Financial_Services_Landscape_Spring_08

Financial_Services_Landscape_Spring_08 - Financial Services...

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1 Financial Services Landscape Global Growth of Financial Markets Market Size and Composition of Financial Services Companies Financial Services Profitability Evolution of Financial Services Response of Financial Services Companies Strategic Questions for Financial Services Companies Role of M&A
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2 Global Growth of Financial Markets Growth of financial markets; $140 trillion today, $214 trillion forecasted in 2010 vs. $12 trillion in 1980 Financial intermediaries (banks and non-banks) increasing in importance Financial markets are 3x GDP; vs. 2x GDP in ’95 and 1x GDP in ‘80 Debt was fastest growing instrument, increasing risk of markets and intermediaries through 2005 U.S. markets have most securitized loans and asset-backed securities (total of $1.3 trillion of growth vs. $400 billion of U.S. government debt); growth of these assets internationally will be robust after the current digestion period Equities have now surpassed growth engine in financial assets due to successful corporate restructurings and higher multiples Cross-border growth is fastest Tripled in past decade with 10.6% CAGR Investors still show a marked preference for home country assets (approximately 80%) but growth in cross-border assets significantly exceeds growth in financial assets Foreigners own 12% of U.S. equities, 25% of corporate bonds and 44% of treasuries U.S. remains largest domestic market at 40%-50% of total global capital
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3 Market Size and Composition of Financial Institutions Market capitalization of all financial services companies is 20-25% of total market capitalization Financial services industry continues to consolidate 14 commercials banks (57% of industry assets) have assets>$100b; 3 banks>$1 trillion Largest 95 banks have 79% of industry assets 445 banks (86% of assets) have >$1b compared to 392 banks 10 years ago (75% of assets) Financial Institutions include banks, investments banks, investment managers, private equity, pension funds, GSEs (government sponsored entities such as Fannie Mae, Freddie Mae and Ginnie Mae), hedge funds, mortgage banks, GE Capital, GMAC, health care finance companies and other new entrants (Wal-Mart)
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4 Products and Functions Consumer Products: Cards, deposits, investments, private banking, brokerage, mortgage, insurance, 401k, trusts, etc. Corporate Products: Trading, underwriting, lending and loan commitments, securities processing, trust/custody, trade finance, hedges/derivatives, cash management, etc. Corporate functions: Risk management (credit, asset- liability management, liquidity, capital, operations, etc.), M&A, finance, accounting, operations, etc. Also, can include proprietary trading and investments
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5 Financial Services Profitability Net Interest Income: spread between yield on assets and interest costs of liabilities Varies by business mix and riskiness of portfolio (Capital One vs. Citi) Current cost of deposits is increasing due to perceived risk
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This note was uploaded on 04/14/2008 for the course NBA 659 taught by Professor Peck,nate during the Spring '08 term at Cornell University (Engineering School).

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Financial_Services_Landscape_Spring_08 - Financial Services...

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