Focus for Success | Full Report

Focus for Success The High Performing Investment Bank Full Report

Full Report ontents Introduction 3 The Anatom of High Performance  The Future A Reforming Industr  An industr under pressure  haracteristics of the reforming industr  nderstanding Ho­ to Build High Performance €€ Business models to sta ahead in tur‚ulent times €€ – Flo­ „onster €2 – Regional hampion €3 – Product Specialist € – Primar „arkets Po­erhouse €… – Risk „aster €† Building a strateg € onclusion € 2

Full Report Introduction This is not an eas time to ‚e running an investment ‚ank‡ and the idea that an investment ‚ank could ‚e high performing is seen ‚ man as a distant dreamˆ The industr ­as facing significant challenges ‚efore the 2””• financial crisis struck ‚ut as the sovereign de‚t crisis gathers pace‡ the challenges and rate of change seem to ‚e acceleratingˆ This has resulted in a period of intense ‹hile these findings provide some transformation for the industr‡ in ­hich important lessons‡ it is clear that the ­orld the leading financial institutions are of investment ‚anking is fundamentall contending ­ith a litan of pressures changingˆ Banks are facing a unprecedented as the ‚attle to serve their clients in a arra of pressures‡ ­hich result in a profita‚le and sustaina‚le fashionˆ In light significant sŒueeŽe on profita‚ilit and an of this challenging and volatile environment‡ increasingl comple‘ marketplace‡ all under Accenture has conducted a stud aimed heightened competitionˆ learl‡ re’‚uilding at identifing the characteristics and a long’term strateg during this time of attri‚utes of high performance to help change and uncertaint is challengingˆ ‚anks understand ­hat the need to do To assist ­ith this process‡ this stud outlines to ‚e successful ‚oth through this time five ‚usiness models for the future‡ ­hich of change and in the futureˆ ­ill help ‚anks firstl to frame a strategic As part of this‡ ­e have conducted detailed planning e‘ercise‡ and secondl to ‚etter financial analsis of recent performance‡ understand the choices the need to make assessed the reforms facing the industr‡ and the conseŒuences of these choicesˆ and evaluated ­hat ‚anks ­ill need to Further‡ the models highlight the capa‚ilities do to ‚e successful in the futureˆ This reŒuired to ‚e successful‡ and ho­ these performance analsis has identified t­o var for different marketsˆ distinct categories of high performers‡ “o­ is the time for ‚anks to change their t­o ‘scale ­inners’ and a smaller cluster approachˆ The must face up to a more of ‘focused ­inners’ˆ This sho­s there have constrained environment and‡ as a result‡ ‚een multiple routes to high performance can no longer attempt to offer all things and that success is not necessaril to all peopleˆ Instead‡ the must take a dependent on scaleˆ The results have also more focused approach to ‚uilding an highlighted the importance of sta‚ilit‡ advantage in those markets in ­hich the ‚oth in terms of culture and strategic focus‡ can feasi‚l compete and ­hich remain in generating sustaina‚le performanceˆ relevant to their clientsˆ 3

Full ReportFull Report The Anatom of High Performance Performance at the top of the investment ‚anking industr is inherentl volatile and has al­as ‚een soˆ ˜ver the past decade eleven different ‚anks have recorded investment ‚anking revenues that placed them in the top five of the industr‡ ­hich highlights the challenge of sustaining a leading positionˆ The rise and fall of ›ehman Brothers‡ and further ‚ack‡ œre‘el Burnham ›am‚ert and Salomon Brothers‡ further demonstrates this point‡ and interim results for 2”€€ again suggest this volatilit in evidenceˆ Accenture’s High Performance Business These have ‚een scored ‚ased on relative Research programme defines high performance against the peer set‡ and performance as sustained outperformance consolidated to give each ‚ank an overall against peer set across a num‚er of performance scoreˆ These overall scores are financial metricsˆ This programme has plotted against average annual revenues analsed more than †‡””” companies over over the period to map the results and nine ears‡ across all industries‡ to identif identif similar characteristics ‚et­een the differentiating factors that constitute the ‚anksˆ –see figure 2— high performanceˆ As ­ell as reflecting on ‚roader historical Figure 1 trends in the industr‡ ­e have tailored High Performance Metrics for Investment Banking this research for investment ‚anking to conduct detailed financial analsis of recent Profitability 1 year, 3 year Return on allocated Euity performanceˆ For this‡ ­e have assessed the 1 year, 3 year Return on ssets IB unit €• leading ‚anks –selected ‚ased on siŽe 1 year, 3 year ostIncome Ratio and pu‚lic availa‚ilit of data— across si‘ Efficiency 1 year, 3 year Productivity Ratio RevenueHeadcount dimensions profita‚ilit‡ efficienc‡ sta‚ilit‡ gro­th‡ capital strength and riskˆ These 1 year, 3 year ­otal Return to hareholders dimensions provide a ‚alanced vie­ of core tability € year Median ‚utƒerformance Profitability ‚usiness performance‡ assessing the ‚anks € year Median ‚utƒerformance Efficiency € year Median ‚utƒerformance Revenue „ro…th through the lens of their shareholdersˆ ˜ur analsis covers the last three Revenue „ro…th 1 year, † year „R full financial ears‡ revie­ing ™ust the „ro…th onsensus nalyst ‚utlook 3 year average investment ‚anking unit in the case of omƒetitive Market Ranking 1 year universal ‚anksˆ This period has ‚een an ore ­ier 1 aƒital Ratio 3 year average e‘traordinar time for the industr – from aƒital trength ‡everage Ratio 3 year average crisis to recover to tur‚ulence again – ‚ut ‡iuidity Ratio 3 year average the a‚ilit to deal ­ith adversit provides telling performance lessonsˆ šach dimension ˆaR annual average, 3 year ƒeriod has ‚een eŒuall ­eighted and has ‚een Risk ˆaR ˆolatility annual, 3 year ƒeriod assessed through a num‚er of industr 1 year, 3 year Risk‰Šeighting specific financial metricsˆ –see figure €— Source Accenture Research 

