WWW.IBISWORLD.COM Investment Banking & Securities Dealing in the US June 2019 1
Wealth wishes: Rising interest rates are expected to continue benefiting industry revenue growth
This report was provided to Seattle Pacific University (2134440152) by IBISWorld on 03 December 2019 in accordance with their license agreement with IBISWorld
IBISWorld Industry Report 52311 Investment Banking & Securities Dealing in the US June 2019 Anthony Gambardella
2 About this Industry 17 International Trade 33 Operating Conditions 2 Industry Definition 18 Business Locations 33 Capital Intensity 2 Main Activities 34 Technology and Systems 2 Similar Industries 21 Competitive Landscape 35 Revenue Volatility 2 Additional Resources 21 Market Share Concentration 36 Regulation and Policy 21 Key Success Factors 37 Industry Assistance 3 Industry at a Glance 21 Cost Structure Benchmarks 23 Basis of Competition 38 Key Statistics 4 Industry Performance 24 Barriers to Entry 38 Industry Data 4 Executive Summary 25 Industry Globalization 38 Annual Change 4 Key External Drivers 38 Key Ratios 6 Current Performance 26 Major Companies 39 Industry Financial Ratios 9 Industry Outlook 26 JPMorgan Chase & Co. 11 Industry Life Cycle 27 Morgan Stanley 40 Jargon & Glossary 28 Bank of America Corporation 13 Products and Markets 30 Citigroup Inc. 13 Supply Chain 31 The Goldman Sachs Group Inc. 13 Products and Services 32 Credit Suisse Group 15 Demand Determinants 16 Major Markets www.ibisworld.com | 1-800-330-3772 | [email protected] WWW.IBISWORLD.COM Investment Banking & Securities Dealing in the US June 2019 2 About this Industry
Industry Definition This industry is composed of companies and (trading their own capital for a profit) to individuals that provide a range of securities varying degrees. Investment banking services, including investment banking and services include securities underwriting and broker-dealer trading services. They also corporate financial services, while trading offer banking and wealth management services include market making and services and engage in proprietary trading broker-dealer services.
Main Activities The primary activities of this industry are Underwriting, originating or maintaining markets for securities issuance Principal and proprietary trading Providing corporate strategy advisory services Providing corporate finance services
The major products and services in this industry are Advising fees Underwriting services (equity) Trading and related services Underwriting services (debt) Other
Similar Industries 52312 Securities Brokering in the US Operators in this industry act as agents in buying or selling securities on a commission or transaction fee basis.
52391 Venture Capital & Principal Trading in the US Operators in this industry primarily buy and sell financial contracts (e.g. securities) on their own account.
52392 Portfolio Management in the US Operators in this industry manage financial portfolios.
52599 Private Equity, Hedge Funds & Investment Vehicles in the US Operators in this industry manage collection-investment vehicles that invest in a broad range of asset classes.
Additional Resources For additional information on this industry www.sifma.org Securities Industry and Financial Markets Association www.thomsonreuters.com Thomson Reuters Corporation www.federalreserve.gov US Federal Reserve
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Key Statistics Revenue Annual Growth 14–19 Annual Growth 19–24 Snapshot $133.1bn 2.6% 2.3% Profit Wages Businesses $35.3bn $44.4bn 11,182
Revenue vs. employment growth Corporate profit Market Share JPMorgan Chase & 10 12 Co. 5 13.0% 8 0 Morgan Stanley 4 9.6% -5 % change % change 0 Bank of America -10 Corporation -15 -4 9.1% Year 11 13 15 17 19 21 23 25 Year 13 15 17 19 21 23 25 Citigroup Inc. Revenue Employment 8.8% SOURCE: WWW.IBISWORLD.COM The Goldman Products and services segmentation (2019) 7.5% Sachs Group Inc. Underwriting services (equity) 8.4% 8.1% p. 26 Other
Key External Drivers 11.3% Corporate profit Underwriting services (debt) Initial public offerings 59.1% Trading and related services S&P 500 Investor uncertainty 14.0% Advising fees
p. 4
SOURCE: WWW.IBISWORLD.COM
Industry Structure Life Cycle Stage Mature Regulation Level Heavy Revenue Volatility Low Technology Change High Capital Intensity Low Barriers to Entry High Industry Assistance High Industry Globalization High Concentration Level Medium Competition Level High
FOR ADDITIONAL STATISTICS AND TIME SERIES SEE THE APPENDIX ON PAGE 38
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Executive Summary Strong returns in various financial explaining the industry’s declining markets and continued macroeconomic revenue from FICC, the most significant growth have benefited operators in the of which is regulatory change. Among the Investment Banking and Securities most important legislative changes is the Dealing industry over the five years to Volcker Rule, which restricts bank- 2019. Operators provide underwriting, holding companies with federally insured originating and market-making services deposits from proprietary trading. for a range of financial instruments Additionally, higher capital requirements including bonds, stocks and derivatives. and the trend of transitioning derivative Revenue growth was hindered during trading to central clearinghouses are most of the current period due to anticipated to structurally dampen the structural changes to the trading services industry’s FICC revenue. This trend led that industry operators were permitted to industry revenue growth to remain conduct. However, operators have muted during the early portion of the period, despite rising fees from investment banking services. Operators have benefited from numerous These changes have forced the industry’s trends, including increased demand for initial smaller operators to evolve. Since competing in FICC requires scale and massive public offerings from private companies investments in technology and compliance, boutique investment banks have benefited from numerous trends, alternatively focused on merger and including increased demand for initial acquisition (M&A) advising, increasing their public offerings from private companies. share of this product line from 25.0% in Overall, industry revenue has increased an 2010 to 29.0% in 2014, according to the annualized 2.6% to $133.1 billion over the Economist. As a result, boutique investment five years to 2019, including 4.2% growth banks’ total share of M&A revenue is in 2019 alone. Similarly, industry profit forecast to continue growing over the five has expanded over the past five years, years to 2024. Furthermore, the industry as primarily due to increased advisory fees. a whole is projected to continue benefiting Early during the current period, from continued macroeconomic activity and industry revenue was stymied as a result rising interest rates during the outlook of declining fixed income, commodities period. Overall, industry revenue is forecast and currencies (FICC) trading revenue. to rise an annualized 2.3% to $149.4 billion Several structural trends are crucial in over the next five years.
Key External Drivers Corporate profit Initial public offerings Changes in corporate profit influence Investment banks help companies raise the performance of equities markets capital by underwriting their first sale of because they affect how companies are stock (equity) to public investors; this is valued, which in turn influences trading known as an initial public offering (IPO). and business activity. Higher trading A high number of IPOs represents and business activity levels enable increased business demand for capital, investment banks to earn higher which leads to higher underwriting trading, underwriting and advisory revenue for the industry. The number of revenue. Corporate profit is expected to IPOs is expected to decrease in 2019, increase in 2019. posing a threat to the industry.
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Industry Performance
Key External Drivers S&P 500 Investor uncertainty continued The performance of the stock market Investor uncertainty is an important heavily influences revenue for industry measure of business sentiment and affects operators. When equities markets are trading activity. Low investor uncertainty performing well, the industry generates creates a favorable environment for initial more revenue from trading activities and public offerings, mergers and experiences increased demand from acquisitions and trading activity. As a downstream clients for strategic advisory result, declines in this index generally services. The S&P 500 index is expected precede periods of strong industry to increase in 2019, representing a performance. Investor uncertainty is potential opportunity for the industry. expected to decrease in 2019.
Corporate profit Initial public offerings
12 100
80 8
60 4 40 $ billion % change 0 20
-4 0 Year 13 15 17 19 21 23 25 Year 11 13 15 17 19 21 23 25
SOURCE: WWW.IBISWORLD.COM
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Industry Performance
While the Investment Banking and Current Securities Dealing industry remains Industry revenue below its prerecessionary levels, it has Performance 10 grown steadily over the five years to 2019. Industry operators primarily 5 generate revenue from two broad product and service lines: traditional investment 0 banking services (e.g. securities -5
underwriting and corporate advisory % change services) and trading services. Over the -10 past five years, industry revenue has increased at an annualized rate of 2.6% to -15 $133.1 billion. Industry growth has Year 11 13 15 17 19 21 23 25 largely stemmed from strong demand for initial public offerings (IPO) between SOURCE: WWW.IBISWORLD.COM 2017 and 2019. Coupled with other key macroeconomic factors, such as expected to lead industry revenue to expanding corporate profit, this trend is increase 4.2% in 2019 alone.
Securities Underwriting securities has been extension, the total value of IPOs are underwriting considered one of the main activities of expected to increase significantly in 2019. activities investment banks. The two large products Increased demand for IPOs will likely that investment banks underwrite for stem from dissipating global geopolitical their clients are debt and equity concerns that caused private companies securities. Various macroeconomic to delay IPOs in 2016, coupled with trends affect the performance of and equity markets reaching all-time highs. demand for these securities. Equity Accordingly, the value of IPOs increased underwriting, for example, is provided by 40.3% in 2018 alone, benefiting industry investment banks to private companies revenue. In 2019, the industry is also that wish to raise capital through public expected to benefit from several large, financial markets in exchange for equity high-profile IPOs such as Uber in their company, which is referred to as Technologies Inc. and Lyft Inc. an initial public offering (IPO). Supply The other main service investment for IPOs increases as equity markets banks provide their customers is debt strengthen, as this tends to raise equity underwriting. Governments and valuations for private companies’ IPOs. businesses look to finance their Over the five years to 2019, equity operations by offering debt to various markets have experienced a bull market, investors through the industry’s which is categorized by rising equity underwriting services. When interest prices. Illustrative of this, the S&P 500 rates are low, it incentivizes borrowers to has increased an annualized 8.9% during finance through debt, as the periodic the current period, reaching all-time interest payment they are obligated to highs in 2019. make in accordance with the debt While overall equity underwriting in offering will also be lower. In the the United States has decreased an aftermath of the financial crisis, the US annualized 11.2% over the past five years, Federal Reserve lowered the Federal equity underwriting activity and, by Funds Rate (FFR), the rate at which
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Industry Performance
Securities member lending institutions can borrow offerings increased from $6.4 trillion in underwriting overnight from each other, to historic lows. 2014 to $7.0 trillion in 2019 (latest data activities continued A decreased FFR also lowered prevailing available). Debt offerings increased, despite interest rates economy-wide. Lower the Federal Reserve beginning to normalize effective interest rates led borrowers to seek interest rates by raising the FFR starting in the services of industry operators to 2015, as borrowers looked to lock into lower underwrite debt offerings. This translated to interest rates before normalized interest increased borrowing by investment banks’ rates led debt financing to become more corporate and government clients. expensive. This trend has benefited According to SIFMA, the value of total debt operators during the current period.
