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Produced by:Lars Kalbreier Comm. & Equities Trading
Research Date: April 2006 Slide 1
Global Bank OutlookOutlook in Middle East11th May 2006Lars KalbreierGlobal Head of Equity and Alternatives Research
CREDIT SUISSE PRIVATE BANKING
Produced by:Lars Kalbreier Date: May 2006 Slide 2CREDIT SUISSE PRIVATE BANKING
Global view: what is moving international banks?
Globalization Concentration, M&A activities
Slump of basic commissions (cheques, transfers,…)
Enrichment Private banking, Asset management
Pressure on traditional teller banking systems
Growth of derivatives lower dependence on interest rates and cycles
higher risk
IT, bank infrastructure development higher consumer finance
higher IT and personnel costs
Positive for global banks
Challenges for: retail banking (commission and interest rate dependent)
Key divisions to benefit: Private Banking, Asset management, Investment banking
Produced by:Lars Kalbreier Date: May 2006 Slide 3CREDIT SUISSE PRIVATE BANKING
Trend on world banks will likely follow US example of past 20 years …
The US example
US regional banks: +10% earnings growth p.a. in the 80s, +5% in the 90s
+2% in 2000s
Reasons: slump of commissions, rising competition, increased sophistication
of clients lack, Real end of Glass Steagall Act
Asset managers 10 to 15% p.a. earnings growth past 10 years, brokers +15
to +20%
Growth opportunities: IB & brokerage, asset managers, private banking, size
(economies of scale)
Same likely to happen to all banks worldwide. Catalyst: regulation.
US trend applied to EU in 80s and started in EM in the 90s
Produced by:Lars Kalbreier Date: May 2006 Slide 4CREDIT SUISSE PRIVATE BANKING
Sector trends: Investment banking, backed by M&A …
Source: Prudential
M&A will likely continue in next years: Saturated markets in US/Europe, economies of scale, globalization of markets,
deregulation
International M&A toward EM target will continue
– LatAm: move well advanced
– Asia: the current priority
Gulf countries: limited so far by
regulation,
tomorrow the next big trend ?
Global M&A
0
200'000
400'000
600'000
800'000
1'000'000
1'200'000
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
$MM
PENDING
Produced by:Lars Kalbreier Date: May 2006 Slide 5CREDIT SUISSE PRIVATE BANKING
… and the stronger growth of capital markets long term
Source: Prudential
1990: 50% of world GDP = total market cap debt + equity
Today: 85% (US: 120%, China: 12%, India: 7%,…)
“We will never look like the US capitalism”
Edith Cresson, French Prime Minister, 1992 CAC40 now: 70% of French GDP
80% of European companies still finance needs via corporate banking, 85% of Asian companies,
90 to 95% of non OECD companies, against 20% got US companies
The Global Debt and Equity Market Capitalization
0
20000
40000
60000
80000
100000
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
Equities Fixed Income
Produced by:Lars Kalbreier Date: May 2006 Slide 6CREDIT SUISSE PRIVATE BANKING
Sector trend: Asset mgt: growth in US/EU to continue… Strong and regular return of equities
markets Rise of private pension schemes
Demand for risk diversification Increasing complexity of financial
products New investment vehicle: Hedge funds
Global Fund Management Of Conventional AssetsHedge fund size and number
Source: International Financial Service, Hennessee Group LLC, Hedge Fund Research
0
200
400
600
800
1000
1200
85 90 95 96 97 98 99 00 01 02 03 04
USD bn assets Number of hedge funds Insurance Pension Mutual
05
101520253035404550
1998 1999 2000 2001 2002 2003 2004
USD
Produced by:Lars Kalbreier Date: May 2006 Slide 7CREDIT SUISSE PRIVATE BANKING
… and under representation of EM makes it the next big trend
Europe similar to the U.S. a decade ago and Asia similar to the U.S. 2
decades ago
Fund assets = 166% of GDP in USA, 85% non US
Catch up likely with more activity, liquidity, and investment confidence
Conventional Investment Management Sources of Funds Share of global GDP
