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Rewriting the rulebook
Despite the various challenges still facing the investment banking market, and the ongoing proliferation of regulation, 2015 has so far been a surprisingly good year. More prosperous times may well lie ahead
Since the 2008 financial crisis, a variety of regulatory initiatives have been introduced to improve the areas that enabled such grand-scale errors to take place. Consequently, a more robust and safe financial system has been created. During this development period, the investment banking sector has struggled more than other areas of banking. In the US, for example, the biggest investment banks are still grappling with the Federal Reserve’s low interest rates, in which savers are paid little for their deposits and low interest is earned from borrowers. Consequently, markets are squeezed and aggravated further by capital charges applied to lending, and in some cases on actual deposits. However, that being said, there are numerous positive indications for the industry this year.
Click to enlargeYes, regulations have taken their toll on fixed-income products, as have more arduous capital requirements and declining customer demands, but all-in-all, there has been a transformation in the landscape of the industry, creating a system that is more efficient and reliable; a new system is taking shape that is arguably superior to what existed prior to the crisis.
Some banks, for example Morgan Stanley and UBS, have reduced their investment banking activities to focus on other areas, such as wealth management. On the other hand, some firms have bolstered their operations in investment banking, while a small amount have left their previous business models intact. Investment banks are thus at different stages of their strategic realignment, but for all players, the process is far from complete. Those enforcing drastic changes to their business models face a sizeable challenge ahead, as they do so over various platforms, countries and continents. The execution of new strategies requires careful planning and close monitoring if institutions are to thrive in the new environment.
Equity market boom
Through the decade-long period of transition that investment banks are undergoing, the average return on equity has fallen from between 15 to 25 percent to levels that are currently below 10 percent. This drop is partnered with profits that are no longer as famously high as they were prior to 2007. Yet, following this long, drawn-out decline, and in spite of macroeconomic conditions still affecting confidence levels and risk appetite in general, it seems that equity turnover is finally bottoming out in 2015. Even though the industry’s return on equity is still underperforming, the global equity market has had a spectacular first quarter this year. According to Thomson Reuters, more than $242bn has been raised through IPOs and follow-on offerings in Q1 2015 – a record for the period (see Fig. 1). Modest growth is expected to continue in the US for 2015, while in Europe the scene is slightly more precarious due to deflationary pressure and a weaker equity capital market, despite low volatility. The outlook for equity revenue for Asian markets is robust, but faces its own challenges, namely, increasing tail risk.
Through the decade-long period of transition that investment banks are undergoing, the average return on equity has fallen from between 15 to 25 percent to levels that are currently below 10 percent. This drop is partnered with profits that are no longer as famously high as they were prior to 2007. Yet, following this long, drawn-out decline, and in spite of macroeconomic conditions still affecting confidence levels and risk appetite in general, it seems that equity turnover is finally bottoming out in 2015. Even though the industry’s return on equity is still underperforming, the global equity market has had a spectacular first quarter this year. According to Thomson Reuters, more than $242bn has been raised through IPOs and follow-on offerings in Q1 2015 – a record for the period (see Fig. 1). Modest growth is expected to continue in the US for 2015, while in Europe the scene is slightly more precarious due to deflationary pressure and a weaker equity capital market, despite low volatility. The outlook for equity revenue for Asian markets is robust, but faces its own challenges, namely, increasing tail risk.
Click to enlargeAfter years of decline, the M&A cycle began improving last year and has continued to strengthen through the course of this year too. Following the last slump, the latest boom is driven by a trend for efficiency and cost-reduction efforts in order to overcome flat sales and stagnant consumer prices. The first quarter of 2015 has been the best since 2007 for announced deals, totalling $854bn in deals declared and $667bn in deals completed (see Fig. 2). Large cash balances in the US and the deployment of corporate balance sheets are continuing to drive M&A activity, with technology, healthcare and energy sectors in particular showing large gains (see Fig. 3). Stronger M&A activity can also be expected in Europe, given the positive impact of QE on the region’s economic growth and asset prices.