Full Report High performance in Standard hartered and Roal Bank of difficult these plaers are having in investment ‚anking toda anada‡ that have emerged in our attempting to compete directl ­ith assessmentˆ Their success‡ most nota‚l the largest ‚anksˆ ‹ith revenues in ˜ur results sho­ there are multiple routes through high profita‚ilit‡ efficienc and some cases a half or a third of those at to successˆ Both large plaers –­ho have sta‚ilit‡ is ‚ased on their strategic focus the largest ‚anks‡ taking them on in the mastered a diversified offering— and much on certain markets and capa‚ilitiesˆ scale ‚attle is clearl challengingˆ Rather smaller investment ‚anking units have The results also highlight a ver clustered than concentrating on heading along the generated high performanceˆ Success is middle groundˆ ‹hile all metrics have ‘’a‘is‡ ‚anks should think strategicall not dependent on scale alone‡ as is ‚een normalised for the effect of siŽe‡ the a‚out ho­ to head up the ’a‘is‡ as the demonstrated ‚ the strong results sho­n strong correlation ‚et­een overall results sho­ that there are alternative ‚ the cluster of ‘focused ­inners’‡ such as performance and scale demonstrates the routes to successˆ Figure 2 Performance nalysis 3 Figure 1  ocused inners Scale inners High Performance Metrics for Investment Banking RBC Santander Goldman Sachs or e  Standard Chartered JP Morgan Sc ce HSBC an Barcla‚s Ca„ital r m BAML RBS Citi r ‹ o Pe  €BS B­P Pariƒas Société Générale Deutsche Bank Credit Suisse Morgan Stanle‚ Crédit Agricole  ­omura  Œ 3 † 3 † 3 † 33 A…erage Annual Re…enues † –  ˆ‰ƒnŠ Sources ompan Reports‡ Bloom‚erg‡ œealogic‡ šuromone‡ Accenture Research …

Full Report Performance anatom “ot une‘pectedl in these trou‚led times‡ capital strength has also ‚een a ke driver The ‚alance of scores across each of the of high performanceˆ The a‚ilit of ‚anks performance dimensions varies across the to effectivel distri‚ute capital to ‚anksˆ Ho­ever‡ a num‚er of nota‚le profita‚le areas‡ to a‚sor‚ losses and to patterns have emergedˆ In particular‡ the provide a strong ‚ase for long’term‡ results sho­ that profita‚ilit‡ sta‚ilit‡ consistent performance is a clear capital strength and a mastering of risk competitive advantageˆ „easuring capital differentiate the ­innersˆ ounter to strength through the three pillars of analsts’ perceptions‡ our analsis sho­s capital adeŒuac — core tier € capital‡ that gro­th does not constitute a critical leverage and liŒuidit — the research element of performanceˆ Some of the ‚anks sho­s that ‚anks that recapitalised or that scored highl on overall performance have a large retail depositor ‚ase score ­ere a‚le to do so despite coming in the highl‡ and that the ‘scale ­inners’ have ‚ottom Œuartile for gro­th‡ ­hile some of demonstrated good control over leverageˆ the leading performers for gro­th ­ere not amongst our overall high performersˆ The results should provide grounds for learl‡ ­hilst gro­th num‚ers gra‚ the optimismˆ High performance must ‚e ‚uilt headlines each Œuarter‡ the are not from a sustaina‚le ‚ase‡ ‚oth in terms of necessaril the ke performance indicator capital and culture‡ ‚ut ­hile scale can over the longer termˆ deliver high performance‡ it is onl one pathˆ Product and service differentiation Achieving sta‚ilit has ho­ever ‚een remain ke attri‚utes‡ and ‚anks must sho­n to ‚e a ke marker of high appreciate their inherent strengths and performanceˆ Interestingl‡ in a reflection relative positioning to use this to ‚reak out of the market conditions‡ onl three ‚anks of the middle groundˆ All this must ‚e done managed to generate positive total returns ­ith a recognition of ho­ the game is to shareholders –TRS— over the entiret of changing as the industr reforms‡ to ensure the periodˆ Further analsis has sho­n that that the choices ‚anks make appropriatel success of the top performers in this address the challenges the faceˆ categor highlights the necessit of ‚uilding a loal client ‚ase‡ a dependa‚le pool of talent‡ and a consistent culture to help an organisation move to­ards high performanceˆ †