Cyclical and structural While industry operators have influences on trading generated more revenue from Operators make markets revenue investment banking services, they have derived less from trading revenue over by finding buyers and the past five years. Investment banks sellers of the same security, participate in trading securities in two which is often illiquid ways: proprietary and off-exchange trading. Proprietary trading conducted by banks was significantly affected in The second form of trading conducted April 2014 by the Volcker Rule. The by investment banks is off-exchange law restricts investment banks from trading. Off-exchange trading happens engaging in short-term trading, usually when two parties enter into an agreement considered to be less than six months, to buy and sell securities without the of various securities. As a result, regulation or facilitation of exchanges to revenue generated by this form of do so. Operators make markets by finding trading has declined during the buyers and sellers of the same security, current period. The main type of which is often illiquid, and collecting a trading conducted by investment fee on the transactions. Based on the banks is fixed income, commodities latest available data from SIFMA, and currencies (FICC) trading. FICC IBISWorld estimates that off-exchange trading is capital intensive in nature, trade volumes have increased an which has led banks to be concerned annualized 3.1% over the five years to about the cost of this line of business 2019. While industry operators will likely in light of new regulatory restrictions benefit from increased volume, they have that have decreased trading revenue. experienced downward pressure on the This has led some banks to scale back fees they charge to execute these trades. their FICC operations. FICC trading This stems from increased automation of briefly benefited from increased trading activity, which has led operators volatility in financial markets in 2016, to undercut one another on execution due to increased global geopolitical fees to gain business. These two trends concerns and rising interest rates in led industry revenue growth to remain the United States. muted early during the period.
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Industry Performance
Smaller operators Recently, many of the industry’s smaller Many larger investment evolve players have exceeded expectations. Smaller or “boutique” investment banks banks have mounting raised their share of merger and acquisition (M&A) advising from about conflicts of interest that 25.0% in 2010 to 29.0% in 2014, hinder revenue growth according to the latest available data from the Economist. M&A advising has a larger banking units across the United States focus on personal relationships and does and Asia. While this trend has affected not require small players to match their front-office staffing, investment banks larger rivals with respect to scale. have also hired workers with Additionally, many of the larger backgrounds in technology to help investment banks have mounting conflicts them with their evolving businesses. As of interest that hinder revenue growth a result, industry employment has only from advisory services. As a result, the increased an annualized 1.8% to number of industry operators has 166,049 workers over the five years to increased an annualized 3.0% to 11,182 2019. Additionally, operators benefited companies over the five years to 2019. from increased scalability stemming Moreover, cost-cutting among the from technology investments made in industry’s major players is also harming recent years, boosting industry profit. their ability to maintain market share The average industry profit margin, in M&A advising. For example, in measured as earnings before interest March 2015, the Royal Bank of Scotland and taxes, is expected to comprise announced that it aims to cut as many 26.5% of revenue in 2019, up from as 14,000 jobs in its investment 25.6% in 2014.
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Industry Performance
The Investment Banking and Securities mortgage crisis, which has led to rising Industry Dealing industry is forecast to continue to costs and limits on investment banks’ Outlook improve over the five years to 2024. The financial activities. In addition, investor industry will likely benefit from growth in uncertainty is projected to expand over the trade volumes, interest rates and business next five years, posing a potential setback activity, boosting demand for industry to the industry’s recovery. As a result of services. This growth will likely be these trends, industry revenue is forecast to suppressed to some extent by regulation grow at an annualized rate of 2.3% to stemming from the 2008 subprime $149.4 billion over the five years to 2024.
Cyclical and structural The US economy, measured by US gross influences on trading domestic product, is forecast to expand at an Investment banks have revenue annualized rate of 1.7% during the outlook period. Despite slow-to-moderate overall increasingly moved into economic growth, several positive trends are other business lines related projected to drive industry growth. For to trading example, the S&P 500 is anticipated to rise an annualized 6.1% over the next five years, outpacing overall economic growth. Strong trades from brokers, such as Charles financial market activity and record cash Schwab and TDAmeritrade, and fill the reserves will likely spur higher corporate orders internally instead of sending them activity, thus raising demand for to stock exchanges. They earn revenue underwriting and merger and acquisition from this activity by collecting a fee on services. Over the five years to 2024, each securities transaction. IBISWorld anticipates this trend to Industry employment is forecast to rise continue. Additionally, trading revenue is an annualized 2.2% to 185,278 workers over forecast to improve, partially due to the five years to 2024. Employment is increased volatility stemming from expected to remain far below geopolitical and monetary policy prerecessionary levels as industry uncertainty. Fee-based competition is investments in information technologies, projected to slow after significant particularly in electronic trading platforms competition that occurred during the and high-speed algorithms, continue to five-year period to 2019. This will likely lead reduce the number of traders and revenue generated from trade executions to researchers needed to conduct trading increase as volumes expand. operations. However, the industry’s average In response to legislation and wage and total wage costs are still projected limitations on the financial activities of to rise as investment banks and securities bank holding companies, investment dealers increasingly compete for a limited banks have increasingly moved into other pool of highly skilled workers with technical business lines related to trading, including and financial expertise. wholesale market-making and investment Overall, industry profit is projected to management. For example, in anticipation increase slightly during the outlook period. of lost revenue from proprietary trading, The average industry profit margin, The Goldman Sachs Group Inc. and Credit measured as earnings before interest and Suisse Group have recently announced the taxes, is forecast to comprise 26.6% of launch of wholesale market-making revenue in 2024, up from 26.5% in 2019. divisions. These divisions take retail Regulation will likely continue to hinder
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Industry Performance
Cyclical and structural profit margins as scrutiny from the public Furthermore, while increased regulation will influences on trading and lawmakers alike raise regulatory costs likely affect industry participation, smaller revenue for operators. To combat the effects of and specialized operators are still regulation, industry operators have anticipated to stake a claim in the industry continued implemented leaner and more-scalable over the next five years. As a result of this, trading operations, which are expected to be the number of industry enterprises is crucial when trade volumes pick up during projected to increase an annualized 2.4% to the second half of the outlook period. 12,600 operators over the five years to 2024.
Smaller operators Regulation of the financial sector will Regulation of the financial evolve likely increase in the United States and Europe over the next five years. The most sector will likely increase significant regulatory changes for the banking sector have come from the 2010 in the United States and Dodd-Frank Wall Street Reform and Europe Consumer Protection Act and the Basel III accords. Collectively, these regulations of the Basel Committee on Banking limit the financial activities in which Supervision, a committee of banking banks can participate, change how authorities established by major central operators approach risk management banks. It was developed in response to and heighten the level of industry the deficiencies in financial regulation oversight. For example, Dodd-Frank’s revealed by the global financial crisis. Volcker Rule restricts bank holding Basel III strengthens bank capital companies with federally insured requirements and introduces new deposits from proprietary trading. restrictions on bank liquidity and Moreover, the rule restricts a bank’s investment banking leverage. More investment to 3.0% of a private equity or specifically, Basel III increased the hedge fund’s total value and 3.0% of the minimum common equity ratio from bank’s total core capital. As a result, 4.0% in 2014 to 4.5% in 2019, raises Tier hedge funds and private equity managers 1 capital requirements and increases the will likely have to compete for diminished capital conservation buffer. The funding from banking institutions. Organization for Economic Co-operation However, industry operators affected by and Development projects that Basel III the rule have already lost some of their will likely decrease annual global GDP most productive traders to hedge funds, growth between 0.1% and 0.2%. Basel III as large bonuses can no longer be tied to was originally expected to be excessive risk taking. Proprietary trading implemented between 2013 and 2015; restrictions are projected to temper the however, the deadline was extended to industry’s revenue substantially during March 31, 2018. Despite the delays, the outlook period. banks will likely have to reassess their Basel III is a new global regulating risk management strategies and standard for bank capital and liquidity implement more-effective safeguards requirements agreed upon by members against the issuance of risky loans.
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Industry Performance Life Cycle Stage The industry has entered a major merger and acquisition phase Establishments contend with increasing competition from foreign corporations and other industries Operators are increasing in size and expanding their range of services
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Industry Performance
Industry Life Cycle The Investment Banking and Securities are not anticipated to exceed Dealing industry is in the mature stage of prerecessionary levels. This trend is its economic life cycle, resulting from largely due to structural changes in the This industry increased regulation and extensive merger industry, rather than changes in financial is Mature and acquisition (M&A) activity. Industry market activity. Lower levels of leverage value added (IVA), which measures an and greater regulation will contribute to industry’s contribution to the overall the industry’s lower profit and risk profile. economy, is expected to increase 2.3% However, the industry will continue over the 10 years to 2024. Comparatively, to offer new products and services. US GDP is projected to grow at an Nontraditional investment banking annualized rate of 2.0% during the same services such as wealth and asset period. These figures signify that the management and altered derivative- industry’s share of the economy is loosely based products are expected to following GDP growth. represent growing sources of revenue Over the past decade, the industry has for industry operators. Additionally, encountered rising consolidation, which some of the industry’s smaller players has increased the size of the average have been able to expand their share of operator and caused industry enterprise M&A advising services, given the figures to fall. The subprime mortgage difficulties they contend with from crisis has dramatically quickened the competing major players in capital pace of this consolidation and inflated intensive trading activities. the importance of very large financial Furthermore, growth opportunities in institutions in delivering investment emerging markets, including the BRIC banking services. The industry is exiting (Brazil, Russia, India and China) an extended period where the average nations, are anticipated to provide profit margin reached historic lows; while greater sources of revenue for industry profitability remains elevated, margins players over the five years to 2024.
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Supply Chain KEY BUYING INDUSTRIES 52411a Life Insurance & Annuities in the US Life insurers employ investment banks as third-party investment managers of their assets. 52411b Health & Medical Insurance in the US Health and medical insurers employ investment banks as third-party investment managers of their assets. 52413 Reinsurance Carriers in the US Investment banks provide fund management and trading services to reinsurance carriers. 52511 Retirement & Pension Plans in the US Institutional clients with major investment funds often approach investment banks in association with raising capital, including public offerings and security placements. 52512 Health & Welfare Funds in the US Institutional clients, including health and welfare funds, seek the aid of investment banks for securities issuance. 52591 Open-End Investment Funds in the US Investment banks manage their own mutual funds as well as provide trading and other securities services to investment funds. 99 Consumers in the US Industry operators provide wealth management services to select, high-net-worth individuals.