In spite of this positive trend, fees currently remain sluggish. In the Americas, fees in the first quarter of this year totalled $11.5bn, remaining flat from the first quarter of 2014. Those in Europe decreased by 14 percent, while fees in Asia-Pacific fell by 18 percent, and in Japan by 28 percent. The Middle East and Africa region, on the other hand, saw an increase of 18 percent from the same period last year.
Click to enlargeTime for reform
One of the most notable trends for the market in 2015, which has resulted from new regulations and QE, is the shift in liquidity risk to the buy-side, coupled with the deterioration of sell-side markets. It appears that a greater tendency towards offering more risk management solutions is set to continue this year, particularly as the capacity of investment banks shrinks due to regulatory pressures. Nonetheless, the disturbance to the industry caused by more strict regulations appears to be easing in 2015 – as are litigation pressures.
One of the most notable trends for the market in 2015, which has resulted from new regulations and QE, is the shift in liquidity risk to the buy-side, coupled with the deterioration of sell-side markets. It appears that a greater tendency towards offering more risk management solutions is set to continue this year, particularly as the capacity of investment banks shrinks due to regulatory pressures. Nonetheless, the disturbance to the industry caused by more strict regulations appears to be easing in 2015 – as are litigation pressures.
According to Accenture, other reforms to the investment banking sector include increased capital constraints, which have arisen from a new, in-depth focus on capital. Consequently, it is essential for banks to continue their efforts to become far more efficient in terms of their capital allocation. As some asset and product types are struggling to produce profit-making margins, banks are reverting to risk-weighted assets as a measure of business performance.
Click to enlargeAnother change to the market is the increasing rate of commoditisation as a consequence of new technology, which has been further advanced by regulatory rules that see margins collapsing at the same time that investment in new technology is needed. This may lead to greater standardisation across the board over the coming years, as many clients decline higher payments for bespoke products and services.
Currently, extreme regulatory oversight is inflating the cost of compliance through more financial taxes and the need to hire specialised personnel. Although transforming the regulatory framework is expensive and radical in terms of its impact on individual firms and banking culture in general, it is a necessary aspect of the sector’s maturity and should not be overlooked. Furthermore, it is also essential for banks to understand and comply with the regional disparities in regulations as the industry maintains its course for global alignment.
Currently, extreme regulatory oversight is inflating the cost of compliance through more financial taxes and the need to hire specialised personnel. Although transforming the regulatory framework is expensive and radical in terms of its impact on individual firms and banking culture in general, it is a necessary aspect of the sector’s maturity and should not be overlooked. Furthermore, it is also essential for banks to understand and comply with the regional disparities in regulations as the industry maintains its course for global alignment.
The future of investment banking is an integrated global marketplace. When this point is reached, banks must be in a position to offer their clients both region-wide and global-scale opportunities, while also providing 24-hour trading capabilities. The possibilities for the industry are endless given this worldwide vision, which is in closer reach than ever before. The financial crisis may have highlighted flaws in the system and set it back in terms of growth, but from its former errors and weaknesses, a stronger and more developed sector is now rising (see Fig. 4). On the following pages, we highlight the best investment banking organisations around.
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angolaBanco Privado AtlânticoFounded in 2006, Banco Privado Atlântico is one of the major players in the Angolan financial system, providing personalised services and achieving solid results over the years. It was the first bank to operate in Angola offering an investment and relational banking product mix, based on a high level of financial expertise and in-depth local market knowledge.
argentinaPuenteThe leading investment banking institution in Argentina, Puente has been serving the investment community since 1915. It provides best-in-class solutions for the most complex transactions and serves clients ranging from governments and financial institutions to individuals. The firm also has offices in Panama, Paraguay, Peru, Uruguay and the UK.
australia National Australia BankOne of the four largest financial institutions in Australia, National Australia Bank has served the country’s banking community since launching in 1893, and now boasts over 12.7 million customers. With a strong presence in the country’s investment banking market, NAB also offers services in nearby New Zealand, as well as the US and UK.
