INVESTMENT BANKING & CAPITAL MARKETS Market Report Q1 2003 Edition New York, Frankfurt May 22 nd, 2003 THE BOSTON CONSULTING GROUP
TABLE OF CONTENTS Chapter Page Executive summary 2 Overview of 1 st quarter 2003 4 Integrating investment banking and credit 13 Market review Fixed income origination Equity origination Mergers and acquisitions Equity trading 20 Data definitions 49-1-
Executive Summary -2-
INVESTMENT BANKS PERFORMED STRONGLY IN FIRST QUARTER 2003 THANKS TO GAINS FROM TRADING After several quarters of revenue declines, investment banks reported strong results Investment banking earnings improved banks overall results in the U.S. and Europe Profit margins for leading players reached over 3 again, for the first time since 2000 However, majority of revenues came from trading gains, predominantly in fixed income, while corporate finance revenues continued to decline in the first quarter of 2003 Advisory and underwriting revenues decreased another 8% in the first quarter Leading investment banks generated on average over 8 of their revenues from trading, with the majority in fixed income Risk-taking appetite of banks increased: Overall value-at-risk of the top players grew by 6% from last quarter A changed interest rate environment could jeopardize current industry earnings In a special section, we introduce an approach and key success factors in integrating investment banking and credit -3-
Overview of 1 st Quarter 2003-4-
INVESTMENT BANKING RESULTS IMPROVED SIGNIFICANTLY IN FIRST QUARTER 2003 BCG s investment banking performance index improved 14 points to 58.6 during first quarter of 2003 This is still far below the investment banking heyday of 2000, but well above the levels of 3 rd and 4 th quarter of 2002 A favorable trading environment supported performance, especially in fixed income trading. Continued cost cutting efforts led to a recovery of gross profit margins to over 3 on average Revenues of main players jumped by 4 from 4 th quarter 2002 Profit margins improved on average by 1 to 31% from previous quarter Advisory and underwriting revenues remained sluggish and trading revenues now account for over 8 of the firms total revenue Risk taking appetite of the firms has increased modestly over the last 2 years Without a significant improvement of global stock markets, investment banking revenues are in jeopardy particularly if interest rates rise again -5-
INVESTMENT BANKING INDUSTRY RECEIVED A LIFT IN FIRST QUARTER 2003 BCG Performance Index Up By 14 Points Indexed 120 100 108.2 100 BCG IB Performance Index 80 69.8 71.4 80.1 72.6 60 56.1 56.9 51.4 48.6 42.6 44.6 58.6 40 20 2000 2001 2002 0 Q1/00 Q2/00 Q3/00 Q4/00 Q1/01 Q2/01 Q3/01 Q4/01 1Q/02 2Q/02 3Q/02 4Q/02 1Q/03 Note: : BCG IB performance index is calculated based on profit weighted volume trends in M&A, ECM, Equity Sales & Trading and Bond Origination Source: Dealogic; SDC; Autex; BCG-analysis -6-
ADVISORY AND EQUITIES BUSINESSES REMAINED SLUGGISH IN 1 ST QUARTER $B 160 140 120 100 80 60 40 20 0 Corporate Bonds Origination 1Q00 3Q00 1Q01 3Q01 1Q02 3Q02 1Q03 $B 800 700 600 500 400 300 200 100 0 M&A Advisory (1) 1Q00 3Q00 1Q01 3Q01 1Q02 3Q02 1Q03 $B 80 $tr 70 60 50 40 30 20 10 0 1Q00 3Q00 1Q01 3Q01 1Q02 3Q02 1Q03 (1) Based on effective transactions Source: Dealogic; SDC; FIBV, BCG-analysis Equity Origination Asia US Europe 12 10 8 6 4 2 0 Equity Trading 1Q00 3Q00 1Q01 3Q01 1Q02 3Q02 1Q03-7-