KEY SELLING INDUSTRIES 52321 Stock & Commodity Exchanges in the US Securities and commodities exchanges provide investment banks with a formal trading environment for new or additional securities issuance.
Products and Services Products and services segmentation (2019) 7.5% Underwriting services (equity) 8.1% Other
11.3% Underwriting services (debt) 59.1% Trading and related services
14.0% Advising fees
Total $133.1bn SOURCE: WWW.IBISWORLD.COM
While the number of activities in the the share of revenue that each activity Investment Banking and Securities accounts for has undergone substantial Dealing industry has not deviated volatility. Products and services in the dramatically during the five-year period, industry vary considerably on a company-
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Products & Markets
Products and Services by-company basis, largely depending on trading desks. Their trading activities can continued operator size. Small- and medium-size be broken down into principal trading investment banks target niche industries and market making, proprietary trading and small companies and rely more and prime brokerage. heavily on traditional investment banking Principal trading by investment banks activities such as underwriting and involves the use of client money to financial advisory. Alternatively, major purchase securities and waiting for price industry players earn a substantial share appreciation to subsequently sell these of revenue from trading activities. As a securities. Alternatively, market-making result, in addition to traditional activities provide trade liquidity; investment banking services, industry essentially, operators buy, sell or operators also engage in a wide range of otherwise transact with customers under principal and proprietary trading and a variety of market conditions and corporate finance services. provide prices in response to customer requests. Investment banks earn revenue Debt and equity underwriting from market making through the Investment banks serve as the difference between buy and sell order middlemen between companies looking prices on client transactions. The return to raise funds (equity and debt these activities provide reflects the risk underwriting) by securitizing the undertaken by operators and the liquidity ownership (equity) or debt of a company they provide in the market. to be traded to investors in exchange for With respect to proprietary trading, a capital. They assist companies wishing to conflict of interest exists where investment go public (initial public offerings) by banks generate revenue by making their issuing common stock, preferred stock trades before their clients, resulting in and other equity-related securities. The higher prices for these clients that they are other route investment banks offer to paid to represent. New legislation companies looking to raise capital is stemming from the financial crisis, through debt markets; investment banks specifically the Volcker Rule in the Dodd- help corporations and governments issue Frank Wall Street Reform and Consumer various types of debt instruments such as Protection Act of 2010, restricts banks with investment-grade and high-yield debt, federally insured deposits from engaging in bank loans and bridge loans. Debt proprietary trading. As a result, proprietary underwriting services are estimated to trading is anticipated to decline sharply as account for 11.3% of industry revenue in a share of revenue in the years ahead. 2019, while equity underwriting services Securities lending activities involve are anticipated to account for 7.5% of investment banks lending capital to hedge revenue the same year. funds to make bets on the direction of securities. Demand for securities lending Trading and related services has collapsed since the global recession, as Investment banks conduct sales, trading, financial institutions continue to custodian, financing and market-making deleverage to prevent future catastrophic activities on securities, futures exchanges losses. Investment banks also contend with and other markets. Lately, investment strong and growing competition for lending banks have favored fixed-income, interest to hedge funds from custodian banks; rate and derivatives futures products. however, some larger industry players, However, they do engage in trading such as JPMorgan Chase & Co., act as across every asset class depending on custodian banks themselves and offer requests from clients and their own securities services (i.e. custody, trade
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Products & Markets
Products and Services execution and recordkeeping) to respect to mergers and acquisitions continued investment banking clients. Overall, (M&A), divestitures, corporate defense trading and related services are anticipated activities, risk management, to account for 59.1% of industry revenue in restructurings, spin-offs, exchange offers 2019. This figure is expected to exhibit and shareholder relations. Additionally, extensive volatility over the five years to larger investment banks will also 2024 with the implementation of the provide advice regarding dividend Volcker Rule. policy, valuations, foreign exchange exposure and financial risk Strategic advising fees management. In total, this segment is Financial advisory services include expected to account for 14.0% of strategic advisory assignments with industry revenue in 2019.
Demand Demand levels for the services raising and business investment. The Determinants provided by the Investment Banking level of initial public offerings generally and Securities Dealing industry rises with strong stock market broadly depend on macroeconomic performance. Debt market and financial market conditions, both underwriting includes the underwriting in the United States and abroad. of mortgage-backed securities, Specifically, factors such as interest collateralized debt obligations and rates, business earnings and investor other complex structured products. confidence all influence demand levels. Demand for debt insurance of these Other important factors include products has dropped significantly as a uncertainty in the market and result of the subprime crisis and frozen regulatory changes. credit markets. Investment banking services include The volume of trading undertaken advisory services related to merger and on exchanges for private clients is acquisition (M&A) and other corporate also closely related to the stock activities, and the underwriting of debt market’s performance and the and equity products in private performance of alternative placements and public offerings. investments. In turn, this factor is Demand for financial services depends broadly determined by growth in the on the level of corporate activity, economy and interest rates. Industry which in turn depends upon earnings, operators have benefited from an business confidence and the economic annualized 3.1% in off-exchange outlook. Demand for traditional trading volume over the five years to investment banking services in the 2019, as they act as market makers in United States is increased in 2017, the space. Demand for trading services driven by equity underwriting and by businesses and institutional clients M&A advisory services. is related to the level of business Demand for underwriting services activity and the amount of funds specifically reflects the level of capital managed by these clients.
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Products & Markets
Major Markets Major market segmentation (2019) 4.7% 9.3% Industrial Healthcare 9.7% 35.6% High technology Other
11.8% Energy and power
28.9% Financial Total $133.1bn SOURCE: WWW.IBISWORLD.COM
The Investment Banking and Securities capital, executing client trading orders Dealing industry provides a wide range of and providing related financing, research, products and services to financial and financial advisory and wealth- nonfinancial operators, government management services. Major investment agencies and private investors. Industry banks also provide trading services such operators also act for their own benefit as market making, clearing, settlement through certain trading activities; and custody services to financial however, these activities are excluded operators to facilitate their larger-scale from discussion in this section (refer to trading needs. Over the five years to the Products and Services section for 2019, this segment has declined as a more information). Historically, share of industry revenue due to lower investment banks and securities dealers institutional trading volumes, declines in provide corporate finance services, average trading commissions and overall including securities underwriting, contractions throughout the financial corporate lending and financial advisory sector as a result of the financial crisis. services, to corporate operators and governments. However, regulatory and Energy and power, industrial and technology changes over the past decade other corporate operators have blurred the lines between products Corporate operators, defined as offered by industry operators and other nonfinancial businesses, account for the financial services companies. majority of revenue for industry operators. Investment banks and Financial operators securities dealers assist corporate Financial operators are estimated to operators with underwriting and selling account for 28.9% of industry revenue in equity and debt securities in financial 2019. Financial operators include banks, markets to raise capital. Investment insurance companies, brokerages and banks also act in a broker-dealer capacity financial advisors. Financial operators and assist corporate operators with primarily use investment banks for a hedging risks and trading securities for a variety of trading and related services. profit. Additionally, depending on the These include underwriting and company’s size, investment banks securities sales to manage risk and raise provide a variety of other financial
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Products & Markets
Major Markets services to corporate operators, such Government agencies, private continued as corporate lending and financial investors and other clients advisory services. Over the five years Despite their importance, federal, state to 2019, industry operators have and local government clients are earned more revenue from corporate estimated to account for a small portion operators as these operators have of industry revenue in 2019. increased their back mergers and Governments use investment banks to acquisitions and capital raising underwrite and sell debt securities (i.e. activities during the period. The treasuries and municipal bonds) to raise segment is expected to continue to grow capital to finance public works projects. over the five years to 2024 as corporate While government spending on the state operators continue to look to use cash and local levels contracted as a result of on their balance sheets to pursue lower tax revenue during the recession, merger and acquisition opportunities. increased total US debt issuance over the In 2019, energy and power past five years suggests that this market operators, including companies has provided a relatively stable share of involved in integrated oil and gas, industry revenue during the period. pipelines, exploration and production With respect to private investors, and alternative fuels, among several investment banks primarily provide other activities, are estimated to wealth management and financial account for 11.8% of industry revenue. advisory services for high-net-worth Industrial operators, which include individuals with at least $250,000 companies involved in defense, available for investment. As wealth levels aerospace and commercial vehicle and rise, this segment is anticipated to truck manufacturing, among a myriad of provide a growing opportunity over the other activities, are anticipated to five years to 2024. Other clients for account for 4.7% of industry revenue in industry operators include media and the same year. Also, in 2019, high entertainment operators, corporations technology and healthcare operators are involved in consumer products and estimated to account for 9.7% and 9.3% services, retail operators and of total industry revenue, respectively. telecommunications companies.
International Trade Exports and imports are not applicable to resident businesses and agencies. the Investment Banking and Securities Additionally, the industry is increasingly Dealing industry. However, industry subject to global macroeconomic operators do provide financial products conditions and competition; please refer to nonresident clients, while foreign to the Industry Globalization section of banks often provide services to US this report for more information.
