Banking Day 2017 PwC · Global Asset Allocation Derivative Products Structured Products...
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PwC Banking Day 2017
Transcript of Banking Day 2017 PwC · Global Asset Allocation Derivative Products Structured Products...
PwC
Banking Day 2017
PwC
Welcome
Olivier Carré,
Partner, Banking Leader, PwC Luxembourg
Banking Day 2017
PwC
2016, the year of change – 2017, the year of de-globalisation?
Source: Financial Times, 2016
Banking Day 2017
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Infrastructure/ICT, workforce and government institutions are key success factors
Banking Day 2017
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Luxembourg banking centre is build on business model diversity
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Product structuring toolbox is putting Luxembourg on the map
Wealth transmission
SOPARFI
SICAR
SIF & RAIF
Trust/Foundation
SPF
UCI(TS)
Securitisation
GFO/UHNWI/Institutional
Affluent
Wealth segment
Wealth creation & preservation
Wealth maximization
Wealth management needs
Unit linked/Life Insurance
Dedicated funds/Life Insurance
Dedicated SICAV
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Luxembourg banking centre stands ready for the future
1980s 1990s 2000s Next 10 years
Government Bonds
Cash
Domestic Large Caps
Real Estate Products Emerging Markets
Global Bonds
High Yield
Mutual Funds
International Equity
Small Caps
Private Equity
Hedge Funds
Real Estate
Global Asset Allocation
Derivative Products
Structured Products
Liability-Driven Investment
Cross-Border Booking
Currency Management
Cross-Border compliant fiscal reporting
Wealth Structuring
Specialised funds
Corporate Finance Advice
Digital banking
Wealth Transmission
Mass affluents
HNWIs
Very-HNWIs
Ultra-HNWIs
EuroBonds
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PwC
Keynote Speech
Seb Walker,
Managing Partner, Tricumen
Banking Day 2017
Revenue dynamics of different business lines at top-tier institutions, indexed to FY2010
Capital Markets
Securities Services
Treasury Services
Commercial Banking
Wealth Management
Asset Management
80%
90%
100%
110%
120%
130%
140%
2010 2011 2012 2013 2014 2015
Source: Tricumen analysis, excludes litigation and one-offs. “Top Tier” covers the top 6 to 8 institutions by revenue in each segment
Cost / Income dynamics of different business lines at top-tier institutions
Capital Markets
Securities Services
Treasury Services
Commercial Banking
Wealth Management
Asset Management
30%
35%
40%
45%
50%
55%
60%
65%
70%
75%
80%
2010 2011 2012 2013 2014 2015
Source: Tricumen analysis, excludes litigation and one-offs. “Top Tier” covers the top 6 to 8 institutions by revenue in each segment
Capital markets has been hit by large increases in allocated capital
-10%
-5%
0%
5%
10%
15%
20%
25%
30%
35%
Revenue Expenses Pre-Tax Profit Capital RoAC
US$ Bn
Change in Capital Markets Financials from 2010 to 2015
Source: Tricumen analysis, excludes litigation and one-offs
Cost reduction programs have been partly neutered by higher support costs
70%
80%
90%
100%
110%
120%
130%
140%
150%
160%
FY09 FY10 FY11 FY12 FY13 FY14 FY15
Revenue Total Expense FO Comp & Bens Support Costs
Source: Tricumen analysis, excludes litigation and one-offs
Capital Markets: Top 5 US Banks
Functional groups, such as Compliance, have grown significantly in recent years
Policies & Regulatory
9%
Business Advice
67%
Control Room &
Surveilance24%
Functional Split of Compliance Staff at a typical top tier bank
0%
20%
40%
60%
80%
100%
120%
140%
160%
180%
2012 2013 2014 2015
Compliance staff
Compliance headcount (FTE) at a typical top tier bank
Source: Tricumen analysisNote: Tricumen functional definitions apply
How can banks improve RoAC?
RevenueImpact
ExpenseImpact
CapitalImpact
Revenue Growth
Front Office Efficiency
Business Selection / Alignment
Cost Savings
Radical Reshaping ? ?
Revenue growth: prospects look weak in the short-to medium-term
Interest rates rise
Increasing Revenue
New product development
Volatility increases
Economic growth
Increased electronicification
Fragmented liquidity pools Increased market transparency
New market entrants
Decreasing Revenue
Negative interest rates
Financial markets crisisPro
bab
ility
Reduced trade
Many banks still have scope for Front Office efficiencies
Asia Wealth Management – Revenue per Relationship Manager
Source: Tricumen analysis
60%
65%
70%
75%
80%
85%0.0
1.0
2.0
3.0
4.0
5.0
6.0
Bank 1 Bank 2 Bank 3 Bank 4 Bank 5 Bank 6 Average
US$ million Rev per RM Cost Income
Business selection/alignment can be within the capital markets business alone ….