REVENUES OF TOP PLAYERS WERE UP BY 4 FROM LAST QUARTER Q1/2003 vs. Q4/2002 Gross profit margin (%) Ø +10. 4 3 1 BS LB MS (1) ML UBS GS DB Citi JPMC Q1/03 Ø: 31.4% Q4/02 Ø: 21.3% Q1/03 Q4/02 CSFB -1-0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 4.5 Ø +40.2% Revenues ($B) (1) At Morgan Stanley, compensation payments accrued in earlier periods resulted in very high profit margins in Q4/02 Note: Ø calculated on a revenue weighted basis; Operating revenue for investment banking and institutional sales and trading; revenues from loans and loan loss provisions excluded; extraordinary charge-offs excluded Source: Company reports, BCG analysis -8-
RESULTS IMPROVED SIGNIFICANTLY FROM A YEAR AGO Q1/2003 vs. Q1/2002 Gross profit margin (%) 4 BS Citi JPMC 3 ML MS Q1/03 Ø: 31.4% Ø+6.2% LB UBS GS Q1/02 Ø: 21.3% 1 DB CSFB Q1/03 Q1/02 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 4.5 Ø+7. Revenues ($B) Note: Ø calculated on a revenue weighted; Operating revenue for investment banking and institutional sales and trading; revenues from loans and loan loss provisions excluded; extraordinary charge-offs excluded Source: Company reports, BCG analysis -9-
TRADING REVENUES ROSE SHARPLY FROM LAST QUARTER Goldman Sachs And Bear Stearns Improved Corporate Finance Revenues Trading Related Revenues Q1/03 vs. Q4/02 Corporate Finance Revenues Q1/03 vs. Q4/02 Trading rev as % of total revenue Q1/03 95% 9 UBS DB 3 IBD rev as % of total revenue Q1/03 25% LB GS Citi 85% 8 BS ML GS MS JPMC Ø: 82.3% 15% BS DB ML JPMC MS CSFB Ø: 20.1% 75% LB CSFB Citi 1 UBS 7 0.5 1.0 1.5 2.0 2.5 3.0 3.5 0.0 0.2 0.4 0.6 0.8 1.0 1.2 Revenues Q1/03 Revenues Ø +54.5% ($B) Q4/02 Ø 7.8% ($B) 5% Note: Source: Trading and Corporate Finance revenues don t add up to 10 because of Other revenue Company reports; BCG-analysis -10-
TRADING RESULTS STILL BELOW 2001 LEVELS Weakness In Equity Trading Accounts For Decrease In Overall Trading Revenues Trading Revenue By Quarter (Indexed) Corporate Finance Revenue By Quarter (Indexed) 120 % 100 80 60 100 82.8 72.1 63.6-7.4% 80.4 74.3 66.6 60 92.6 120 % 100-33.1% 100 93 90.5 84.1 80 77.8 60 87.4 60.8 72.6 66.9 40 40 20 20 0 Q1/01 Q2/01 Q3/01 Q4/01 Q1/02 Q2/02 Q3/02 Q4/02 Q1/03 0 Q1/01 Q2/01 Q3/01 Q4/01 Q1/02 Q2/02 Q3/02 Q4/02 Q1/03 Note: Excluding Merrill Lynch Source: Company reports, BCG analysis -11-
RISK TAKING APPETITE OF BANKS HAS INCREASED In Absence Of Other Revenue Opportunities Market Risk Risk Efficiency Valueat-risk (1) $M 600 400 483 495 490 485 482 510 Total BS LB ML DB JPMC Trad Rev $M 4,000 3,000 2,000 Broker ML MS Ø all players JPMC DB Citi GS UBS CSFB 200 CSFB MS Citi 1,000 BS LB 0 4Q01 1Q02 2Q02 3Q02 4Q02 1Q03 UBS GS 0 Trader 0 25 50 75 100 VAR (1) $M (1) Totals, including, equity, fixed income, forex, commodity risk. At 99% confidence level, one-day loss; end of quarter levels Note: Players which reported VARs using a different methodology were adjusted by assuming normal distribution of losses Source: Company reports, BCG analysis -12-
Integrating Investment Banking And Credit -13-