austriaRaiffeisen InvestmentFocusing on the central and eastern European markets, Raiffeisen Bank International operates a vast network of subsidiary banks, leasing companies and specialised financial services providers. In its home country of Austria, Raiffeisen is a leading corporate and investment institution. Founded in 1927, Raiffeisen has a balance sheet of over €121.bn.
bahrainIbdar BankA fully serviced Islamic investment bank, Ibdar looks to the future by aiming to provide ethical products and strong returns for stakeholders. The bank has interests in private equity, real estate, capital markets and sharia advisory. A relative newcomer to financial markets, the bank has grown at an impressive rate in recent times.
belgiumBank DegroofFounded in 1871, Bank Degroof assists its customers in managing their future wealth. With nearly 600 staff, the bank has grown to become the largest independent private and investment bank in Belgium. Its professional staff are always aiming to provide the company’s diverse portfolio of clients with the best possible yield on their investments.
bolivia BancoSolSpecialising in microfinance, BancoSol provides a list of products and services the largest financial institutions on the planet would celebrate. The bank provides credit to small organisations, encouraging business across the country. BancoSol’s loan portfolio has grown over the past couple of decades, and it is a respected institution throughout Latin America.
bulgariaInvestbankA bank that offers client solutions on the individual, corporate and institutional level, Investbank’s strategy sees it conduct business on a global scale while working out of its home hub in Bulgaria. It has a substantial network of offices and financial centres that have allowed it to cast its net across many financial spheres.
canada Raymond JamesEstablished in 1962, Raymond James has quickly become one of the continent’s leading full-service investment dealers and a pioneer of the client-first mentality. With an employee base of 900 people and extensive regional coverage, the bank is Canada’s premier investment vehicle. It has enjoyed 109 consecutive quarters of profitability.
chileBanco de ChileStanding as a pillar of the banking and financial services sector in Chile, Banco de Chile provides a plethora of financial services to organisations across the country. The bank is active across international capital markets and is sustainable in the investment community as well, which has enjoyed great growth over the last decade.
chinaGoldman SachsOne of the oldest and most recognisable investment companies in the world, Goldman Sachs is one of the largest and most successful global financial institutions. The company has been an early proponent of investments in quickly growing China, and has continued to help Chinese clients access its global network of services.
colombia UBSA subsidiary of one of the world’s most trusted financial services groups, UBS Colombia is well placed to help develop the country’s growing financial market. The investment banking division is based in the capital, Bogota, and offers clients a range of advisory, research, and wealth management services, connecting them to the global market.
dominican republicBanco de Reservas de la República DominicanaBanReservas’ recently instituted Investment Banking and Capital Markets unit has been at the forefront of the most significant structured financings of the past year, supporting the country’s strong economic growth. It also acted as co-manager in the country’s most recent international debt issuances, including its record 30-year bond.
franceCrédit AgricoleA household name in investment banking, France’s leading corporate banking firm has continued to woo clients through a difficult period in the firm’s history. Having restructured over the last few years, the bank has diversified and created a new and improved image to encourage a more long-term and deterministic approach to finance.
germanyDeutsche BankBy far the biggest bank in Germany, Deutsche Bank has a world-renowned reputation for creating long-term value for shareholders and promoting accountability. Its entrepreneurial drive and proven dedication to nurturing the best talent is deeply embedded in the culture at Deutsche Bank, which enables it to deliver outstanding results across the board.
ghanaNational Investment BankInitially providing trade finance and development banking services, National Investment Bank has transformed itself into a prominent commercial bank with 27 branches nationwide. Today, it is a major lender to Ghana’s manufacturing, construction and agro-processing sectors, and attracts acclaim for its favourable term and working capital loans.
hungary CitibankSupporting large corporate projects and public transactions, Citi Hungary has a relatively short but distinguished history of successful investment banking ventures. Citi is present in over a hundred countries worldwide, which helps with local linkages. The firm has been in Hungary for three decades and boasts world-class, innovative products.
indiaSBI Capital MarketsFounded in 1986, SBICAP is a wholly owned subsidiary and the investment banking arm of State Bank of India, the largest commercial bank in India. SBICAP is India’s largest domestic investment bank and offers investment banking and corporate advisory services, including structured debt placement, private equity and stressed assets resolution.