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Products & Markets
Business Locations 2019
est AK 0.0 e a d
ME reat M d 0.1 akes t a t c 1 2 NY 3 WA ND 17.8 4 MT 0.1 5 1.5 0.1 MN 1.5 WI ock 1.0 MI PA 6 SDP a s 1.0 3.7 OR 0.2 7 0.7 Mou ta s ID IA OH 9 8 0.2 WY 0.4 3.0 0.1 IN VA NE IL 1.4 WV 0.4 7.8 0.1 2.4 KY est NV 0.4 0.4 NC UT MO 2.0 0.7 CO KS 1.2 2.5 0.5 TN 1.2 SC CA 0.4 13.2 OK AR out east 0.2 0.1 GA AL 2.3 AZ MS 0.5 1.0 NM 0.1 0.1 out est LA TX 0.8 FL 8.2 8.2
est Establishments (%) HI Less than 3% 0.1 Additional States (as marked on map) 3% to less than 10% 1 VT 2 NH 3 MA 4 RI 10% to less than 20% 0.2 0.2 3.5 0.1 20% or more 5 CT 6 NJ 7 DE 8 MD 9 DC 1.8 3.3 0.8 2.0 0.7
SOURCE: WWW.IBISWORLD.COM
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Products & Markets
The geographical spread of the Business Locations Distribution of establishments vs. population Investment Banking and Securities Dealing industry generally follows the 30 distribution of urban population centers across the United States. Establishments
are most concentrated in areas of 20 historically high economic activity and a
prevalence of other operators in the % financial services sector. The industry has 10 traditionally been centered in New York City where many major industry operators are headquartered or have 0 significant operations. There are also West significant concentrations of industry Plains Southeast operators in other major urban centers Southwest Great Lakes Mid-Atlantic such as Boston, Chicago, Dallas, St. New England
Louis, San Francisco and Los Angeles. Establishments Rocky Mountains Over the five years to 2019, the industry Population has become less concentrated in the SOURCE: WWW.IBISWORLD.COM Mid-Atlantic and has expanded in the Southeast and West, reflecting companies in this region choose to locate population shifts and rising wealth levels in the region to be near the Chicago in these regions. metro area and the Chicago Board Options Exchange. This region also offers Mid-Atlantic and Great Lakes less costly real estate for establishments The Mid-Atlantic region remains the most compared with other financial hubs, such important geographical market for as New York and San Francisco. Within industry investment banks and securities this region, Illinois alone accounts for dealers, accounting for 28.2% of industry 7.8% of industry establishments. establishments in 2019. The state of New York alone has 17.8% of establishments, Southeast and West with New Jersey and Pennsylvania also The Southeast region has seen the fastest providing significant contributions. The growth in the number of industry major establishments in the Mid-Atlantic establishments during the five-year period, are primarily located in the region to be accounting for 18.4% of establishments in near major corporate headquarters, 2019. The region’s large population and financial intermediaries and exchanges. improving wealth levels have boosted Prestige and branding also pay a key role corporate business activity, contributing to in this industry, with Wall Street the region’s rising share of establishments. historically housing many prominent The West region’s share of industry industry operators. Additionally, urban establishments has also grown during the areas in the Mid-Atlantic typically house a period, accounting for 15.9% of the total in large pool of labor with industry-relevant 2019. Establishments in the West are skills, making hiring activities easier. largely represented by California, which The Great Lakes is also an important accounts for 13.2% of the nation’s geographical segment for investment establishments. California’s massive banks and securities dealers, accounting population, large corporate entities and for 14.2% of industry establishments in high-tech economic centers attract many 2019. Similar to the Mid-Atlantic, investment banks and securities dealers.
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Products & Markets
Business Locations Mergers and acquisitions are prominent for Other regions and their share of continued technology operators because establishments include the Southwest entrepreneurs often develop and sell novel (9.5% of establishments), New England technologies and start-up companies to (5.9%), the Plains (4.4%) and the Rocky larger corporations. Mountains (3.6%).
Provided to: Seattle Pacific University (2134440152) | 03 December 2019 WWW.IBISWORLD.COM Investment Banking & Securities Dealing in the US June 2019 21 Competitive Landscape Market Share Concentration | Key Success Factors | Cost Structure Benchmarks Basis of Competition | Barriers to Entry | Industry Globalization
Market Share The Investment Banking and Securities The industry’s level of concentration is Concentration Dealing industry operates with a anticipated to increasing over the five medium level of market share years to 2024. In addition, the top five concentration. The top four companies investment banks, including JPMorgan, Level account for 40.4% of total industry BofA, Morgan Stanley, Citigroup Inc. and Concentration in this revenue in 2019. One overriding The Goldman Sachs Group Inc., will industry is Medium outcome of the most recent financial continue to dominate the market. In crisis has been the rapid consolidation addition to the financial crisis spurring in the market for financial services. acquisitions, implemented and Concentration within the investment anticipated regulation changes are also banking sector has increased for a expected to drive industry consolidation. myriad of reasons. Many significant For example, as regulation increases players, such as Bear Stearns and compliance costs, mergers provide a way Lehman Brothers, exited the industry, to increase economies of scale in the with existing players purchasing their provision of investment banking services operations. Additionally, some major and counteract these cost increases. In commercial banks have acquired addition, consolidation in the industry previously independent investment enables increased product diversification, banks, including Bank of America economies of scope and enhanced Corporation (BofA), which purchased visibility and reputation in the eyes of Merrill Lynch in 2008. JPMorgan Chase potential customers. Yet, some boutique & Co. (JPMorgan) and BofA have used investment banks have succeeded in their respective acquisitions during the increasing their market share in merger financial crisis to become the top two and acquisition advising without providers of investment banking services competing with the industry’s largest in the United States. players on the basis of scale.
Key Success Factors Market research and understanding Having a high profile in the market The ability to provide quality For institutional brokers and investment research will attract more banks, a significant presence, including IBISWorld identifies investors to buy securities. panel memberships and strong dealings, can 250 Key Success increase one’s profile in the marketplace. Factors for a Access to a highly skilled workforce business. The most An experienced and highly Provision of a related range of goods/ important for this trained staff is necessary for this services (“one stop shop”) industry. Clients are attracted to It is essential to have the right mix of industry are: individuals and teams that have product offerings that raise sufficient funds successfully raised debt and equity on the sell side to maximize returns on the in the past. buy side.
Cost Structure Cost structures throughout the Investment choose to engage in. However, profit Benchmarks Banking and Securities Dealing industry margins are generally high for the majority vary considerably on a company-by- of operators. Although small- and mid-size company basis and depend extensively on investment banks generate relatively low the financial activities industry operators levels of revenue, they rely on traditional
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Competitive Landscape
Cost Structure banking activities such as underwriting Consequently, wages are forecast to Benchmarks and financial advisory services that continue to decline as a share of revenue continued remain highly profitable. In addition, over the five years to 2024, reaching a wages are consistently the single largest forecast 33.2% of total revenue in 2024. expense across the industry, regardless of operator size. Purchases While industry operators do require some Wages computing and analytic software to provide Traditionally, wages account for the single services, purchase expenses only account largest expense in the Investment Banking for 0.7% of industry revenue in 2019. While and Securities Dealing industry. Total operators have increased their spending on compensation costs have historically such analytic tools in recent years, industry reached 40.0% of industry revenue; revenue growth has outpaced purchase however, this varies on a year-to-year basis expense growth, leading it to account for a depending on the industry’s performance, lower portion of industry revenue. bonus obligations and employment figures. Wages as a share of revenue have Profit decreased during the five-year period, The average industry profit margin, falling from 36.1% in 2014 to 33.4% in measured as earnings before interest and 2019. General declines in wages as a share taxes, is expected to comprise 26.5% of of revenue are a result of operators revenue in 2019, up from 25.6% in 2014. investing in new technologies and systems During the financial crisis, some of the that have reduced labor requirements. industry’s largest players, including
Sector vs. Industry Costs
Average Costs of all Industries in Industry Costs sector (2019) (2019) 100 n P r o fi t 17.3 n Wages 26.5 n Purchases 80 n Depreciation 13.2 n Marketing n Rent & Utilities n Other 60 13.3 1.6 33.4 1.5 1.5
40 0.7 0.9 0.6
Percentage of revenue Percentage 1.0 51.6 20 36.9
0 SOURCE: WWW.IBISWORLD.COM
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Competitive Landscape
Cost Structure JPMorgan Chase & Co. and Bank of Utilities Benchmarks America Corporation, experienced operating Utility expenses associated with running continued income losses. While these costs reflected industry operators’ offices is very low. In poor macroeconomic conditions, they were 2019, utility expenses will account for less also influenced by increased costs associated than 0.1% of industry revenue. with their major acquisitions. Tempered trading revenue and increased regulatory Other expenses have harmed the margins of the Brokering, clearing and exchange fees industry’s major players throughout the are directly related to the cost of duration of the five-year period to 2019. trading on stock exchanges. Therefore, Despite this, equity underwriting and the costs for these activities are advisory fees have increased over the past directly related to the volume of trades five years, benefiting industry undertaken. These costs are profitability. Additionally, the average anticipated to decline as a share of industry profit margin is forecast to revenue during the current period. A increase from 26.5% of revenue in 2019 large reason for this is execution fees to 26.6% in 2024, as operators benefit for completing a trade have decreasing from scalability from technological during the period as a result of investments made in recent years. automation in numerous points of the trading process. This has led to fee- Depreciation based competition between industry Since operators require little capital assets operators to gain new business. to conduct business, depreciation expenses Other costs vary widely throughout only account for 0.9% of industry revenue the industry. There is a miscellany of in 2019. lesser costs related to banking, such as insurance and hedging costs. There are Marketing also costs related to administration Most customers that are in need of industry and general upkeep, including operators’ services seek out industry discretionary payments, capital operators on their own. As a result, expenditures on upgrading and marketing expenses only account for 0.6% maintaining IT systems and legal and of industry revenue in 2019. compliance costs. During the current period, these costs have increased, Rent particularly provisions for losses and In 2019, rental expenses are expected to compliance costs, due to the recession account for 0.9% of industry revenue. and subsequent wave of new financial Despite operators having offices in regulations. Overall, other expenses metropolitan areas, businesses only need are expected to account for 36.9% of office space to conduct their services. industry revenue in 2019.
Basis of Competition Competition within the Investment banks, bank holding companies and Banking and Securities Dealing industry is brokers and dealers, as well as mutual and high. Competition is broadly based on the hedge funds, commercial banks, insurance Level & Trend level of fees charged, the range of services companies and private equity funds. Competition in and products provided and company-wide There is a trend toward consolidation this industry is reputation. The industry’s level of in the industry and convergence in the High and the trend competition has increased during the services offered by players; the subprime is Increasing five-year period. Investment banking crisis has served only to accelerate this activities are now provided by investment trend. As the industry consolidates and Provided to: Seattle Pacific University (2134440152) | 03 December 2019 WWW.IBISWORLD.COM Investment Banking & Securities Dealing in the US June 2019 24
Competitive Landscape
Basis of Competition the range of services broadens into those crisis is the ability of investment banks continued traditionally offered by other industries, to access funds. Investment banks that the size and geographic reach of industry rely less on wholesale markets for players is increasing. Furthermore, funding are likely to operate with consolidation and the globalization of lower costs, enabling these operators capital markets have significantly to better compete for business. The increased the capital bases of some host of investment banking mergers industry players, bringing US operators and acquisitions during the five-year into intense competition with large period has increased the movement foreign operators that have more capital, of senior staff between operators. a stronger local presence and longer Banks such as Citigroup Inc., which operating histories outside of the United had government-imposed restrictions States. As a result, US investment banks on the compensation available to are increasingly competing on a global senior staff during the recession, basis, particularly in emerging markets. were put at a competitive disadvantage An important point of competition when attempting to attract and that has emerged since the financial retain personnel.