WELL-INTEGRATED CORPORATE AND INVESTMENT BANKS ACHIEVE HIGH PROFIT MARGINS INDEPENDENT OF THEIR SIZE 2002 Gross profit margin (%) 4 3 1 BMO (1) RBC SEBanken Wachovia Barclays BNPP CAI (1) CL (1) US Bancorp Bear Stearns BofA LB SocGen (1) Midsize Investment Banks Coba (1) Pure Investment Banks GS ABN Amro (1) ML MS UBS JPMC Citigroup 0 5 10 15 2002 Revenues ($B) DB CSFB Integrated Investment Banks (1) Includes investment banking as well as corporate banking business Source: Company financial results, BCG analysis -14-
COOPERATION OF INVESTMENT BANKING AND CREDIT IS BASED ON FOUR PILLARS Active credit portfolio management Creates transparency by establishing market and risk based transfer prices Risk-adjusted pricing Allows relationship managers to make profitable sales decisions Client profitability management Improves client profitability by managing individual client P&Ls Strategic prioritization Sets client specific targets to optimize overall client profitability Maximize profitability and penetration of key clients -15-
RELATIONSHIP MANAGER PLAYS KEY ROLE BY MANAGING INDIVIDUAL CLIENT P&Ls Clients Favorable product prices Customer 1 Customer 2 Relationship Manager Customer 3 Customer 4 Customer n Risk based/ market oriented transfer prices Product/Portfolio Management Manages portfolio of individual client P&Ls Transfer pricing for credit products provides challenges in many organizations Source: BCG client work -16-
ACTIVE PORTFOLIO MANAGEMENT DETERMINES TRANSFER PRICES FOR CREDIT PRODUCTS Best-practice Blue-Print For Credit Organization Clear riskreturn-oriented sales decision Sales unit Credit Portfolio management Credit trading Client 1. Application 5. Pricing Client coverage and origination Credit rating 4. Transfer price Unbiased risk assessment Establish market and target price for risk rating categories Increased portfolio performance Credit trading Portfolio securitization optimisation Trading Capital Market 2. Scoring, rating Risk assessment and certification 3. Risk info. Basis criteria for incentives/ compensation Individual customer portfolio profits Overall corporate and investment banking unit results Risk adjusted trading results Source: BCG risk benchmarking study; BCG research -17-
SUCCESS FACTORS DIFFER IN RELATIONSHIP AND PORTFOLIO MANAGEMENT Client Relationship Management Portfolio Management Transparency of client profitability across all products Support of reporting tools Risk-adjusted pricing Deal execution quality Ability to deliver product bundles that fit changing client needs Clear principles for allocating prices to credit positions Influence of credit origination decision by adequate price setting Risk transformation Securitization Reduction of single loan exposures Portfolio shaping buy/sell/hedge Close interaction between client and portfolio managers imperative Source: BCG benchmarking study; BCG client experience; BCG research -18-
ACTIVE CREDIT PORTFOLIO MANAGEMENT IMPROVES THE BOTTOM LINE Example: Wachovia Corp. Reduced Corporate Loans Large corporate loans reduced by $12.5 billion, or 26% since 3Q01 Moved $2.6 billion of outstanding loans to Held For Sale Reduced telecom commitments by $900 million, or 8, since 4Q01 Reduced corporate exposures with low RAROC (1) by using rigorous up or out approach Identified individual credits that didn t meet 15% RAROC target Reduced lines of credit or increased prices for these Lowered Single Excess Exposures Reduced excess single name corporate exposures Currently down to $13 billion with opportunity to reduce by another 67% within next 18 months Used credit derivatives aggressively to hedge $1.6 billion of exposure Corporate And Investment Bank reduced capital employed by 18% since 1 st quarter 2002 and achieved RAROC of 19% in 1Q03 (1) RAROC Risk Adjusted Return On Capital Source: Wachovia Investor Relations Presentation from Arpil 30, 2003-19-