indonesiaDBS BankEstablished in 1989, DBS Bank has multiple branches across Indonesia, which offer a wide range of services in consumer, SME and corporate banking activities, as well as debt and equity financial solutions. DBS Bank is widely regarded as one of the country’s top stockbrokers and as a local leader in regional capital markets.
japan NomuraAs a wave of recent mergers and acquisitions pushed markets into action, investment banks were able to capitalise on a global scale. Nomura’s strengths have helped it stand out in Japan; is has raised local standards through a number of functional advances in different areas of banking, and has also been noted for its corporate citizenship.
jordanArab Jordan Investment BankArab Jordan Investment Bank has a long history and deeply rooted experience, possessing an impressive record of providing customers with a great return on their investments. The bank offers a broad range of high value-added products and services designed to meet the specific needs of its extremely diverse set of clients.
kazakhstanHalyk FinanceA market leader in corporate finance, Halyk has single-handedly created and advanced investment banking in Kazakhstan. The firm has built a reputation for excellence in consulting and underwriting. Furthermore, the organisation has taken a bold stance on research and development, while it’s brokerage services are heralded internationally.
kuwaitNBK CapitalBy leveraging the expertise of the best investment professionals from around the globe, NBK Capital has cemented a reputation as the leading investment management firm in the Kuwait region. Focusing on a diversified range of innovative financial products and services, the bank prides itself on a strong global reach and regional focus.
lebanonSociete Generale de Banque au LibanSGBL offers specialised investment services covering corporate and structured finance and investment management, catering for institutional investors and corporations. SGBL has successfully structured and placed debt and hybrid instruments, expanded its asset management offering, and sponsored VC funds to promote the knowledge economy.
mexicoSantanderAs an arm of one of the most successful banking groups in the world, Santander Mexico is well equipped to deal with even the most complex needs of its investment clients. It offers a wealth of investment vehicles for private, retail and business clients, and is one of the fastest-growing investment institutions in the country.
netherlandsABN AMROWith a strong presence felt across the globe, ABN AMRO’s very best service and quality management is surely at home and in domestic markets. The firm has invested in high quality across the board and still generates substantial client interest in many products, as well as recently expanding into sustainable banking.
new zealand First NZ CapitalFirst NZ Capital has been a trusted provider of asset management and consultancy services in New Zealand for over 50 years, with client focus as its core ethos. In addition to local expertise, First NZ Capital has a strong partnership with Credit Suisse Group, which provides its clients access to world-class research and global securities distribution.
nordics (denmark, finland, norway, sweden)Nordea BankAs a European heavy-hitter, this Nordic banking group is a strong presence in the investment banking business that has grown its assets and client numbers hugely in recent years. Headquartered in Stockholm, a new Asian expansion has boosted revenue and hauled in key institutional investors looking for alpha through a multi-boutique approach.
omanNational Bank of OmanNational Bank of Oman’s investment banking division specialises in providing institutions and companies with financial advice, helping them to understand markets and complex financial instruments. Its coverage extends to equity and debt capital markets, private placements and financial advice, and is seen by many as second-to-none in Oman.
pakistanStandard CharteredAs the oldest and largest international bank in the country, Standard Chartered has been present in Pakistan for over 150 years. Working in a number of spheres, perhaps the bank’s strongest suit is its investment banking arm, in which a number of advisory experts have built and sustained a high degree of service.
peruCitibankDeveloping and maintaining relations between borrowers and lenders on Peru’s money markets, Citibank’s Peruvian franchise is widely regarded as the nation’s premier investment bank. While the market for investment banking in Peru is relatively small, Citibank has expanded and enjoyed significant growth in the sector over the last few years.
poland TrigonWith dedicated specialists working across mergers and acquisitions, leveraged buyouts, and takeover defence, Trigon has a strong structure focused on growth. It is now the leader in Poland’s investment banking industry, ensuring swift and well-tailored services to clients. The bank focuses on advising strategically, with well-planned targets in mind.