Full Report The Future A Reforming Industr An industr under pressure If high ƒerformance has historically been Figure 3 achieved through multiƒle routes, …hich Pressures ‘acing ­he Investment Banking Industry of these remain viable as the industry reforms‹ Many banks are struggling to ensure they can tackle the immediate Increasing Expectations t…in concerns of regulatory comƒliance and cost cuttingŒ Ho…ever, as they seek egulator lient Shareholder to achieve high ƒerformance, banks need to move beyond this minimum and + address all of the ƒressuresŒ ­he challenge Unprecedented Market Pressures is a significant one, but it is not insurmountable, and to the right …e set Economic Political echnological out a frame…ork that allo…s eŽecutives to consider the full array of ƒressures + they are facing and understand the key Long-term Global Shifts characteristics that …ill shaƒe the industry as it reformsŒ –see figure 3— onsumer orporate Geo-Political Source Accenture Research “ This is certainl the most comprehensive reform since the €3”sˆ” –Ben Bernanke on financial regulation‡ hairman of the Federal Reserve‡ ¢une 2”€€— 

Full Report š‘pectations „arket pressures ›ong’term glo‚al are increasing are unprecedented shifts prove impossi‚le The first thing to recognise is that the in their severit to ignore e‘pectations placed on investment ‚anks The macro factors that have a particularl An attempt to think a‚out ho­ to are increasing in ‚oth their num‚er and intense effect on the investment ‚anking strategicall respond to future developments their stringenc industr are also strained needs to account for the long’term glo‚al Regulators are demanding the s­iftl Economic conditions are fraught ­ith trendsˆ These can ‚e categorised as shifts compl ­ith strict ne­ capital and liŒuidit uncertaint ­ith a sovereign de‚t crisis in consumer ‚ehaviour‡ largel propagated regimes‡ interpret the minutiae of in ­estern economies‡ disparit in gro­th ‚ su‚stantial demographic shifts‡ derivatives reform on ‚oth sides of the rates ‚et­een different regions‡ and volatilit a recali‚ration of the corporate landscape‡ Atlantic‡ and produce an arra of data in ­orld commodities marketsˆ These are nota‚l through the rise of the emerging reports to prove their financial healthˆ com‚ining to hamper trading revenues markets corporation as a glo‚al plaer‡ and‡ Shareholders are reŒuiring ‚anks to and dampen appetites in primar marketsˆ ‚roader still‡ geo-political trends that ­ill reduce cost ‚ases‡ increase transparenc The political climate is testing‡ ­ith recast the international climate in ­hich and improve the integrit of their anti’‚anking sentiment evident in a ‚usiness is conductedˆ corporate governanceˆ Ho­ever‡ the also num‚er of influential financial centresˆ continue to e‘pect to achieve the kind of A range of potential ta‘es and levies on supernormal returns that are reŒuired of financial activities are ‚eing considered an industr ­ith such inherent volatilitˆ and the unpredicta‚le decision making Clients ­ant their ‚ank to ‚e a process‡ periodicall hi™acked for electoral source of simple‡ un‚iased advice‡ point scoring‡ undermines an certaint ­hilst providing a trul relevant‡ a‚out future developmentsˆ high’value serviceˆ Technological change necessitates attention‡ as ‚anks face up to an increasingl monopolistic infrastructure environment‡ ­hile attempting to keep pace ­ith an accelerating rate of innovation and the conseŒuent skills shortages in ke areas such as latenc developmentˆ “ If £investment ‚anks¤ ­ant to do proprietar trading‡ then the shouldn’t ‚e ‚anksˆ” Paul ˆolcker, Intervie… …ith Š ’, May †, “”11 •

Full Report haracteristics of the reforming industr ‹hen considered in total it is clear seven distinct ‚ut inter­oven that these pressures are intenseˆ From characteristics emerge‡ all of ­hich ‚anks a considered appreciation of the cumulative ­ill need to respond to as the ‚uild‡ and impact of the pressures outlined ‚elo­‡ hone‡ their future strategˆ –see figure — Figure 4 haracteristics of a Reforming Industry Increased aƒital onstraints Intense Regulatory ‚versight ccelerated Product ommoditisation ignificant Regulatory rbitrage Reduced Proƒrietary Risk ­aking Integrated „lobal Marketƒlace Heightened omƒetition Source Accenture Research A ­idespread sŒueeŽe efficient in their capital allocationˆ Secondl‡ and the emergence of significant market on traditional sources certain asset classes and products tpes ­ill infrastructure opportunitiesˆ struggle to generate returns that e‘ceed ›eading investment ‚anks ­ill also have of profita‚ilit their cost of capitalˆ nder these changes‡ to contend ­ith reduced proprietary ris „an sources of the spectacular profits ‚anks should use return on risk’­eighted taingŒ Reliance on principal activities that ‚anks en™oed up to 2”” have assets as the central measure of a ‚usiness as a source of revenues differs ‚et­een ‚een the direct target of national and line’s performanceˆ institutions‡ and remains some­hat international regulators‡ sŒueeŽing Accelerated product commoditisation opaŒue‡ ‚ut ­hatever final form the ‚anks alread suffering from continued is also transforming large parts of the ‘¦olcker rule’ takes it ­ill significantl economic malaise investment ‚anking ‚usinessˆ ‹hilst curtail profita‚ilitˆ The stipulations are Increased capital constraints that ‚anks products and processes have al­as likel to ‚e intricate and comple‘‡ ‚ut face ­ill radicall alter the strategic decision commoditised‡ technolog developments man ‚anks have reacted ‚ simpl making processˆ The Basel III accord are significantl accelerating the pace divesting funds and dismantling once underpins this ne­ focus on capital ‚ut the of commoditisationˆ This ­ill ‚e further priŽed proprietar trading positionsˆ headline percentages mask the scale of the accelerated in the immediate future for As risk taking shifts to the ‚u’side‡ changeˆ As ­ell as raising the reŒuired ratio‡ certain derivatives products follo­ing a investment ‚anks are likel to focus this agreement recali‚rates the calculations‡ num‚er of regulator mandates‡ ­hich efforts to take on risk through providing meaning‡ in dollar terms‡ the capital held on ­ill result in previousl attractive margins risk management solutions to clients ‚alance sheets ­ill increase sharplˆ This is in the most liŒuid derivatives –eˆgˆ Interest or managing their o­n e‘posure on ‚efore accounting for various national Rate S­aps— collapsing at precisel the same a sophisticated‡ intra’da ‚asisˆ add’ons‡ additional reŒuirements for ¥’SIFIs time that huge investment is reŒuired in –¥lo‚al Sstemicall Important Financial the technolog reŒuired to trade themˆ Institutions—‡ or the impact of sovereign de‚t This is likel to lead to ‚oth a standardisation ­rite do­nsˆ This ­ill have t­o important of ‚u’side reŒuirements‡ as clients are effectsˆ Firstl‡ ‚anks ­ill need to ‚e more un­illing to pa the price of specialisation‡ 