Barriers to Entry Capital and regulatory requirements within the banking sector provide the Barriers to Entry checklist largest barriers to entry into the Competition High Level & Trend Investment Banking and Securities Concentration Medium Barriers to Entry Dealing industry. The level of industry Life Cycle Stage Mature in this industry regulation is increasing and is likely to Capital Intensity Low are High and include the requirement that investment Technology Change High Increasing banking activities be supported by an Regulation and Policy Heavy increased level of tier 1 capital, which Industry Assistance High
consists of common stock and disclosed reserves (or retained earnings), but it SOURCE: WWW.IBISWORLD.COM may also include non-redeemable, noncumulative preferred stock. initial costs, industry operators have Traditional barriers to entry for the grown in size. These larger enterprises industry also include relationships, are able to keep variable costs low and reputation, economies of scale and profit margins high. Therefore, the need research departments that rely on a for expensive technological investment to limited supply of talented labor. compete in the industry serves as another Established relationships between significant barrier to entry for many of investment banks and large downstream the industry’s product lines. companies serve to exclude new entrants Furthermore, the ability to attract a from attracting business. Similarly, an limited supply of skilled labor and pay operator recognized for its reliability, these individuals accordingly is a very capacity to deliver and skill in valuation substantial barrier to entry. However, and advising largely guarantees itself extensive layoffs in recent years have the business, making potential players wary potential to limit these labor costs to of the level of business they could attract. some extent by improving the pool of With the increased importance of IT available workers. Additionally, while development in the industry and its large most technological change has increased
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Competitive Landscape
Barriers to Entry barriers to entry due to large initial costs, developments like internet-based initial continued not all developments have. For example, public offering auction systems have internet advancements have vastly enabled some industry operators to reduced the cost of communication undercut fees charged by traditional between banks and investors. Moreover, banks and siphon away some revenue.
Industry The Investment Banking and Securities becoming more common, as assets are Globalization Dealing industry is highly globalized in often shuffled in an effort to raise both its operation and ownership. Some capital. For example, during the of the largest players in the industry, financial crisis, the London-based Level & Trend including Credit Suisse Group and Barclays purchased the US investment Globalization in Deutsche Bank AG, are not domestically banking operations of Lehman Brothers. this industry is owned. Furthermore, while the industry’s The growing level of consolidation in High and the trend major players are all domestically owned, financial markets driven by the is Increasing many generate upward of 50.0% of their subprime crisis is increasing the rate at revenue outside of the United States. which financial services are offered Additionally, with the need to raise globally. However, this trend largely capital to replace growing losses from varies on a company-by-company basis. subprime-related write-downs, US For example, some banks have recently investment banks attracted significant sold their overseas operations as they seek investment from overseas sources. For to reduce costs and conserve capital for example, in April 2011, Morgan Stanley their domestic market. Some of the largest reached a deal with Mitsubishi UFJ US and UK banks have sold their interests Financial Group that gave the Tokyo- in Chinese banks, primarily because of the based lender a 22.0% ownership interest need to raise capital. Despite this trend in the company. displayed by some operators, the overall Cross-border sales and acquisitions of level of globalization in the industry is investment banking operations are still increasing.
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Major Players Citigroup Inc. 8.8% (Market Share) Morgan Stanley 9.6% 51.1% Other
Bank of America Corporation 9.1%
The Goldman Sachs Group Inc. 8.4% JPMorgan Chase & Co. 13.0% SOURCE: WWW.IBISWORLD.COM
Player Performance Headquartered in New York City, financial Association and JPMorgan Securities LLC, holding company JPMorgan Chase & Co. the company’s investment banking arm. (JPMorgan) is a leading global financial According to the latest available data from JPMorgan Chase & services operator and the largest banking the Financial Times, JPMorgan ranks first Co. institution in the United States by assets. in terms of fees collected for investment Market Share: 13.0% The company operates in more than 60 banking activities, with leading US market Industry Brand Names countries and employs over 256,000 positions in industry-relevant Bear Stearns full-time employees. In 2018, JPMorgan underwriting and lending services. More had nearly $2.6 trillion in assets (latest specifically, JPMorgan offers corporate data available). The company holds advising and lending, risk management, leading positions in investment banking, market-making, prime brokerage and financial services for small businesses, research in all major capital markets. The commercial banking, transaction company currently operates through four processing, asset management and private business segments: consumer and equity. Through its subsidiaries, it serves community banking, corporate and millions of customers and some of the investment banking, commercial banking most prominent domestic and and asset and wealth management. The international corporate, institutional and company’s corporate and investment bank government clients. segment accounts for the majority of its JPMorgan’s principal subsidiaries are industry-specific revenue. JPMorgan Chase Bank, National At the beginning of the 2008 financial Association, Chase Bank USA, National crisis, the US government helped
JPMorgan Chase & Co. (US industry-specifi c segment) - fi nancial performance* Revenue Operating Income Year ($ million) (% change) ($ million) (% change) 2014 17,158.0 N/C 5,707.8 N/C 2015 16,651.0 -3.0 5,882.1 3.1 2016 18,290.0 9.8 8,133.8 38.3 2017 17,515.0 -4.2 7,766.6 -4.5 2018 17,733.0 1.2 7,555.8 -2.7 2019 17,254.6 -2.7 7,130.1 -5.6
*Estimates SOURCE: ANNUAL REPORT AND IBISWORLD
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Major Companies
Player Performance engineer a deal in which JPMorgan five years to 2019. For example, in continued acquired one of the five big independent 2014, higher advisory and equity banks, Bear Stearns. By 2010, JPMorgan underwriting fees were partially completely integrated Bear Stearns’s offset by reduced debt underwriting operations and ceased using its name. fees. Additionally, the company’s Similar to other investment banks, lending and fixed-income market JPMorgan Chase was not immune to the subsegments also experienced sharp recession; however, the company handled declines in revenue that year. the recession better than the majority of Similarly, increased investor its competitors. In June 2009, the uncertainty during the latter half of company announced that it had received 2018 led many companies with plans of permission to repay the $25.0 billion in going public in the first quarter of 2019 Troubled Asset Relief Program (TARP) to delay their plans a few weeks longer. funds it had received from the Overall, JPMorgan’s industry-specific government. As a result of its strong revenue has only increased at an financial position, it was one of the first annualized rate of 0.1% to $17.3 billion financial institutions permitted to repay over the past five years. Significant TARP funds. losses in trading volumes have subdued the company’s financial position during Financial performance the current period, despite maintaining The company’s industry-specific its position as one of the top investment revenue has grown slowly over the banks in the world.
Player Performance Morgan Stanley is a leading global world financial centers. Worldwide, banking and financial services Morgan Stanley employs over 60,000 corporation that provides financial workers. Morgan Stanley was one of the Morgan Stanley products and services to individuals, few remaining major independent Market Share: 9.6% governments, corporations and financial investment banks prior to the financial institutions. Headquartered in New York crisis; however, the company was forced City, Morgan Stanley has principal offices to convert to a bank-holding company in in London, Tokyo, Hong Kong and other 2008 to receive bailout funding to cover
Morgan Stanley (US industry-specifi c segment) - fi nancial performance* Revenue Operating Income Year ($ million) (% change) ($ million) (% change) 2014 12,374.5 N/C -42.5 N/C 2015 12,807.9 3.5 3,332.3 N/C 2016 12,849.1 0.3 3,770.3 13.1 2017 13,791.6 7.3 4,137.5 9.7 2018 15,036.6 9.0 4,573.4 10.5 2019 12,755.5 -15.2 3,439.6 -24.8
*Estimates SOURCE: ANNUAL REPORT AND IBISWORLD
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Major Companies
Player Performance losses sustained on mortgage-backed securities, including equities, investment- continued securities. In 2018, the company grade and noninvestment-grade debt and generated $40.1 billion in total sales related products. Furthermore, the (latest data available). segment engages in an array of activities Morgan Stanley divides its operations that include structuring, underwriting into three segments: institutional and trading collateralized securities. securities, wealth management and investment management. Industry- Financial performance specific investment banking and securities Despite tough market conditions activities are conducted through its occurring over the five years to 2019, institutional securities segment. This Morgan Stanley grew into an investment- segment operates through subsidiaries banking market leader in equities Morgan Stanley & Co., Morgan Stanley & underwriting and sales in US initial Co. International PLC and Morgan Stanley public offerings (IPOs). It continues to Asia Ltd., along with joint-venture entities outpace other investment banks in including Morgan Stanley MUFG Securities technology IPOs, leading notable deals Co. Ltd. and Mitsubishi UFJ Morgan such as Uber Technologies Inc., Snap Inc. Stanley Securities Co. Ltd. These entities and Yext. Additionally, in 2014, the also conduct sales and trading activities as company’s advisory and underwriting principals and agents and provide fees both increased substantially, leading corporate financing and securities services to industry-specific revenue growth of to institutional investors worldwide. 10.9% that year alone despite a decline in The company’s institutional securities fixed income and commodities sales and segment is generally its most profitable trading revenue. Overall, the company’s and conducts both domestic and US industry-specific revenue has international transactions, including increased at an annualized rate of 0.6% acquisitions, divestitures, mergers, joint to $12.8 billion over the five years to ventures, corporate restructurings, 2019. While the company grew steadily recapitalizations, spin-offs, exchange between 2014 and 2018, lower offers, leveraged buyouts, takeover investment banking and trade revenue in defenses and shareholder relations. 2019 is expected to stifle industry Additionally, the segment executes public revenue growth for the entirety of the and private placement of various current period.