Market Review: Fixed Income Origination -20-
BOND ORIGINATION IMPROVED STRONGLY IN FIRST QUARTER 2003 Fixed Income Origination Global debt underwriting volumes increased 44%, supported by the additional rate cut of the European Central bank European debt issuance benefited strongly, underwriting volumes grew by 71% from previous quarter Corporate bond issuance also strong, supported by refinancing activity and favorable high yield business Volumes increased 5 globally from last quarter Citigroup and Deutsche Bank strengthened their market positions in US and Europe respectively Other players lose share relative to leaders -21-
RECORD LEVELS IN GLOBAL BOND ORIGINATION Fixed Income Origination Market volumes Growth 1200 $B 1000 800 600 400 200 0 1029 57 872 839 844 801 43 95 43 780 55 715 66 636 663 61 640 39 56 524 551 568 523 493 460 449 437 332 272 226 223 233 221 148 170 195 Q1/01 Q2/01 Q3/01 Q4/01 Q1/02 Q2/02 Q3/02 Q4/02 Q1/03 10 8 6 4 - -4-6 -8-10 Global 71% 39% 43% 34% 13% -7% 44% 22% 1Q/03 vs. 4Q/02 1Q/03 vs. 1Q/02 Asia US Source: Dealogic; SDC; BCG-analysis Europe -22-
Fixed Income Origination BOTH DEAL SIZE AND NUMBER OF ISSUES INCREASED Number of transactions Average transaction size 6000 5402 $M 300 5000 4000 4456 531 1059 3710 475 3993 426 4176 486 4327 500 4172 4200 554 610 4714 542 250 200 188 161 171 201 202 180 159 170 218 3000 2000 2747 3175 2341 2452 2466 2607 2465 2236 2672 150 100 1000 1178 1168 894 1115 1224 1220 1153 1354 1500 50 0 Q1/01 Q2/01 Q3/01 Q4/01 Q1/02 Q2/02 Q3/02 Q4/02 Q1/03 Global 0 Q1/01 Q2/01 Q3/01 Q4/01 Q1/02 Q2/02 Q3/02 Q4/02 Q1/03 Asia Note: Source: Number of transactions in the US and Asia includes double counting of domestic and international tranches Dealogic; SDC; BCG-analysis US Europe -23-
CORPORATE BOND ISSUANCE RETURNED TO LAST YEAR'S LEVEL Corporate Bonds Market volumes Growth 300 $B 10 67% 250 200 150 100 50 0 253 236 29 25 207 25 181 172 164 147 28 132 146 18 22 19 115 116 90 86 93 89 22 87 18 55 43 79 78 66 41 53 63 63 28 38 Q1/01 Q2/01 Q3/01 Q4/01 Q1/02 Q2/02 Q3/02 Q4/02 Q1/03 8 6 4 - -4-6 -8-10 Global 56% 21% -7% 49% 5% 1Q/03 vs. 4Q/02 1Q/03 vs. 1Q/02 Asia US Source: Dealogic; SDC; BCG-analysis Europe -24-
SLIGHTLY MORE DEALS WITH HIGHER AVERAGE VOLUME Corporate Bonds Number of transactions Average transaction size 1200 $M 500 1000 800 600 400 200 853 268 364 1002 292 472 682 294 240 765 219 342 666 225 255 721 202 312 491 147 206 619 631 224 192 230 269 450 400 350 300 250 200 150 100 277 252 215 270 246 250 182 186 272 0 221 238 204 148 186 207 138 165 170 Q1/01 Q2/01 Q3/01 Q4/01 Q1/02 Q2/02 Q3/02 Q4/02 Q1/03 Global 50 0 Q1/01 Q2/01 Q3/01 Q4/01 Q1/02 Q2/02 Q3/02 Q4/02 Q1/03 Asia Note: Source: Number of transactions in the US and Asia include double counting of domestic and international tranches Dealogic; SDC; BCG-analysis US Europe -25-