portgualCaixaBICaixa – Banco de Investimento is the investment banking arm of Portugal’s largest banking group, Caixa Geral de Depósitos, which has a 140-year history. CaixaBI is at the centre of a unique investment banking platform, promoting active cross-border operations in countries such as Brazil, Angola, Mozambique and Spain.
qatarQInvestWith a significant presence across the Middle East, QInvest is a frontrunner in the region’s investment banking sphere. As an Islamic financial institution, it has world-class investment standards and outstanding corporate governance, hand-in-hand with a renowned client-centric approach. The bank has won a number of awards and is globally celebrated.
russia VTB CapitalThe investment arm of Russia’s VTB Group offers a packed catalogue of investment banking products and services to Russian and international clients, and is widely respected for its continued contributions to the local economy. Since its establishment in 2008, the institution has attracted more than $204bn worth of investments to Russia and CIS.
saudi arabiaNCB CapitalOffering investment management and advisory services to the Saudi Arabian community, NCB Capital also provides asset management services to those in the wider Kingdom. The firm’s client base is made up of both individual and institutional traders, which provides them with access to various economic markets through this outstanding organisation.
south africaRand Merchant BankSouth Africa has a burgeoning investment banking sector, and Rand Merchant Bank has become a major player. It is a subsidiary of the country’s leading corporate and financial services group (FirstRand Bank), has a presence in more than 35 African countries, and has helped fund several infrastructure and resource finance projects in the region.
south koreaWoori Investment BankFounded in 1974, Woori Investment Bank has grown exponentially, with a reputation for trusted products and outstanding customer service. The bank is fully diversified, with 10 units, 10 divisions, and 58 departments in total. Woori aims to present itself as the ethical bank in Korea, dedicating vast resources to understanding the market’s ambitions.
spainBNP ParibasThe fourth largest bank in the world, BNP Paribas is France’s foremost financial institution. Its Spanish subsidiary became fully operational in 1979 and bridges the gap between the local market and international investors, offering expert corporate finance, capital markets, derivatives, financing, and research services to more than 1,350 clients.
switzerland Credit SuisseBy providing products and financial advisory services to corporations, governments and institutional investors, Credit Suisse’s investment banking division has fast become a major engine of the Swiss economy. By focusing on high-return solutions, the bank currently enjoys a deserved reputation as a major contributor to the banking industry.
turkeyAktif BankThe largest privately owned investment bank in Turkey, retail, investment and regional banking compose Aktif Bank’s primary operations. It also provides services to customers through a variety of subsidiaries. In 2007, Aktif Bank entered a phase of restructuring and has now reached the maximum size set by capital adequacy requirements each year.
uaeEmirates NBD CapitalAs Dubai’s largest lender, Emirates NBD has performed strongly in recent years in terms of profit, as its market capitalisation continues to improve along with growth in loans and deposits. With offices across the Middle East and in the UK, the firm continues to draw in customers looking for reliable retail services.
uk JPMorganAs part of the wider global JPMorgan Chase banking group, the UK subsidiary JPMorgan enjoys its position as one of the largest investment banks in the country. Offering services that include mergers and acquisitions, corporate banking and capital raising, the firm has a leading role in the City of London, where it is headquartered.
uruguayUBSProviding a wealth of financial services across South America, the Swiss bank’s presence in Uruguay stands out where exceptional standards of service and quality of products have become the norm. The local firm no doubt benefits from the organisation’s global expertise, and in Uruguayan markets has a reputation for excellence.
us (east)JPMorganHaving been a giant in the investment banking game for some time now, JPMorgan has managed to take the recent challenges in the sector in its stride, reporting its highest quarterly results since 2011. It will no doubt continue to set the agenda in the industry for years to come – its global activities are as effective as they are widespread.
us (west)Bank of America Merrill LynchNo matter where an individual or business is based, Bank of America Merrill Lynch aims to help its customers overcome the challenges they face through its deep industry expertise and range of customised products and services. It has also helped power a wide spectrum of business and commerce throughout the US and Canada.