Player Performance Bank of America Corporation (BofA) is a than $2.3 trillion in total assets and leading global financial holding and 204,000 full-time employees. financial services corporation that serves BofA divides its operations into five Bank of America consumers, small- and middle-market segments: consumer banking, global Corporation businesses, large corporations, banking, global markets, global wealth Market Share: 9.1% institutional investors and government and investment management and a Industry Brand Names agencies with banking, trading, asset segment for all other remaining business Merrill Lynch management and other financial products activities. Industry-specific investment and services. Founded in 1904 as the Bank banking and securities services are of Italy, BofA is now headquartered in primarily provided through its global Charlotte, NC, and operates in all 50 markets segment. The company’s states, the District of Columbia and more investment banking services include debt than 35 countries worldwide. It has more and equity underwriting and distribution
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Major Companies
Player Performance capabilities, merger and corporate result, BofA received $45.0 billion in continued advisory services and risk management government support under the Troubled securities products. In support of its Asset Relief Program and operated at a investment banking services, its global significant loss during the recession. Prior markets segment also provides advisory, to the current period, BofA announced its financing, clearing, settlement and new cost-cutting program, Project New custody securities services to facilitate BAC, an enterprise-wide initiative to client trading activities, including streamline workflows and processes and market-making services. In addition, it realign businesses to increase profit. This offers a range of lending products and plan, however, largely signaled layoffs and services to corporate clients. The wage cuts in the company’s retail-banking company is a leader in global fixed operations, although not in its industry- income, currency, energy and relevant operations. commodities markets, with one of the largest equity production, origination Financial performance and trading operations in the world. Over the five years to 2019, BofA’s Prior to the five-year period to 2019, industry-specific revenue has declined at BofA acquired struggling investment an annualized rate of 2.4% to $12.1 bank Merrill Lynch at the height of the billion. During the current period, financial crisis, causing the company’s industry revenue was negatively affected industry-specific operations and revenue by geopolitical concerns, especially in to increase significantly. However, as 2016, which lead to lower investment with the majority of domestic banks, the banking fees that year. Additionally, recession severely affected the company. similar to the industry as a whole, The financial crisis and the subsequent industry-relevant revenue from BofA’s contraction in available credit put fixed income, commodities and negative pressure on the core banking currencies operations declined $552.0 and mortgage businesses of banks. As a million in 2017.
Bank of America Corporation (US industry-specifi c segment) - fi nancial performance* Revenue Operating Income Year ($ million) (% change) ($ million) (% change) 2014 13,690.9 N/C 3,581.2 N/C 2015 13,096.9 -4.3 3,179.7 -11.2 2016 13,921.0 6.3 5,096.0 60.3 2017 13,664.4 -1.8 4,331.2 -15.0 2018 14,259.8 4.4 4,773.4 10.2 2019 12,104.6 -15.1 3,571.6 -25.2
*Estimates SOURCE: ANNUAL REPORT AND IBISWORLD
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Major Companies
Player Performance Citigroup Inc. (Citi) is a diversified bank ownership stake in the company to calm holding and financial services corporation investor fears. The losses continued formed in 1998 from the merger of through 2009, including a $7.6 billion loss Citigroup Inc. Citicorp and Travelers Group Inc. in the first quarter of 2009. Citi has since Market Share: 8.8% Headquartered in New York City, Citi has refocused on core business activities, such 204,000 full-time employees and over as investment banking. In 2010, the $1.9 trillion in total assets. Citi has one of company concentrated on shedding assets the largest financial networks in the world, from its Citi Holdings segment. with 200.0 million customer accounts and Over the five years to 2019, Citi’s operations in more than 160 countries. investment banking and securities-dealing Since its partial government takeover revenue in its ICG group has decreased at and restructuring in 2008, Citi has an annualized rate of 1.1% to $11.7 billion. A reported in two segments: Citicorp, which reorganized Citi focused on core maintains its core business lines such as investment banking activities prior to the investment banking and Citi Holdings, current period, leading to sustained growth which contains noncore businesses. for the majority of the period. Prior to the Within Citicorp, the institutional clients current period, advisory fees for the group (ICG) offers industry-relevant company remained low before reversing in services. ICG as a whole provides fixed 2013. This raised advisory and equity income and equity sales and trading, underwriting fees largely explain the sharp research, investment banking, trade increase in the company’s industry-specific finance, private banking and securities revenue that year. Similarly, the company’s services. Trading floors in 80 countries traditional investment banking revenue and a proprietary network that covers 95 increased 7.6% in 2014, driven by both countries and jurisdictions support ICG’s advisory and equity underwriting services. international operations. Despite these strong synergies early during the current period, the company Financial performance experienced declining investment banking In 2008, Citi had to write off large losses revenue in 2018, leading to the slight on defaulted home loans and associated decline during the current period. derivatives products. These losses led to Furthermore, investment banking revenue the US government taking a 36.0% is expected to decline further in 2019.
Citigroup Inc. (US industry-specifi c segment) - fi nancial performance* Revenue Operating Income Year ($ million) (% change) ($ million) (% change) 2014 12,345.0 N/C 4,916.9 N/C 2015 12,698.0 2.9 5,060.2 2.9 2016 12,513.0 -1.5 5,191.3 2.6 2017 13,636.0 9.0 6,145.3 18.4 2018 12,914.0 -5.3 5,526.3 -10.1 2019 11,708.2 -9.3 4,926.5 -10.9
*Estimates SOURCE: ANNUAL REPORT AND IBISWORLD
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Major Companies
Player Performance The Goldman Sachs Group Inc. financial and investment services, such as (Goldman Sachs) is a leading global corporate lending, securities brokerage and The Goldman Sachs investment banking, securities and proprietary and principal trading services. investment-management company that Group Inc. provides financial services to Financial performance Market Share: 8.4% corporations, financial institutions, Prior to the recession, Goldman Sachs governments and high-net-worth was the envy of the investment banking individuals. Founded in 1869, the world, pulling in record revenue and company is headquartered in New York profit during a boom in merger and City and has offices in major financial acquisition activity. The financial crisis centers in over 30 countries. In addition, led to huge losses for investment banks the company employs 36,000 workers, a that underwrote and traded in mortgage- large portion of whom are located outside backed securities, such as Goldman of North and South America. Goldman Sachs. Through emergency assistance Sachs divides its business into four from the US government, Goldman Sachs segments: investment banking, remained afloat; this contrasted with the institutional client services, investing and majority of other major independent lending and investment management. In investment banks that either failed or total, these segments generated $36.6 were consolidated into commercial billion in total revenue in 2018 (latest banks. Goldman Sachs was pushed to data available). become a bank holding company, The company’s investment banking and bringing it under the same scrutiny and institutional client services segments limitations imposed on commercial contain industry-relevant activities. The banks. New regulations regarding capital company’s investment banking segment requirements and derivatives trading offers traditional investment banking have also significantly tempered services such as financial advisory and industry-relevant revenue and operating capital-raising services, including equity income. Overall, the company’s industry- and debt underwriting. The company’s specific revenue has declined at an institutional client services segment annualized rate of 2.4% to $11.1 billion provides clients with a range of securities, over the five years to 2019.
The Goldman Sachs Group Inc. (US industry-specifi c segment) - fi nancial performance* Revenue Operating Income Year ($ million) (% change) ($ million) (% change) 2014 12,585.8 N/C 4,121.3 N/C 2015 12,592.0 0.0 2,570.3 -37.6 2016 12,294.4 -2.4 4,499.2 75.0 2017 11,660.7 -5.2 3,663.4 -18.6 2018 13,021.7 11.7 4,055.3 10.7 2019 11,141.5 -14.4 3,457.9 -14.7
*Estimates SOURCE: ANNUAL REPORT AND IBISWORLD
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Major Companies
Other Company Headquartered in Switzerland, Credit billion in 2019, giving the company a Performance Suisse Group (Credit Suisse) is a market share of 2.0%. Similar to many multinational, financial services holding of the industry’s other major players, company. In 2018, the company gains in equity underwriting and Credit Suisse Group employed 45,680 workers worldwide, the advisory fees were partially offset by Market Share: 2.0% majority of which were employed outside lower debt underwriting in 2014. of Switzerland (latest data available). The However, unlike some of the industry’s company operates through five divisions: other players, Credit Suisse’s revenue Swiss universal bank, international from fixed income sales and trading wealth management, global markets, Asia increased 4.0% in 2014, with these Pacific and investment banking and gains offset by a 4.0% increase in the capital markets segments. Credit Suisse company’s compensation- and benefit- operates in the Investment Banking and related operating expenses. Similar to Securities Dealing industry through its other large operators in the industry, global markets division and investment the company has seen declining banking and capital markets division. industry-relevant revenue during the Products and services included in these period. Part of Credit Suisse’s decline divisions are global securities trading, during the current period came as a capital raising and advisory services. result of more of an emphasis being Credit Suisse’s industry-specific spent on business units outside of the revenue is expected to reach $2.7 United States.
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Capital Intensity The Investment Banking and Securities Dealing industry has a low level of capital Capital Intensity intensity. IBISWorld estimates that for every Capital units per labor unit Level $1.00 spent on wages, the industry will 0.5 The level of capital allocate $0.03 to capital investment. The intensity is Low industry’s level of capital intensity has 0.4 remained steady over the five years to 2019, 0.3 despite wages slight decrease as a share of industry revenue and increased capital 0.2 expenditures related to new technology 0.1 implemented by investment banks. 0.0 Investment banks extensively rely on Economy Finance and Investment talented labor for each of their product Insurance Banking & Securities Dealing offerings; as a result, wages represent the Dotted line shows a high level of capital intensity largest single expense for industry SOURCE: WWW.IBISWORLD.COM operators, estimated at 33.4% of industry revenue in 2019. However, during the to improve efficiency and lower five-year period, industry participants processing and administrative costs. have increasingly invested in technology Furthermore, the continued development
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Operating Conditions
Capital Intensity of online services, information they accounted for in 2008. continued technology and communication methods Furthermore, regulation changes are serve to decrease labor costs as well, anticipated to push investment banks particularly given the global nature of toward trading activities that require investment banking. large-scale investments in trading Since the financial crisis, investment systems. This trend also has the banking services are predominately potential to increase industry provided by bank holding companies, consolidation over the next five years as rather than independent investment large investment banks with advanced banks. This change in structure, along trading systems will attract the most with changing attitudes with respect to liquidity and offer the most competitive investment banking compensation and rates. Yet, some boutique investment government-imposed restraints on banks have been successful in avoiding wages, may lower industry labor costs. large technological costs in recent Over the five years to 2024, these quarters by focusing on businesses that changes are expected to keep wages as a are less capital intensive, particularly share of revenue well below the 42.9% merger and acquisition advising.