Full Report The marketplace in Figure  ­hich investment ‚anks Industry ˆalue hain operate is ‚ecoming increasingl comple‘ Buy-Side Participants Investment ‚anking is complicated‡ Risk taking is shifting to buy-side encompassing a range of complimentar institutions, accelerated by a series of high-profile spin-outs and divestments ‚ut fundamentall different activities designed to serve a ‚road arra of clients Specialist and across the ­orldˆ Ho­ever recent Boutiue ƒdvisory irms nvestment Banks developments‡ coupled ­ith long’term ƒdvisory firms are trends‡ are rapidl increasing this comple‘itˆ increasing in prevalence Primary Secondary due to shifts in senior arkets arkets Broking irms and The intense regulatory oersight in talent and an ability iuidity Providers the ­orld’s most important financial to take long-term ‚ƒ ™urisdictions is increasing the cost of strategic bets uities Smaller specialist brokers are winning compliance‡ ‚oth in terms of financial ƒdvisory business due to levies and the commitment of specialist specialist provision, personnelˆ ¥iven the mandate regulators „ a need for diversified sources of liuidity no­ possess‡ leading ‚anks need to activel arket tilities  „„ and a relative lack of manage these relationships and heighten …„ regulatory scrutiny cross functional co’ordinationˆ This should xpertise in clearing, allo­ them to reduce time’consuming‡ settlement and collateral management ­perations and € unctions arduous and potentiall e‘pensive periods is moving to specialist of censureˆ It ­ill ‚e costl and culturall providers difficult‡ ‚ut this transformation should ‚e arket nfrastructure prioritised‡ especiall given the increasing trend of posting regulator staff inside Vertical integration is allowing exchanges the ­orld’s largest financial institutions and clearing houses to use economies of scale and regulatory change to challenge on a semi’permanent ‚asisˆ the traditional brokerage model Source Accenture Research ‹hilst regulator oversight is universall intensifing‡ there is‡ and ­ill continue to ‚e‡ signiicant regulatory aritrageŒ localitˆ This means a proliferation of centres such as BraŽil‡ into glo‚al plaers‡ ‹hile the e‘pectation is that glo‚al 2’hour trading capa‚ilities and the and the fundamental challenge presented regulation on financial markets ­ill align‡ geographic dispersal of senior leadership ‚ rapidl institutionalising ‚u’side over the ne‘t three to five ears a num‚er teamsˆ ‹hether assisting e‘isting clients operations and increasingl consolidated of transformative regulator agenda ­ill ‚e to enter ne­ markets‡ or acŒuiring ne­ infrastructure plaersˆ These “ne­” still in train‡ creating‡ at least in the short clients‡ ‚anks should position themselves entrants threaten to undermine the term‡ an im‚alanced competitive glo‚al to ‚enefit from this glo‚al integrationˆ primac of the investment ‚ank ‚ marketplaceˆ Such im‚alance can ‚e caused recali‚rating the industr value chainˆ ‚ the slightest difference in technicalitiesˆ Heightened competition In a ­orst case scenario‡ such a move In order to grasp these geographicall could lead to a fragmentation of the specific opportunities ‚anks ­ill need to from ‚oth traditional and industr as the traditional investment ‚e a­are of regional developments and non’traditional sources ‚anks are disintermediatedˆ –see figure …— organisationall fle‘i‚le enough to respondˆ This could lead to an increasing prevalence This glo‚alised market ­ill ‚e intensel In short‡ there is a lot for ‚anks to face up of ™urisdictionall segregated ‚usinessesˆ competitive‡ even more so than in the pastˆ toˆ The industr is reforming‡ and despite The reason ­h glo‚al competitive For one thing‡ investment ‚anks’ increased ‚eing overloaded ­ith the immediate‡ im‚alances are so important is that ‚anks reliance on their client ‚ase to generate and not insignificant‡ distractions of cost are operating in a more integrated gloal revenues means competition ­ill ‚e cutting and regulator compliance‡ ‚anks maretplace It no longer suffices to run fiercest in those ‚usiness lines‡ such as must understand all of these changes as a series of discrete operations from various prime services‡ ­here a relationship is the look to re’esta‚lish their market localities and claim a glo‚al footprintˆ clearl definedˆ Another ke feature is the presence and competitive positionˆ Rather ‚anks must operate a unified‡ emergence of a ne­ tpe of competitionˆ sophisticated ‚usiness that grants clients This comes in the form of ‚oth the access to opportunities regardless of evolution of regional ‚anks‡ in ‚urgeoning €”