CITIGROUP STRENGTHENED ITS POSITION IN US AND DEUTSCHE BANK GAINED IN EUROPE Fixed Income Origination All bonds US All bonds Europe Relative marketposition 1Q03 10 Gained share Citi Relative marketposition 1Q03 10 Gained share DB 8 6 4 Nomura Barclays Wachovia ABN HSBC ML DB GS BoA BS MS JPMC UBS CSFB LB Lost share 4 6 8 10 Relative marketposition 2002 8 6 4 Nomura BS BoA CDC Coba CSFB MS Barclays DKW JPMC ABN BNP HSBC UBS LB GS ML CAI SG Citi Lost share 4 6 8 10 Relative marketposition 2002 Source: Dealogic; SDC; BCG-analysis -26-
Fixed Income Origination DAIWA INCREASED ITS SHARE AND LEADS IN ASIAN FIXED INCOME UNDERWRITING All bonds Asia Relative marketposition 1Q03 10 Gained share Daiwa 8 6 4 ML DB JPMC GS HSBC ABN UBS BNP Barclays MS SG CSFB MitsubishiTokyo Mizuho Nomura Citi Lost share 4 6 8 10 Relative marketposition 2002 Source: SDC; BCG-analysis -27-
Corporate Bonds CITIGROUP AND DEUTSCHE BANK DEFEND THEIR LEADS IN CORPORATE BOND ORIGINATION Corporate bonds US Corporate bonds Europe Relative marketposition 1Q03 10 8 Gained share Citi JPMC Relative marketposition 1Q03 10 8 Gained share MS DB 6 4 Wachovia UBS Barclays BS LB GS ML MS DB CSFB BoA Lost share 4 6 8 10 Relative marketposition 2002 6 4 BoA LB DKW ML GS CAI ABN HSBC CSFB UBS SG BNP JPMC Barclays Citi Lost share 4 6 8 10 Relative marketposition 2002 Source: Dealogic; SDC; BCG-analysis -28-
JAPANESE BANKS WIN LEADING POSITION IN JAPAN Corporate Bonds Corporate bonds Asia Relative marketposition 1Q03 10 Gained share Daiwa Nomura 8 Citi 6 ML 4 JPMC GS HSBC MitsubishiTokyo ABN MS ING DB CSFB Barclays Mizuho Lost share 4 6 8 10 Relative marketposition 2002 Source: Dealogic; SDC; BCG-analysis -29-
Market Review: Equity Origination -30-
ECM EQUITY ORIGINATION CONTRACTED FURTHER IN FIRST QUARTER 2003 Equity origination remained subdued Global equity underwriting volumes declined another 42% from last quarter European equity market was hit especially hard volumes plunged by 7 Though the markets have somewhat recovered in April, the IPO pipeline indicates little turnaround in the second quarter Goldman Sachs and Citigroup lost share to competitors while some smaller players improved their positions Bank of America and Bear Stearns improved their market share in U.S. Morgan Stanley was top underwriter in Europe in first quarter Market share positions in first quarter 2003 don t indicate true franchise strength because of small volumes -31-
ECM EQUITY ORIGINATION CONTRACTED FURTHER Market volumes Growth 100 10 $B 85 8 80 60 40 69 15 26 9 36 44 13 66 10 32 59 11 24 74 13 31 45 15 37 8 6 4 - -42% -64% -4% 20 0 21 15 13 15 40 7 28 30 24 24 16 17 15 10 4 Q1/01 Q2/01 Q3/01 Q4/01 Q1/02 Q2/02 Q3/02 Q4/02 Q1/03 Global -4-6 -8-10 -32% -34% -6-7 -82% 1Q/03 vs. 4Q/02 1Q/03 vs. 1Q/02 Asia US Source: Dealogic; SDC; BCG-analysis Europe -32-
ECM AVERAGE TRANSACTION SIZE IN EUROPE DECREASED BY OVER 5 Number of transactions Average transaction size 800 700 600 500 400 300 200 498 200 142 613 244 179 451 262 611 280 209 557 290 162 708 343 206 401 290 426 249 351 225 $M 300 250 200 150 100 137 138 97 108 106 105 112 87 61 100 0 156 190 116 73 122 105 159 47 99 60 64 78 66 Q1/01 Q2/01 Q3/01 Q4/01 Q1/02 Q2/02 Q3/02 Q4/02 Q1/03 Global 50 0 Q1/01 Q2/01 Q3/01 Q4/01 Q1/02 Q2/02 Q3/02 Q4/02 Q1/03 Asia Note: Number of transactions in the US and Asia includes double counting of domestic and international tranches Source: Dealogic; SDC; BCG-analysis US Europe -33-