Technology and The use of telecommunications services, technology primarily facilitates real- Systems information technologies and electronic time access to crucial information. In distribution technologies in the addition, new technology will be able to Level Investment Banking and Securities incorporate qualitative inputs like Dealing industry is increasing at a rapid social media sentiment into investment The level of rate. The industry’s technology is used to decisions. Consequently, the level of technology improve the efficiency and effectiveness technological change in the industry is change is High of information delivery and services to anticipated to remain high over the five clients, and to monitor operational, years to 2024. market and financial risk. These Expected technological changes over technologies reduce processing costs and the next five years will provide even labor costs, but also require significant greater control over trading activities capital investment. However, this and legislation compliance. Similarly, investment is generally considered industry operators continue to worthwhile as operators with premium consolidate their trading systems in an trading systems primarily attract the effort to lower trading costs, boost most liquidity. margins and comply with regulatory The introduction of new computer changes. For example, according to the software, providing more streamlined Financial Times, in 2013, JPMorgan back office administration, has enabled Chase & Co. launched a new single industry operators to significantly platform that combined the company’s reduce administration costs. Trading 30 existing platforms into one. The desks use platforms to generate high primary catalyst for the $3.0 billion volume algorithmic-based trading. move is regulatory change, including According to Tabb Group, a financial the more than 14,000 new regulations research and strategic advisory the company must comply with since operator, investment banking the global financial crisis.
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Operating Conditions
Revenue Volatility IBISWorld estimates that industry from the Bureau of Labor Statistics and revenue volatility has been low over the IBISWorld estimates. five years to 2019. Volatility primarily Industry revenue tends to follow the Level depends on any aggregate changes in financial market cycle very closely. The level of fees for industry operators and trading When economic and financial market volatility is Low gains, which in turn rely on the current conditions are above average, this macroeconomic climate. Industry industry tends to perform well. revenue displayed relatively little Alternatively, when financial markets variance from year to year as a result of take a turn for the worse, revenue is countervailing trends in trading and often hit hard. The leveraging activities, underwriting revenue leading total or the use of borrowed funds for industry revenue to gradually change investment, used by many industry during the period. However, in 2017, operators serve only to increase the industry operators benefited from industry’s revenue volatility. While increased equity underwriting activity leveraging can multiply gains during as more companies look to raise capital economic booms, it can also multiply through public investors. This led losses during economic busts. In recent industry revenue to increase rapidly in quarters, gains in equity underwriting 2017. This belief is further supported by and advisory services have been offset the year-over-year growth in the by both cyclical and structural changes Producer Price Index (PPI) for related to the industry’s trading investment banking services provided services, moderating revenue have increased 12.9% from 2016 to fluctuations. Additionally, as another 2017. While price inflation was economic crisis of a similar magnitude strongest in 2017, price inflation to that experienced just prior to the occurred throughout the period, as five-year period is extremely unlikely industry PPI increased an annualized over the next five years, revenue 14.9% over the five years to 2019, volatility is anticipated to remain according to the latest available data tempered over the five years to 2024.
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Operating Conditions
Regulation and Policy The Federal Reserve (the Fed) is the in the United States. Once formed, a bank federal supervisor and regulator for all US holding company must also receive Fed bank and bank holding companies, approval before acquiring or establishing Level & Trend including financial holding companies additional banks. The level of formed under the authority of the Bank holding companies generally Regulation is Heavy Gramm-Leach-Bliley (GLB) Act of 1999, may only engage in activities that the and the trend and state-chartered commercial banks Board of Governors of the Federal is Increasing that are members of the Federal Reserve Reserve has previously determined to be System. In overseeing these organizations, closely related to banking under section the Fed promotes their operation and 4(c)(8) of the Act. The act was partially compliance with laws and regulations. established to regulate banks that formed The Fed exercises important bank holding companies to own both regulatory influence over both entry into banking and nonbanking corporations. the US banking system and the system’s Since 2000, the Bank Holding structure through its administration of Company Act has permitted the creation the Bank Holding Company Act, the Bank of a special type of bank holding company Merger Act (regarding state member called a financial holding company. These banks), the Change in Bank Control Act companies are permitted to engage in a (concerning bank holding companies and broader range of non-bank activities; for state member banks) and the example, they may affiliate with securities International Banking Act. In carrying operators and insurance companies and out its responsibilities, the Fed engage in certain merchant banking coordinates its supervisory activities with activities. Financial holding companies other federal banking agencies, state do not have to obtain the Board’s prior agencies, functional regulators and approval to engage in or acquire a international regulatory agencies. company engaged in new financial activities under the GLB Act; instead, the Bank Holding Company Act financial holding company must notify The US Securities and Exchange the Board within 30 days after Commission (SEC), under the commencing a new activity or acquiring a consolidated supervised entity (CSE) company engaged in a new activity. program, regulated many US investment banks. Under the CSE program, an 2010 Dodd-Frank Wall Street Reform investment banking group was subject to and Consumer Protection Act group-wide supervision and examination Banking regulation stemming from the by the SEC. Minimum capital standards 2008 subprime mortgage crisis has and were set on a consolidated basis. The SEC will continue to fundamentally change ended this program in September 2008, how banks operate. During the five-year conceding that oversight flaws period, the most significant regulatory contributed to the financial crisis. changes for the banking industry have In September 2008, the remaining come from the 2010 Dodd-Frank Wall major independent investment banks in Street Reform and Consumer Protection the United States, namely The Goldman Act (commonly referred to as Dodd- Sachs Group Inc. and Morgan Stanley, Frank) and the Basel III accords. converted to bank holding companies. Collectively, both sets of requirements will Under the Bank Holding Company Act, a affect the investment banking industry by corporation must obtain the Fed’s changing the financial activities operators approval before forming a bank holding can participate in, how operators company by acquiring one or more banks approach risk management and the level
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Operating Conditions
Regulation and Policy of oversight they must comply with. requirements agreed upon by members continued Higher compliance costs as a result of of the Basel Committee on Banking these changes will cut into industry profit, Supervision. It was developed as a while simultaneously reducing the range response to the deficiencies in financial of financial activities banks can draw regulation revealed by the global revenue from. financial crisis. Basel III strengthens The Volcker Rule, a specific section of bank capital requirements and Dodd-Frank, was approved by the five introduces new requirements on bank appropriate bank and market regulators in liquidity and leverage ratios. The December 2013. The Volcker Rule restricts Organization for Economic Co-operation domestic banks with federally guaranteed and Development estimates that the deposits from making selective speculative implementation of Basel III will investments that do not benefit their decrease annual GDP growth by 0.05% customers. More specifically, the rule to 0.15% during its implementation. restricts proprietary trading, where banks With higher capital requirements, banks use bank funds and customer deposits, will not be able to make as many loans, sometimes leveraging them, to make bets contracting available credit levels. on securities. In addition, the rule limits a Investment banks will have to reassess bank’s investment to 3.0% of a private their risk management strategies and equity or hedge fund’s total value and 3.0% implement more effective safeguards of the bank’s total core capital. against the issuance of risky loans. Basel III was originally scheduled to be Basel III implemented from 2013 to 2015, but on Basel III is a new global regulatory April 1, 2013, the deadline was extended standard on bank capital and liquidity to March 31, 2018.
Industry Assistance Before the subprime crisis, In early October, the US Congress governments and their central banks passed a $700.0 billion rescue plan for provided little assistance to the financial institutions. The Treasury was Level & Trend Investment Banking and Securities authorized to purchase distressed The level of Industry Dealing industry. Beginning in late assets. The Troubled Asset Relief Assistance is High 2007, this situation radically reversed. Program was also announced in and the trend is In December 2007, the US Federal October to provide direct equity Decreasing Reserve let banks borrow money investments in certain financial using a range of collateral. In March institutions. As part of this program, 2008, it created a new facility giving the government took a direct equity securities dealers access to emergency stake worth up to $25.0 billion in funds. Also in March 2008, the US Citigroup Inc. (Citi), Bank of America government intervened to assist in Corporation (BofA), JPMorgan Chase & the takeover of Bear Stearns by Co. and Wells Fargo, among other JPMorgan Chase & Co. by agreeing to banks. Subsequently, the government take responsibility for some of Bear provided an additional $20.0 billion to Stearns losses. Citi and BofA.