Full ReportFull Report Figure  nderstanding Ho­ to Build Industry ˆalue hainHigh Performance Business models to sta ahead in tur‚ulent times As ‚anks face up to this uncertain This ­ill necessitate a change in mindset can support a ‚ank on its ­a to high environment‡ developing an effective for ‚anks historicall used to plaing in all performance‡ each representing a different strateg is challengingˆ Ho­ever‡ market markets‡ to taking risks‡ enamoured ‚ discipline of investment ‚ankingˆ These dislocation ­ill ‚ring opportunities for novel‡ comple‘ products and‡ at times models detail the management choices that those a‚le to look ‚eond the short’ putting the interests of the client secondˆ ‚anks need to make and the conseŒuences term concernsˆ The first step in this The “strategic tourism” that man ­ere of these decisions‡ ­hich‡ ­hen effectivel ™ourne is a detailed evaluation of the guilt of is no longer sustaina‚leˆ co’ordinated‡ generate positive feed‚ack € portfolio of ‚usiness lines in ­hich the Importantl‡ ‚anks must put their clients’ loopsˆ An understanding of these features ‚ank operatesˆ As outlined a‚ove‡ agenda at the centre of this e‘ercise‡ to and ho­ the interact is crucial to sluggish gro­th‡ reduced profita‚ilit ensure relevance in an intensel competitive developing a competitive advantageˆ and increasing constraints on capital marketˆ The must then diligentl focus on Additionall‡ Accenture’s in depth ‘Scales mean that man ‚usiness lines ­ill sustaining a competitive advantage in their of „aster’ outline the ‚asic‡ competitive struggle to generate returns greater chosen markets and patientl develop the and market leading characteristics of each than their cost of capitalˆ This calls for supporting capa‚ilities reŒuired to ­inˆ of the features of the models across all ‚anks to ™ustif the areas in ­hich the Based on our research and our e‘perience functions of an investment ‚ank‡ ­hich operate and concentrate on those in ­ith leading investment ‚anks‡ ­e have helps to ‚uild a detailed understanding ­hich the can feasi‚l competeˆ identified five distinct ‚usiness models that of ho­ to develop ­inning propositionˆ € This frame­ork is adapted from ‘From Strateg to Business „odels and to Tactics’‡ asadesus’„asanell and Ricart‡ pu‚ˆ IšSš Business School ‹orking Paper‡ “ovˆ 2”” €€

Full Report Flo­ „onster Based around a highl commoditised increasing the pace of commoditisation‡ annual investment costs under a latenc product set‡ –eˆgˆ cash eŒuities‡ F§—‡ pushing more products to­ards the flo­ driven‡ technolog ‘arms race’‡ and to the Flo­ „onster model relies on model‡ at a faster rateˆ In particular‡ this provide the directional information that processing huge trade volumes at is a process that is likel to ‚e accelerated traders so desire‡ ­hich‡ amongst other e‘tremel tight spreadsˆ The model for certain ˜T derivatives‡ as the ‚enefits‡ ena‚les accurate pricingˆ is focused on serving sophisticated standardise follo­ing reform to ‚ecome This need for critical mass ho­ever‡ institutional clients‡ operating in highl centrall cleared and e‘change’tradedˆ alongside rising capital constraints developed capital markets‡ and is premised This provides opportunities for Flo­ challenging returns on eŒuit‡ means on three elements efficient technolog „onsters to ‚roaden the product setˆ that ­e see onl three to five plaers ‚eing to relia‚l and rapidl process millions ‹hile the model appears simple in terms a‚le to survive in each flo­ marketˆ This of trades per second‡ highl competitive of the small num‚er of choices‡ long term‡ consolidation ­ill pla into the hands of pricing‡ and strong sales relationships patient investment is necessar to ‚uild market leaders ‚ut ­ill force those outside to attract client ‚usinessˆ the market’leading capa‚ilities reŒuiredˆ this ‚racket to make strategic call as to Technolog developments and a range A critical mass of volume is crucial to make ­hether the ­ill ‚e a‚le to surviveˆ of regulator proposals are rapidl the model ­ork‡ ‚oth to support the high Figure ‘lo… Monster Model Key hoice ore ­usiness ƒlow onse‚uence Performance Outcome Differentiator Pre€re‚uisite to operate in the maret Source Accenture Research Sales Team Strong lient eputation elationships Talent Development Tight High Spreads Etensive aret Volume rossing onnectivity of Orders educed Headcount osts Proven  ility eputation as etention to Eecute with ccurate aret aer of Spreads Low Latency esearch ontent utomated Processes ccurate Directional Information Pricing High Profits Industrialised Operations Effective Position Position anagement ule ­ased anagement apa ility Eecution Powerful and Efficient Infrastructure Investment in Latency Developers High and Effective Technology Investment €2