CITIGROUP AND GOLDMAN SACHS LOST SHARE IN SLOW MARKETS ECM ECM US ECM Europe Relative marketposition 1Q03 10 8 Gained share BoA JPMC ML MS CSFB GS Citi Relative marketposition 1Q03 10 8 Gained share MS 6 6 ML UBS 4 LB 4 GS BS UBS DB Lost share 4 6 8 10 Relative marketposition 2002 HSBC Citi LB Cazenove CAI SG ABN CL DKW BNP ING JPMC CSFB Lost share DB 4 6 8 10 Relative marketposition 2002 Source: Dealogic; SDC; BCG-analysis -34-
JAPANESE BANKS WIN BACK MARKET SHARE FROM FOREIGN COMPETITION ECM ECM Asia Relative market- 1Q03 10 Gained share Nomura 8 6 Daiwa 4 MS Citi UBS CSFB Lost share ABN JPMC DB ML GS BNP4 6 8 10 Relative marketposition 2002 Note: Source: Some local players were not tracked Dealogic; SDC; BCG-analysis -35-
Market Review Mergers and Acquisitions -36-
M&A M&A VOLUMES FURTHER DEPRESSED After a small increase in the second half of 2002, global M&A volumes fell again in 1 st quarter 2003 Effectived deal volumes declined by 4 from previous quarter M&A activity stagnated across all regions Geopolitical uncertainty and continuingly depressed stock markets were the main reasons for the slow beginning of the year However, industry is cautiously optimistic about the second half of the year The war in Iraq resolved some market uncertainties Private equity firms are buying more assets Further market consolidation expected, particularly in Europe Goldman Sachs remains the leading m&a advisor in the U.S., Europe, and Asia -37-
AFTER A SLIGHT RECOVERY IN 2002 M&A VOLUMES FELL BY 4 M&A Market volumes: Effective deals Growth 800 $B 700 600 500 666 52 465 433 10 8 6 4-4 -7% 39% 400 300 200 100 0 451 120 45 368 358 42 299 60 260 257 232 48 208 35 215 220 26 158 113 141 36 116 99 163 137 131 106 90 112 110 141 79 Q1/01 Q2/01 Q3/01 Q4/01 Q1/02 Q2/02 Q3/02 Q4/02 Q1/03 Global - -4-6 -8-10 -12% -15% -37% -44% -4 1Q/03 vs. 4Q/02 1Q/03 vs. 1Q/02 Asia US Note: Source: Market volumes reflect true transaction volumes single-counted Thomson SDC; BCG-analysis Europe -38-
M&A ANNOUNCED M&A VOLUMES EASED SLIGHTLY Market volumes: Announced deals Growth $B 10 600 539 8 500 61 459 457 6-1 51% 400 300 200 261 64 42 210 305 400 46 245 247 33 106 329 58 133 283 38 149 306 275 48 42 103 69 4 - -4 7% -33% -13% -35% 27% 100 0 217 185 110 138 154 164 109 108 96 Q1/01 Q2/01 Q3/01 Q4/01 Q1/02 Q2/02 Q3/02 Q4/02 Q1/03 Global -6-8 -10 11% 1Q/03 vs. 4Q/02 1Q/03 vs. 1Q/02 Asia US Note: Source: Market volumes reflect true transaction volumes single-counted Thomson SDC; BCG-analysis Europe -39-
WITH NO MEGA DEALS THE AVERAGE TRANSACTION SIZE DECREASED CONSIDERABLY M&A Number of effective transactions (1) Average transaction size (1) 1400 1200 1000 800 600 400 1245 253 461 1069 228 337 893 175 352 995 221 373 751 169 301 833 212 308 973 915 264 221 326 311 827 233 297 $M 1000 800 600 400 499 398 449 338 278 277 302 339 221 200 531 504 366 401 281 313 368 398 297 200 0 Q1/01 Q2/01 Q3/01 Q4/01 Q1/02 Q2/02 Q3/02 Q4/02 Q1/03 Global 0 Q1/01 Q2/01 Q3/01 Q4/01 Q1/02 Q2/02 Q3/02 Q4/02 Q1/03 Asia US Note: Source: (1) Only deals with advisor Dealogic; SDC; BCG-analysis Europe -40-