High Touch
Low Touch
Voice
Electronic
DMA
Principal
Agency
Exchange
SEF &CCP
Internalised
Bilateral
Orders Channels Trading Type Venue Features
High Margin, High Cost, High Capital
Medium Margin, High Cost, Medium Capital
Medium Margin, Low Cost, Medium Capital
Medium Margin, Low Cost, Low Capital
Low Margin, Low Cost, Low Capital
Corporate “solutions” to support banking and structured products for wealth clients
Instinet style
business
Nomura’s business focus
…. or by looking more broadly at other business lines
Wealth Clients
Institutional Clients
Global Corporate
Clients
Wealth Management
Markets
Investment Banking
Solutions
Credit
Equities
Sales Trading Services
Credit Suisse Investment Bank reorganisation
Front Office Structure Clients
Agency style business
Flow business correlated with IBD origination
Higher margin structured business
New structures can be revenue additive
Old Structure
New Structure
Benefits
Clients covered
Initiative
Large Cap/MNC BrokerageMid Market
Covered by ISG Covered by Wealth Management
Covered by Wealth Management
Covered by Institutional Securities Group (ISG)
Mid-Market banking coverage moved to Wealth Management Mid-Market & Brokerage Coverage
Merged Loan Operations
• 350 h/c saved• Lending up 50%• US$100m revenue
growth
Operations groups combined • US$80m save p.a.
• Ability to build long term relationships through loan finance to IPO or sale
Morgan Stanley has shifted mid market coverage to wealth management
Cost savings can be generated by looking at near-shore / off-shore solutions …
BNY Mellon Investor Services
SalesBusiness
Management/Business Development
Client Services Delivery
(18,500 staff)
Client Service Managers
Fund Administration
AIS Operations
Securities Operations
Transfer Agency
OutsourcingPerformance
Measurement
Treasury Services
Middle Office
Alt Investment Services Middle
Office
Trade Operations
Accounting Services
Corporate Trust Services
Shared Office
Global Client Solutions
Transaction Managers
KYC Operations
Onboarding
Deal Administration
Reconciliations Cash Processing
Global Settlements
Client Technology
Solutions
Capital Markets
Execution Product Aligned Middle Office Functional Shared Services / Operations
BNY Mellon Investor Services Group
Cost savings can be generated by looking at near-shore / offshore solutions …
Source: Company presentations, Tricumen analysis
+11%
+52%
-2%
-
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
Total Headcount Traditional Locations Offshore/NearshoreLocations
2012
2016
17%
-2%-5%
0%
5%
10%
15%
20%
Analysts, Assoc &VPs
Partners & MDs
Moving headcount to near-shore/offshore locations has cut compensation & benefits by 2%, or US$270 million per annum
41% of total tech headcount is now in near-shore or offshore locations
8%
-4%-6%
-4%
-2%
0%
2%
4%
6%
8%
10%
Tech Headcount Tech Expenses
Bengaluru62%
Salt Lake City22%
Dalas/Irving
8%
Singapore7%
Poland1%
Goldman Sachs near-shore and offshore staffing
… or radically reshaping support functions with “industrialisation” programs
Technology Operations
Goldman Sachs’ strategy for technology is to:
o Reduce end-product complexity
o Use technology to streamline processes and drive down costs
o Improve risk controls across the group
o Make use of cross-licensing and shared development costs for technology.
Goldman Sachs modularises platforms so that they can be more easily used across divisions. The bank is in the process of shifting 90% of its computing into containers in a move to ensure run-time is automated, eliminating staff and infrastructure costs. This will allow the 8,000 software developers in the tech division to focus on creating new products and tools.
Goldman Sachs has worked with firms such as Amazon, Facebook and Google on common computational problems and are adopting similar approaches to building out architecture. For example, 85% of the company’s applications (numbering some 5,000) now operate in an internal Cloud framework
The bank is also is part of the Open Compute project, which is Facebook’s effort to shake up the hardware industry.
