are scheduled to announce their new business strategies or operating models that would make the organization leaner, more productive, and profitable. Several mergers, acquisitions, and spin-off transactions may take place in the next three years (2014 to 2017) as a result of the strategic initiatives taken by investment banks to discard their non-core business, while focusing and developing their core strengths.
As a result of widespread and unavoidable cost-saving measures, the investment banking industry has taken to adopting more efficient technology that reduces turnaround time, conservative risk management practices, caps on salaries of investment banking professionals, and downsizing of human resources. Basel III, the Dodd Frank Act, and other regulations have also impacted the capital base and other operating metrics of the investment banking industry as companies would have to incur additional costs to comply with these regulations.
All of the aforementioned factors have a huge impact on the financial profitability, stability, and strength of the investment banking industry. This research studies the financial and risk management trend with respect to ratio analysis that encompasses profitability, solvency, liquidity, and capital management ratios. A snapshot of ratio analysis for the financial year 2012 is presented in the next slide.
The global investment banking industry is expected to grow at xx% in 2014, reaching a total market size of $xx billion. North American investment banks would face a flat growth period but would still remain profitable, while European investment banks would struggle to remain stable and profitable. Asia-Pacific investment banks would continue to remain profitable but may be considered to be more risky than investment banks in Latin America and the Caribbean that are more stable, risk averse, and profitable. Investment banks in Africa and the Middle East are expected to remain profitable with high growth and increasing competition in 2014.

Key Study Objectives Include:

To analyze companies in the investment banking industry based on key financial metrics and financial ratios.
To identify key performance drivers and restraints that impact the current industry situation and develop an outlook for 2014.
To identify the best performers in the industry based on financial performance between 2007 and 2013 (first half).
To identify, compare, and assess regions/countries that are current and potential hubs of investment banking activity.
To identify the best practices of top performers and do a competitor analysis (by region) based on financial parameters.

Scope of the Study

- Study Period (time frame) : The study is based on financial year (FY) 2007 and FY 2012 for all global companies analyzed. It also includes the actuals of financial half (FH) 2013. The numbers of the second half (H2) of 2013 and FY 2014 are estimated. The base year is 2012.
- Regions Covered : Global: Divided into five regions. North America, Europe, Asia-Pacific, the Middle East and Africa, and Latin America and the Caribbean.
- Companies Covered : A total of xx public companies across the globe were surveyed as a part of the analysis in this study. The companies were chosen based on consistent availability of data throughout the study period.
- Ratios Covered : Six sets of ratios: Profitability Management, Cost Management, Capital Management, Solvency, and Liquidity Management.

Table Of Contents

Financial Assessment of the Global Investment Banking Industry
Executive Summary
Introduction
Key Market Statistics of the Global Investment Banking Industry
Ratio Analysis by Geography
Ratio Analysis by Revenue Range
Investment Banking—Top Performers
Conclusion
Glossary
The Frost and Sullivan Story

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