OECD: 61% of GDP, 78% of funds under management
Source: International Financial Services for
assetmix and IMF for GDP mix
45%
12%8%5%
4%
2%
2%
22%30%
5%1%
6%1%
5%
33%
4%2%
11% 2% United StatesFranceSwitzerlandGermanyNetherlandsUKOtherChinaIndiaJapanKorea
Produced by:Lars Kalbreier Date: May 2006 Slide 8CREDIT SUISSE PRIVATE BANKING
Trend for Private Banking worldwide Focus on personalization, easy of contact & navigation and revival of personal
client Development of a highly dedication approach with high added value integral
financial services & products linked to UHNWI Tailor made services, incl. Ad hoc structured products, alternative
investments (hedge funds) and less liquid investment (private equity, arts,…)
+ trading scenario analysis, risk modelling and performance attribution
managements
EM Develop networks locally instead in large financial capitals to increase
personalization and availability Synergies with corporate finance (ex: sale of business RM goes to client to
offer investment ideas with the cash) One Research centre / decentralized distribution networks
Rise of local branches, Research to be leveraged to international needs
Sector trend: Private banking: moving up the value chain + be local (1)
Produced by:Lars Kalbreier Date: May 2006 Slide 9CREDIT SUISSE PRIVATE BANKING
Private banking: moving up the value chain + be local (2)Example of worldwide priorities: UHNWI
HNWI financial wealth is expected to grow by 7% p.a. and to exceed USD 40.7
trillions by 2008. The ultra-HNWI financial wealth (USD 30 millions per individual)
growth is expected even to exceed the HNWI wealth growth by 2008 (Source:
World Wealth report, Cap Gemini Merrill Lynch)HNWI Wealth distribution by regions (in USD Trillions)
0
5
10
15
20
25
30
35
40
45
2000 2001 2002 2003 2004 2009E
N. America EuropeAsia-Pacific Latin AmericaMiddle East & Africa
Annual expected growth rate 2004-09
3.00%
6.00%
9.00%
Source: World Wealth Report
PB majors all streamline their UHNWI strategy based on RM’s input in order to offer a uniform “best of breed” service
Produced by:Lars Kalbreier Date: May 2006 Slide 10CREDIT SUISSE PRIVATE BANKING
Retail banking key drivers
Europe / US: consolidation, further technological innovations (commodization
of services, electronic payments), outsourcing to low-cost countries (India,
China etc)
IT, Cost cutting and M&A key competitive advantage
EM: deployment of services: credit cards, ATMs, cash advances,
international transfers, …
Gain on fees of new services / losses of cash cows (charge for account
opening, charge for balance checking, charge for check, …)
Size and investment key competitive advantage
Likely outcome for EM banks
M&A and partnerships in emerging markets from US/EU banks
New regulation to open new services
Sector trend: Retail banking: consolidation and investment
Produced by:Lars Kalbreier Date: May 2006 Slide 11CREDIT SUISSE PRIVATE BANKING
Financial services outlook by 2010 : Engines of growthCatalysts estimated to have the highest impact on banks
Source: Survey Deloitte Touche 2005-06 in collaboration with EIU; 175 respondents: AM firms 23%, Banks 28%, Insurances 27%, Securities firms 22%
3%
22%
30%
31%
24%
46%
54%
55%
0% 10% 20% 30% 40% 50% 60%
Globalization
Regulation & Compliance
Risk management
Demographics shifts
Technology
Innovation
Home country consolidationand convergence
Others
Produced by:Lars Kalbreier Date: May 2006 Slide 12CREDIT SUISSE PRIVATE BANKING
Conclusion on global banking trends
IB, brokerage, asset management, private banking to continue flourishing
Retail banking needs to adapt
Size matters: expected sales growth long term (all banks):
5-6% mid size 8-9% large caps
Expected earnings growth: 6-7% mid size, 10-12% large cap
Worldwide standardization of services and narrowing of major differentials
between countries
Besides Private Banking: increased local distribution
Produced by:Lars Kalbreier Date: May 2006 Slide 13CREDIT SUISSE PRIVATE BANKING
Middle East banks: regulation change to unlock development ?