GOLDMAN SACHS REMAINED MARKET LEADER IN U.S. AND EUROPEAN ADVISORY M&A M&A US M&A Europe Relative marketposition 1Q03 10 8 Gained share MS GS Relative marketposition 1Q03 10 8 Gained share GS Rothschild 6 4 HSBC Lazard BS LB BoA UBS Rothschild DB Citi ML CSFB JPMC Lost share 4 6 8 10 Relative marketposition 2002 6 4 CIBC SG CL BNP ABN HSBC Cazenove DKW LB Lazard Citi CSFB UBS JPMC ML MS Lost share 4 6 8 10 DB Relative marketposition 2002 Note: Source: Based on effective transactions Thomson SDC; BCG-analysis -41-
M&A BUT LOSES SHARE IN ASIA TO ITS COMPETITORS M&A Asia Relative marketposition 1Q03 10 8 Gained share JPMC MS Citi GS CSFB 6 4 ABN LB DB Daiwa Rothschild Coba Nomura Cazenove MitsubishiTokyo DKW Lazard ML UBS Mizuho Lost share 4 6 8 10 Relative marketposition 2002 Note: Source: Based on effective transactions; some local players were not tracked Thomson SDC; BCG-analysis -42-
Market Review: Equity Trading -43-
GLOBAL EQUITY TRADING STAGNATED FURTHER Global equity markets remained weak in 1 st quarter of 2003 Global stock prices lost 1% in 2003 year-to-date Global trading volume down by 7% from last quarter Although stock markets rallied in April, the mid-term outlook is uncertain Rising unemployment and slow economic growth in Europe and the U.S. European company profits hurt by weakening dollar U.S. stocks still highly valued compared to historic P/Es Knight Securities strengthened its position as leading U.S. market maker UBS gained market share in Europe and Asia -44-
Equity trading DESPITE THE RECENT RALLY MARKETS REMAIN DEPRESSED Development of main Equity indices (1) Growth 120 10 8 100 6-1% -23% 80 4 60 40 S&P500 Nikkei225 FTSE E300 - -4-3% 6% -5% -31% -11% -28% 20-6 -8 0 J 1Q01 A 2Q01 J 3Q01 O 4Q01 J 1Q02 A 2Q02 J 3Q02 O 4Q02 J 1Q03A Average -10 YTD 2003 Last 12M Asia US (1) Indexed Source: Thomson Financial Datastream Europe -45-
Equity trading TRADING VOLUMES DECLINED FURTHER Market volumes Growth 14 $tr 12 10 8 6 4 11,9 1.0 7.3 10,1 0.9 6.0 8,2 0.7 4.6 8,9 0.9 5.2 8,4 8,6 1.0 1.0 5.1 4.9 7,6 7,4 0.8 0.8 4.4 4.3 6,8 0.8 3.8 10 8 6 4 - -4-7% -19% 5% -4% -7% -11% -17% -26% 2 3.6 3.2 2.8 2.9 2.4 2.7 2.4 2.3 2.2-6 -8 0 Q1/01 Q2/01 Q3/01 Q4/01 Q1/02 Q2/02 Q3/02 4Q/02 1Q03-10 Global 1Q/03 vs. 4Q/02 1Q/03 vs. 1Q/02 Asia US Note: Source: Single counted, includes investment funds traded at exchanges FIBV; BCG-analysis Europe -46-
Equity trading KNIGHT SECURITIES STRENGTHENED ITS POSITION AS LEADING U.S. MARKET MAKER Institutional equity trading US Institutional equity trading Europe Relative marketposition 1Q03 10 8 Gained share Knight Relative marketposition 1Q03 10 8 Gained share Citi MS ML UBS CSFB DB 6 6 LB 4 MS GS UBS Citi LB CSFB JPMC BS BoA SG DB Wachovia Thomas Weisel ML Lost share 4 6 8 10 Relative marketposition 2002 4 JPMC Coba BNP HSBC BoA Cazenove SG GS DKW ABN Lost share 4 6 8 10 Relative marketposition 2002 Note: Source: 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 Autex; BCG-analysis -47-
Equity trading UBS GAINED SHARE AND IS NOW THE LEADING INSTITUTIONAL EQUITY TRADING HOUSE IN EUROPE AND ASIA Institutional equity trading Asia Relative marketposition 1Q03 10 8 Gained share UBS ML Citi 6 4 LB JPMC ING DB DKW HSBC ABN CSFB GS MS Lost share 4 6 8 10 Relative marketposition 2002 Note: Source: Does not include Japanese players not reporting to Autex; relative market positions are based on number of traded shares relative to market leader Autex; BCG-analysis -48-
Data Definitions -49-
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 4 th quarter ended in February, all others in March 2003-50-