Full Report Regional hampion As ‚anks look to concentrate on serving a client‡ ‚anks must emplo intelligent model should focus on deepening loal client ‚ase‡ the Regional hampion segmentation to ensure an appropriate penetration ­ithin their e‘isting client model is gaining increasing attentionˆ The level of serviceˆ As corporates tend to ‚ase and‡ ­here appropriate‡ reinvesting model is ‚ased on effectivel cross’selling have lo­er price sensitivit and a lo­er profits in providing ‚alance sheet for risk management and financing solutions freŒuenc of trading‡ ‚anks are a‚le lending‡ a service corporate clients to e‘isting corporate clients‡ ­hich given to charge ­ide‡ profita‚le spreads‡ ‚ut value highlˆ the nature of stick long’term relationships segmentation is again important here and lo­ price sensitivities‡ creates a to ensure appropriate pricing‡ especiall sustaina‚le and profita‚le franchiseˆ given rising transparencˆ ‹hilst a simple model to e‘ecute‡ a Banks ­ill need to assist clients ­ith strong foundation of e‘isting corporate ne­ derivative trading reŒuirements –eˆgˆ relationships‡ ‚ased around a core ‚anking posting collateral and margin calls— and proposition or primar markets advisor‡ is pricing ma also need to take into account a pre’reŒuisiteˆ lients value service Œualit the increasing cost to serve as regulator ‚ut as the volumes var from client to and compliance costs riseˆ Adopters of the Figure ­ Regional hamƒion Model Key Choice Pre-re‚uisite to enaƒle cross-sell Conse‚uence Primary Markets †utcome Relationship Eisting Long erm­ Core Banking (e.g. NMD Sticy elationships Proposition Core „usiness €low Performance …ifferentiator Effective Cross-Sell Lening Source Accenture Research is Management €inancing Seconary Marets High Service Quality Balance Sheet Low Price Commitment Sensitivity Targeted Service Effective Delivery Information Management Wide Systems Spreads Appropriate Cost Targeted to Serve Technology nvestment igh igh proits Proits €3

Full Report Product Specialist ‹ith the consolidation in the Flo­ environment of intense regulation and in an environment ­here intellectual „onster model restricting its via‚ilit to a rising glo‚alisationˆ Furthermore‡ glo‚al propert cannot ‚e patented‡ the a‚ilit fe­ large plaers‡ more ‚anks ­ill need to regulator discrepancies have and ­ill to continuall innovate‡ to redefine client focus on developing product specialisms to continue to create opportunities for needs and sustain differentiation‡ is crucial differentiate themselves and esta‚lish a geographic niche plasˆ to successˆ Banks must also face up to clear market identitˆ Successful adoption of the model reŒuires the challenge of the increasing pace of Product specialisms can var from investment in specialist capa‚ilities‡ commoditisation‡ ­hich ­ill mean that as cornering a particular tpe of de‚t including Œuantitative developers and the products that underpin their specialism instrument or regional interest rate ‚espoke technolog to develop mature and ‚ecome flo­’‚ased‡ a clear solution‡ to ‚eing kno­n for an a‚ilit to differentiated productsˆ ‹ith lo­ ‚arriers strategic choice‡ as to ­hether the can structure highl e‘otic trades or e‘ecute to entr‡ the model is argua‚l the easiest continue supporting the product‡ is reŒuiredˆ ‚espoke currenc pairsˆ Traditionall served to enter‡ freŒuentl leading to a large in a single ™urisdiction‡ the model is num‚er of market participants and rapidl compara‚l simple in a comple‘ eroding competitive advantageˆ Similarl‡ Figure € Product ƒecialist Model Key Choice Core Business ƒlo Conse„uence Performance Outcome Differentiator Source Accenture Research Deep arket noledge igh arket Share Talent Development Detailed Insightful esearch nalytics Content Competitive Specialist Strong eputation Pricing Technology Development Innovative Proven bility Product to €‚ecute Investment in Development High Product Specific igh uality Profits Capabilities Specialist Bespoke or Niche arket Provision Infrastructure Offering Cost­€fficient arket Provision €

Full Report Primar „arkets Po­erhouse The Primar „arkets Po­erhouse model ¥iven the e‘tremel high cost of failure for houses‡ given the premium placed on is ‚uilt around the competence to advise issuances and deals‡ clients tend to lack specialist advice and strong relationshipsˆ or structure profita‚le ‚ut infreŒuent price sensitivit‡ allo­ing ‚anks to charge Banks looking to differentiate are investing issuances or dealsˆ The model relies on high feesˆ The a‚ilit to e‘ecute or in effective information management specialist talent‡ ­ith deep sector’specific effectivel distri‚ute an issuance is rightl sstems to create deep client insights e‘pertise and strong relationships‡ and seen as critical‡ ‚ut a safet’first approach and offer targeted service deliverˆ a strong ‚randˆ This centralit of ‚rand ­orks to the advantage of incum‚ent‡ The fact that this is a non capital’intensive acts as a considera‚le ‚arrier to entr‡ esta‚lished plaers‡ reinforcing the need and a lo­ price’sensitive market means given the significant time it takes to for a strong ‚randˆ that the model ­ill continue to attract developˆ The model is made attractive ›arge plaers can differentiate through competition‡ ‚ut onl ‚anks that take‡ ‚ its lo­ capital intensit and‡ in an the a‚ilit to provide financing alongside or have taken‡ the time to develop strong increasingl integrated glo‚al marketplace‡ „¨A transactions‡ ­hich can ‚e an ‚rands ­ill ‚e a‚le to ­inˆ ­ill provide opportunities for ‚anks to efficient allocation of capital due to the transfer capa‚ilities to ne­ geographies profita‚ilit of the modelˆ Ho­ever‡ there and ne­ clientsˆ remains plent of room for ‚outiŒue Figure ‚ Primary Markets Po…erhouse Model Key Choice Core Bsiness Flow Conse‰ence Performance „tcome Differentiator Source Accenture Research Targeted ffective Information Deep Client Insight Technology anagement Systems Investment ow Technology Targeted Aligned „…ectives Costs Service Delivery High Fees ow Price Sensitivity Strong Brand ong†Term€ Stic‡y High Relationships Profits Proven Aility to ecte Competitive advantage Deep Sector†Specific for larger players ˆnowledge High evels of Trst Balance Financing Boo‡†Bilding Distriting Pricing at a Senior evel Sheet Provision Specialist Capailities  ­A€ C € DC € ‚eographicƒ Renowned Talent €…