Main problems
Regulation / Property laws
Lack of market transparency
Ownership of large domestic companies
Solutions under development
Privatization of stock exchanges: sale of Saudi Tadawul Stock Exchange
New financial districts: Dubai Financial Center, King Abdullah International
financial district near Riyad, Qatar financial center in order to attract
international banks
Privatisations of companies: Saudi Aramco international equity offering in
March 2006, privatization calendar from the Egyptian government
Ownership of large domestic companies
Produced by:Lars Kalbreier Date: May 2006 Slide 14CREDIT SUISSE PRIVATE BANKING
Middle East banking: catalysts in the short term for Private Banking (1): new opportunities for structured products Past issues
– Sharia rules limited investment scope and hedging possibilities – Local banks lack international presence
Recent catalysts:
– lower regulation, higher liquidity new asset classes: Mortgage Backed Securities (Sukuk)
– Sharia-compliant structured products: Arboun (Islamic version of option) and Murabaha (Islamic version of future for physically owned commodity), takaful (sharia-compliant insurance)
New trend are just starting
May 2005: Deutsche Bank issued what is thought to be the first capital-protected commodity-linked product sold to Abu Dhabi Commercial Bank,
4Q05: HSBC sold CPPI on the Dow Jones Islamic Asia-Pacific index Dec 4 to 6, 2005: Inaugural Middle East Hedge Fund Investment summit in
Dubai.
Produced by:Lars Kalbreier Date: May 2006 Slide 15CREDIT SUISSE PRIVATE BANKING
Middle East banking: catalysts in the short term for Private Banking (2): expected sustainable oil revenues Islamic banking and finance: already over USD 300 bn in assets
Oil prices jump: major catalyst for 2006: countries’ oil export revenues exp. > USD 300 bn in 2006, 3 times average level in the ten years up to 2003
Long term sustainable: peak oil scenario (only 35 to 45 year of oil left according to IEA?), geopolitical risks, Chinese and Indian thirst for crude oil scenario of sustained high oil prices
HSBC estimates petro-related net new money (Russia, Middle East, Latam) in 2006 = USD 51.4 bn allocated to PB & AM.
Est. cumulative sum of new petro dollars going forward to 2025E = more than USD 1 trillion, mostly from Middle East.
Produced by:Lars Kalbreier Date: May 2006 Slide 16CREDIT SUISSE PRIVATE BANKING
Middle East banking: catalysts for other bank activities Strong GDP growth (ex: Saudi Arabia +6% 2005)
Potential for local branch development
Spending on projects 2006-07 = $150 bn, 4 x the USD 35 bn
in 2003
Potential for Corporate banking, IPOs
Gulf countries to reshape their economies from oil to tourism and trading
Potential for Investment Banking, IPO advice to government and real
estate investment
Produced by:Lars Kalbreier Date: May 2006 Slide 17CREDIT SUISSE PRIVATE BANKING
Middle East : most advanced country for banking business: UAE
No income tax
No corporate tax (besides banks, telecom and oil companies)
No control on foreign investment
Freedom for real estate investment for non nationals
Strong protection of patents and IP
New investment law 2004: local “partner” in business: only 30% of stakes
Produced by:Lars Kalbreier Date: May 2006 Slide 18CREDIT SUISSE PRIVATE BANKING
Conclusions
Trend remains positive for banks, particularly PB and IB, globally
Middle East countries to benefit from: - new investment vehicles (structured products)- sustained oil revenues- new regulation to ease international money transfer, credit card use, access to capital markets - major reforms underway in several Middle East countries
Positive outlook for economic growth in the region positive for Corporate banking
Produced by:Lars Kalbreier Date: May 2006 Slide 19CREDIT SUISSE PRIVATE BANKING
Disclaimer
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