Cross Divisional Projects & Architecture team coordinates technology initiatives and progresses the firm's strategic functional architecture across multiple business lines
The Operations division comprises four groups:
o Operations Design are responsible for executing change programs and creation of new financial operations capabilities to drive efficiency, improve client service levels and reduce our operational risk
o Capital Market Operations delivers middle office support to all business lines and supports the life cycle of all trades
o Financial Analytics & Reporting creates financial models and provides management information on performance and risk
o Data Science & Engineering provides analytical tools and engineers solutions to operational challenges
In addition, there is an industrialisation program management team which works closely with the senior leaders of the Operations division on managing a multi-year strategy to respond to the changing commercial and regulatory environment. The team coordinates the execution of the program, ranging from the vision and approach, to providing guidance and monitoring of timelines, milestones and mitigation of key issues/risks.
Goldman Sachs Industrialisation
What is the scale of action required for each approach to get RoAC back to 2010 levels?
Possible Actions in Capital Markets Change required
Revenue Growth ~ 15% revenue growth
Front Office Efficiency~ 45% reduction in Front Office
costs
Business Selection / Alignment20% reduction in business focus(FO down 30%, support down
25%, capital down 40%)
Cost Savings ~ 40% reduction in support costs
Radical Reshaping~ 45% reduction in support costs
with investment
Clarity of purpose will be key to success.This could be a common theme across the group …
Asset Management
Specialised Investment Solutions
Secured Ship Financing
Agriculture Investments
Corporate & Asset Finance
Energy Leasing CAF Resources
Macquarie Capital
Infrastructure, Utilities &
RenewablesMining & Energy
Commodities & Financial Markets
Metals, Mining and Agriculture
Energy Central
Structured Commodity
Finance
Cross Product Sales
Structured Global Markets
Private & Structured
Finance
Futures
Securities
Global Research
European Research
Commodities
Invest client assets
Principal Investments Investment Banking Trading Commodity Risk
Macquarie’s Commodities Expertise is Shared Across Divisions
Source: Tricumen analysis
… or a strategy focused on key client channels
Deposits sourced from UHWI clients of Private
Bank
Deposits sourced from Electronic Consumer
Business
Fixed Income and Equities Electronic Sales
Fixed Income and Equities High Touch Sales
Principal Investments
GSAM
Low touchLow marginLow costLow capital
High touchHigh marginHigh costHigh capital
Avoid businesses that fall in between
Goldman Sachs – Barbell strategy avoiding businesses that fall between hi- and low-touch
PwC
Panel discussion: Disruptive time for Banks
Venetia LeanFounder and Managing Director, Fordham
Nicolas MackelCEO, Luxembourg for Finance
Alain MeunierPartner, Wealth Management Leader, PwC Luxembourg
Marie Louise SeeligFounder and CEO, Acatus
Françoise ThomaPresident and CEO, Banque et Caisse d’Epargne de l’Etat, Luxembourg
Banking Day 2017
PwC
Wealth management opportunities
Alain Meunier,
Partner, Wealth Management Leader,
PwC Luxembourg
Banking Day 2017
PwC
Shifting demographics and customer preferences will transform the wealth industry over the next 5-10 years
Demographics Behaviours Economics
Wealth transferFrom Boomers to GenX and
Millenials
47% HNWI under 45 would consider to
use robo- advisor
225 bps vs. 100 bpsRevenues continue to face pressure
50% Millennials in workforce by 2020
69%HNWI are using online/ mobile
banking
Operatingmargin stable
Wealth management cornerstone of the financial services
Wealth advisors agingAnd leaving the industry
25%Wealth managers offer digital
channel
$4TnIn digital advised assets by 2020
Source: Sink or swim – Why wealth management can’t afford to miss the digital wave. PwC and Strategy&. 2016
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PwC
Two revolutions are underway in wealth management: one loud and the other quiet
Loud RevolutionENABLING AND ENHANCING EXISTING MODELS
Quiet RevolutionSHAPING THE FUTURE OF ADVICE
Shiftto lower-fee assets
Holisticnature of advice
Youngerclients and new preferences
Standardizedand personalised advice
Regulationreshaping industry
Institutionalizedclient experience
Source: Wealth management – The future of advice. PwC and Strategy&. November 2016Banking Day 2017
PwC
Luxembourg wealth management professionals are targeting UHNWI and institutional money
2011 2016 Trend
Clients AuM Clients AuM
2% 42% 2% 63%
4% 12% 2% 8%
14% 18% 14% 17%
80% 28% 82% 12%
Breakdown of AuM held within Luxembourg Private Banks
Source: PwC’s Global Private Banking and Wealth Management Survey 2016
€0 – 1 million
> €50 million
€5 – 50 million
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>
€10 Mn
€5 Mn - 10 Mn
€1 Mn – 5 Mn
€0 – 1 Mn
PwC
Digital change opportunities
Dr. Marie-Louise Seelig,
Founder and CEO, Acatus
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