Full Report Risk „aster Taking on and managing risk has al­as confidence‡ ­hich must come from This reŒuires investment in po­erful ‚een‡ and ­ill remain‡ core to investment leadership‡ and clear communication of technolog to process comple‘ e‘posure ‚ankingˆ Ho­ever‡ the a‚ilit for ‚anks to the risk strategies and appetite of the calculations at high speeds‡ and to make do so is clearl challenged ‚ regulationˆ ‚ankˆ Additionall‡ the a‚ilit to commit availa‚le the right information at the right Reforms designed to restrict proprietar is dependent on organisational fle‘i‚ilit‡ timeˆ „ost of all‡ a culture of effective risk trading –eˆgˆ the ‘¦olcker rule’— are likel to ‚ack e‘ecutives’ decisions ­ith control must ‚e spread throughout the to cur‚ a ‚ank’s a‚ilit to take on risk to a sufficient speed to market‡ a challenge for organisation‡ to ensure continual discrete set of more limited forms‡ nota‚l pu‚licall’listed ‚anks ­hen competing a­areness and management of risks takenˆ hedging and market’makingˆ Increasing ­ith more nim‚le private firmsˆ The model is the most comple‘‡ and regulator oversight ­ill also force ‚anks Risk „asters must also understand ho­ takes the most time to adopt of the five to demonstrate more effective risk control‡ to ma‘imise their risk mitigation strategies ­e have outlined ‚ut risk master has causing compliance costs to riseˆ and control un­anted riskˆ The model calls ‚een sho­n‡ and is likel to remain‡ Successfull taking on risk reŒuires for informed supervisor committees that a ke performance differentiatorˆ effective control‡ management and have the po­er to ‚oth control and Œuickl commitmentˆ But commitment reŒuires pursue risks ‚ased on relia‚le informationˆ Figure 1ƒ Risk Master Model Key hoice ore ‚usiness low onseƒuence erormance utcome Dierentiator Source Accenture Research Sustainable Revenues Hig Profits Dependant Algorithmic lient low Eective osition on regulatory Hedging Execution Market-Making acilitation Management allowances Ability to Maximised Risk Enter Markets Mitigation Strategies Sufficient Commitment Effective Confidence to Control Take on Risk Market onditions Ability to React Clear and Efficient ­uickly Readily Available Process and Shareholder Management normation Structures Appetite nderstanding rganisational Influential and Accurate and Rapid o Risk lexibility Informed €aluations Supervisory Committees Effective Powerful and Management Efficient Systems Investment in Risk Management Capabilities €†

Full ReportFull Report Building a strateg High performance in the ne­ era ­ill portfolio to fit to the model–s— in ­hich it effort are appropriatel targetedˆ Then‡ reŒuire a disciplined approachˆ The can feasi‚l ‚e successfulˆ An understanding the ‚ank must assess it competence ‚usiness models outlined in this paper are of the relevance to its clients must ‚e against each of the features of the model not prescriptive‡ rather an articulation of central to this e‘erciseˆ apital consumption and diligentl focus on ‚uilding the market ­hat constitutes high performance in ­ill also ‚e a critical input and as such leading capa‚ilities reŒuired to develop different disciplines of investment ‚ankingˆ the ‚ank must assess capital consumption‡ a ­inning propositionˆ The are designed to help a ‚ank to frame alongside achieva‚le profita‚ilit measured The models should not ‚e considered its strategic planning as it looks to respond ‚ return on risk’­eighted assets‡ ‚ mutuall e‘clusive‡ or incompati‚le‡ ‚ut to the industr changesˆ This necessitates ‚usiness lineˆ The challenge of this task the address fundamentall different a series of decisive steps‡ for a ‚ank to should not ‚e underestimatedˆ Scaling marketsˆ It is possi‚le for a ‚ank to ‚e understand its clients and proposition ‚ack from‡ or e‘iting‡ current ‚usiness successful in one‡ or a com‚ination‡ of to the ­ider marketplace‡ to select the lines is likel to ‚e necessar‡ ‚ut ‚old models ‚ut the interpla ‚et­een each appropriate model–s— to fit this‡ and to and decisive action is called for ­ith ­ill ‚e different for each institution‡ and adeŒuatel focus on the chosen model–s— such limited resources‡ ‚acked up ‚ a ‚ank must understand ho­ its strengths so that the can ‚uild the supporting disciplined focus on chosen strategiesˆ can provide links to other models if it is capa‚ilities reŒuired to develop a Second‡ it must focus on ‚uilding a to pursue more than oneˆ ‹hat is clear ­inning competitive advantageˆ competitive advantage in its chosen is that the must address each model First‡ the ‚ank must select the appropriate model–s—ˆ nderstanding current independentl‡ understanding the varing ‚usiness model–s—ˆ To do this‡ it must capa‚ilities against those descri‚ed in capa‚ilities‡ and investment reŒuirements recognise ho­ current ‚usiness lines appl the models ­ill help to ‚alance investment for eachˆ to the models and then rationalise its decisions‡ and to ensure that spend and Figure 11 –ey aƒabilities MatriŽ ‘lo… Monster Regional hamƒion Product ƒecialist Primary Markets Risk Master Po…erhouse ­alent Sales teams and latenc Sector’specific ªuantitative developers Industr e‘perts omple‘ risk analsts developers relationship managers ­echnology šfficient‡ scala‚le and „I sstems Tailored infrastructure Industrialisation of Risk management ro‚ust trade processing process sstems Pricing Tight spreads Appropriate‡ ­ide ompetitive pricing High fees Accurate valuation spreads EŽecution ›o­ latenc provision A‚ilit to e‘ecute in Innovative development Price‡ ‚ook’‚uild‡ ommitment and and efficient straight’ multiple markets to of ‚espoke products distri‚ute and provide understanding of risk through processing serve client needs specialist advice lient ervice Highl efficient and High Œualit ‚ut Innovation and access High Œualit‡ A‚ilit to take on relia‚le e‘ecution appropriate level of to niche markets trust ‚ased risk to facilitate clients’ service needs lient Sales team led Based on a core ‚anking Product’led model ›ong’term relationships “«A Relationshiƒs proposition‡ lending or ‚uilt on trust advisor Source Accenture Research €

Full Report Although man of these capa‚ilities of choices‡ reflecting the management are u‚iŒuitous across the models‡ the co’ordination and organisation alignment focus of investment varies‡ meaning reŒuired—‡ time to adopt –the num‚er of that capa‚ilities are rarel transfera‚leˆ conseŒuences‡ reflecting the time taken For instance‡ Flo­ „onsters and Product for the effects of the choices to resonate Specialists ‚oth call for investment in through the model—‡ and monetar talent‡ ‚ut ­hilst the former relies on investmentˆ –see figure €2— latenc developers and sales teams‡ the ¥iven the constraints ‚anks face‡ onl latter depends on Œuantitative analsts careful selection and adeŒuate focus and industr research e‘pertsˆ –see figure €€— on the model–s— appropriate to them The varing investment reŒuirements ­ill ensure the are not caught in the must also ‚e taken into accountˆ šach clustered mid’marketˆ model varies in comple‘it –the num‚er Figure 12 Investment onsiderations Ris aster Reional Champion rimary arets oerhouse Complexity (# of choices) roduct Specialist lo onster Time to adopt (# of consequences) Size of bubble = relative investment required Source Accenture Research “ š‘iting and do­nsiŽing ‚usinesses ­hich are not value added to our client franchiseˆˆˆ this strateg plas to our strengths and is focused firml on the needs of our clientsˆ” –Sergio šrmotti‡ BS ¥roup š˜‡ Investor Presentation‡ “ovem‚er 2”€€— €•

Full ReportFull Report onclusion A volatile‡ shifting ­orld of regulator and economic pressures is driving drastic changes in the investment ‚anking industrˆ Banks need to a‚andon the mindset of plaing in all markets that characterised strategies prior to the 2””• financial crisis and realise that the reforming industr‡ despite its tighter margins‡ capital constraints and regulator oversight‡ can provide opportunities amidst the dislocationˆ ritical to ma‘imising the availa‚le opportunities ho­ever‡ is a more focused and disciplined approach to identifing the markets in ­hich to operate‡ ensuring a deeper alignment ­ith client needs‡ and continuall ‚uilding and re’‚uilding on e‘isting strengthsˆ €

A‚out Accenture Accenture is a glo‚al management consulting‡ technolog services and outsourcing compan‡ ­ith more than 2‡””” people serving clients in more than €2” countriesˆ om‚ining unparalleled e‘perience‡ comprehensive capa‚ilities across all industries and ‚usiness functions‡ and e‘tensive research on the ­orld’s most successful companies‡ Accenture colla‚orates ­ith clients to help them ‚ecome high’performance ‚usinesses and governmentsˆ The compan generated net revenues of S¬2…ˆ… ‚illion for the fiscal ear ended Augˆ 3€‡ 2”€€ˆ Its home page is ­­­ˆaccentureˆcomˆ Accenture š‘perts Bo‚ ¥ach Managing ˜irector, „lobal aƒital Markets ro‚ertˆpˆgach®accentureˆcom ¯€ € …2 ……2 œean ¢ason enior EŽecutive, aƒital Markets deanˆlˆ™ason®accentureˆcom ¯ 2” • •2… ¢ames Sproule Head of aƒital Markets Research ™amesˆrˆsproule®accentureˆcom ¯ 2” • 33• ˜liver °night aƒital Markets trategy oliverˆhˆknight®accentureˆcom ¯ 2”3 33… 2†† hristopher Hook aƒital Markets trategy christopherˆ™ˆhook®accentureˆcom ¯ 2”3 33… €33 oƒyright © “”1“ ccenture ll rights reservedŒ ccenture, its logo, and High Performance ˜elivered are trademarks of ccentureŒ