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Industry Data Industry Corporate Revenue Value Added Establish- Wages Domestic profit ($m) ($m) ments Enterprises Employment Exports Imports ($m) Demand ($b) 2010 142,610.5 62,266.1 15,764 9,791 160,809 -- -- 42,728.4 N/A 1,728.8 2011 126,357.3 66,246.7 15,411 9,731 160,289 -- -- 44,134.2 N/A 1,809.8 2012 119,192.4 62,664.7 15,174 10,873 156,312 -- -- 42,521.2 N/A 1,997.4 2013 116,832.2 65,684.3 14,580 10,137 152,764 -- -- 39,630.8 N/A 2,010.7 2014 116,803.0 72,704.1 14,574 9,628 152,006 -- -- 42,218.5 N/A 2,118.8 2015 117,131.2 73,363.5 14,484 9,815 153,613 -- -- 42,323.6 N/A 2,057.3 2016 117,520.3 74,462.2 14,364 9,736 153,153 -- -- 40,146.3 N/A 2,035.0 2017 123,456.1 76,097.3 15,306 10,305 156,003 -- -- 43,134.6 N/A 2,099.3 2018 127,759.8 77,723.7 16,343 10,942 161,243 -- -- 43,019.0 N/A 2,265.2 2019 133,112.9 80,885.7 16,707 11,182 166,049 -- -- 44,404.9 N/A 2,395.4 2020 135,282.5 82,192.9 16,961 11,341 168,472 -- -- 45,068.1 N/A 2,410.4 2021 137,350.3 83,473.5 17,292 11,559 171,151 -- -- 45,779.2 N/A 2,405.7 2022 140,462.4 85,443.0 17,709 11,841 174,891 -- -- 46,787.0 N/A 2,426.1 2023 144,266.9 87,743.1 18,214 12,177 179,387 -- -- 48,002.6 N/A 2,471.7 2024 149,380.0 90,872.5 18,851 12,600 185,278 -- -- 49,603.9 N/A 2,567.5 Sector Rank 16/31 12/31 16/31 13/31 11/31 N/A N/A 8/31 N/A N/A Economy Rank 85/694 36/694 248/694 270/694 194/694 N/A N/A 39/694 N/A N/A
Annual Change Industry Establish- Domestic Corporate Revenue Value Added ments Enterprises Employment Exports Imports Wages Demand profit (%) (%) (%) (%) (%) (%) (%) (%) (%) (%) 2011 -11.4 6.4 -2.2 -0.6 -0.3 N/A N/A 3.3 N/A 4.7 2012 -5.7 -5.4 -1.5 11.7 -2.5 N/A N/A -3.7 N/A 10.4 2013 -2.0 4.8 -3.9 -6.8 -2.3 N/A N/A -6.8 N/A 0.7 2014 0.0 10.7 0.0 -5.0 -0.5 N/A N/A 6.5 N/A 5.4 2015 0.3 0.9 -0.6 1.9 1.1 N/A N/A 0.2 N/A -2.9 2016 0.3 1.5 -0.8 -0.8 -0.3 N/A N/A -5.1 N/A -1.1 2017 5.1 2.2 6.6 5.8 1.9 N/A N/A 7.4 N/A 3.2 2018 3.5 2.1 6.8 6.2 3.4 N/A N/A -0.3 N/A 7.9 2019 4.2 4.1 2.2 2.2 3.0 N/A N/A 3.2 N/A 5.7 2020 1.6 1.6 1.5 1.4 1.5 N/A N/A 1.5 N/A 0.6 2021 1.5 1.6 2.0 1.9 1.6 N/A N/A 1.6 N/A -0.2 2022 2.3 2.4 2.4 2.4 2.2 N/A N/A 2.2 N/A 0.8 2023 2.7 2.7 2.9 2.8 2.6 N/A N/A 2.6 N/A 1.9 2024 3.5 3.6 3.5 3.5 3.3 N/A N/A 3.3 N/A 3.9 Sector Rank 8/31 9/31 10/31 10/31 11/31 N/A N/A 9/31 N/A N/A Economy Rank 56/694 90/694 173/694 169/694 103/694 N/A N/A 95/694 N/A N/A
Key Ratios Imports/ Exports/ Revenue per Share of the IVA/Revenue Demand Revenue Employee Wages/Revenue Employees Average Wage Economy (%) (%) (%) ($’000) (%) per Est. ($) (%) 2010 43.66 N/A N/A 886.83 29.96 10.20 265,709.01 0.40 2011 52.43 N/A N/A 788.31 34.93 10.40 275,341.41 0.42 2012 52.57 N/A N/A 762.53 35.67 10.30 272,027.74 0.39 2013 56.22 N/A N/A 764.79 33.92 10.48 259,425.00 0.40 2014 62.25 N/A N/A 768.41 36.15 10.43 277,742.33 0.43 2015 62.63 N/A N/A 762.51 36.13 10.61 275,520.95 0.42 2016 63.36 N/A N/A 767.34 34.16 10.66 262,131.99 0.42 2017 61.64 N/A N/A 791.37 34.94 10.19 276,498.53 0.42 2018 60.84 N/A N/A 792.34 33.67 9.87 266,796.08 0.42 2019 60.76 N/A N/A 801.65 33.36 9.94 267,420.46 0.43 2020 60.76 N/A N/A 803.00 33.31 9.93 267,510.92 0.42 2021 60.77 N/A N/A 802.51 33.33 9.90 267,478.43 0.42 2022 60.83 N/A N/A 803.14 33.31 9.88 267,520.91 0.43 2023 60.82 N/A N/A 804.22 33.27 9.85 267,592.41 0.43 2024 60.83 N/A N/A 806.25 33.21 9.83 267,726.88 0.44 Sector Rank 4/31 N/A N/A 17/31 4/31 16/31 2/31 12/31 Economy Rank 40/694 N/A N/A 120/694 130/694 361/694 4/694 36/694
Figures are in inflation-adjusted 2019 dollars. Rank refers to 2019 data. SOURCE: WWW.IBISWORLD.COM Provided to: Seattle Pacific University (2134440152) | 03 December 2019 WWW.IBISWORLD.COM Investment Banking & Securities Dealing in the US June 2019 39
Industry Financial Ratios Apr 2017 - Mar 2018 by company revenue Apr 2014 - Apr 2015 - Apr 2016 - Apr 2017 - Small Medium Large Mar 2015 Mar 2016 Mar 2017 Mar 2018 (<$10m) ($10-50m) (>$50m)
Liquidity Ratios Current Ratio 2.5 1.7 1.5 2.3 2.2 3.4 n/a Quick Ratio 2.2 1.3 1.3 1.8 1.3 3.3 n/a Sales / Receivables (Trade Receivables Turnover) 25.2 133.1 52.7 77.8 n/c 72.8 n/a Days’ Receivables 14.5 2.7 6.9 4.7 0.4 5.0 n/a Cost of Sales / Inventory (Inventory Turnover) n/a n/a n/a n/a n/a n/a n/a Days’ Inventory n/a n/a n/a n/a n/a n/a n/a Cost of Sales / Payables (Payables Turnover) n/a n/a n/a n/a n/a n/a n/a Days’ Payables n/a n/a n/a n/a n/a n/a n/a Sales / Working Capital 4.8 5.4 8.4 5.1 6.5 1.5 n/a
Coverage Ratios Earnings Before Interest & Taxes (EBIT) / Interest 30.4 7.1 6.2 15.3 n/a n/a n/a Net Profit + Dep., Depletion, Amort. / Current Maturities LT Debt n/a n/a n/a n/a n/a n/a n/a
Leverage Ratios Fixed Assets / Net Worth 0.1 0.1 0.1 0.1 0.1 0.1 n/a Debt / Net Worth 0.7 2.1 1.7 0.7 0.5 0.5 n/a Tangible Net Worth 46.6 19.7 31.2 45.1 44.9 60.2 n/a
Operating Ratios Profit before Taxes / Net Worth, % 20.9 24.7 18.5 34.5 20.4 38.1 n/a Profit before Taxes / Total Assets, % 10.6 8.1 7.6 13.1 7.7 16.2 n/a Sales / Net Fixed Assets 67.4 61.7 72.1 50.5 71.9 17.5 n/a Sales / Total Assets (Asset Turnover) 1.3 1.4 1.0 1.1 0.8 0.9 n/a
Cash Flow & Debt Service Ratios (% of sales) Cash from Trading n/a n/a n/a n/a n/a n/a n/a Cash after Operations 15.4 23.2 21.1 11.5 28.6 n/a n/a Net Cash after Operations 11.7 22.1 21.6 10.1 28.9 n/a n/a Cash after Debt Amortization -2.2 1.1 4.3 1.9 11.7 n/a n/a Debt Service P&I Coverage 1.1 2.4 4.8 1.6 n/a n/a n/a Interest Coverage (Operating Cash) 2.3 6.5 6.0 1.9 n/a n/a n/a
Assets, % Cash & Equivalents 39.3 29.3 30.5 41.1 35.0 58.4 n/a Trade Receivables (net) 14.6 15.7 15.2 11.0 6.4 8.2 n/a Inventory 6.1 3.0 2.0 0.4 0.3 n/a n/a All Other Current Assets 6.6 10.5 3.7 3.8 2.9 4.3 n/a Total Current Assets 66.6 58.6 51.4 56.3 44.6 70.9 n/a Fixed Assets (net) 14.2 17.2 11.9 12.9 16.6 12.4 n/a Intangibles (net) 8.3 8.9 5.4 8.2 9.5 1.6 n/a All Other Non-Current Assets 11.0 15.4 31.2 22.7 29.4 15.1 n/a Total Assets 100.0 100.0 100.0 100.0 100.0 100.0 n/a Total Assets ($m) 1,121.5 1,423.7 1,736.8 1,216.2 158.3 403.4 654.5
Liabilities, % Notes Payable-Short Term 4.8 8.7 3.7 2.8 3.0 3.5 n/a Current Maturities L/T/D 1.1 5.8 1.7 1.1 0.5 1.4 n/a Trade Payables 5.6 8.1 7.6 6.3 5.2 2.5 n/a Income Taxes Payable 0.1 0.2 n/a n/a n/a 0.1 n/a All Other Current Liabilities 13.2 11.5 22.2 17.2 12.8 14.5 n/a Total Current Liabilities 24.8 34.3 35.3 27.4 21.6 22.0 n/a Long Term Debt 12.4 21.4 19.1 13.4 19.2 9.6 n/a Deferred Taxes 0.5 0.3 0.3 0.3 0.5 n/a n/a All Other Non-Current Liabilities 7.5 15.5 8.7 5.6 4.3 6.6 n/a Net Worth 54.9 28.6 36.6 53.3 54.4 61.8 n/a Total Liabilities & Net Worth ($m) 1,121.5 1,423.7 1,736.8 1,216.2 158.3 403.4 654.5
Maximum Number of Statements Used 39 49 48 36 18 10 8
Source: RMA Annual Statement Studies, rmahq.org. RMA data for all industries is derived directly from more than 260,000 statements of member financial institutions’ borrowers and prospects. Note: For a full description of the ratios refer to the Key Statistics chapter online.
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Jargon & Glossary
Industry Jargon INITIAL PUBLIC OFFERING (IPO) When a company TROUBLED ASSET RELIEF PROGRAM (TARP) A (called the issuer) issues common stock or shares to the program instituted by the US government to purchase public for the first time. assets and equity from financial institutions in order to LEVERAGING Investing with borrowed money, which strengthen the financial sector. can increase potential gains but also risks greater losses. VOLCKER RULE A specific section of the Dodd-Frank MARKET-MAKING Buying, selling or otherwise Wall Street Reform and Consumer Protection Act that transacting with customers under a variety of market restricts US banks from making certain kinds of conditions and providing prices in response to customer speculative investments that do not benefit their requests. customers. TIER 1 CAPITAL Secure and transparent core capital comprising equity capital and disclosed reserves.
BARRIERS TO ENTRY High barriers to entry mean that IMPORTS Total value of industry goods and services new companies struggle to enter an industry, while low brought in from foreign countries to be sold in the United barriers mean it is easy for new companies to enter an States. industry. INDUSTRY CONCENTRATION An indicator of the CAPITAL INTENSITY Compares the amount of money dominance of the top four players in an industry. spent on capital (plant, machinery and equipment) with Concentration is considered high if the top players that spent on labor. IBISWorld uses the ratio of account for more than 70% of industry revenue. Medium depreciation to wages as a proxy for capital intensity. is 40% to 70% of industry revenue. Low is less than 40%. High capital intensity is more than $0.333 of capital to $1 INDUSTRY REVENUE The total sales of industry goods of labor; medium is $0.125 to $0.333 of capital to $1 of and services (exclusive of excise and sales tax); subsidies labor; low is less than $0.125 of capital for every $1 of on production; all other operating income from outside labor. the firm (such as commission income, repair and service CONSTANT PRICES The dollar figures in the Key income, and rent, leasing and hiring income); and capital Statistics table, including forecasts, are adjusted for work done by rental or lease. Receipts from interest inflation using the current year (i.e. year published) as the royalties, dividends and the sale of fixed tangible assets base year. This removes the impact of changes in the are excluded. purchasing power of the dollar, leaving only the “real” INDUSTRY VALUE ADDED (IVA) The market value of growth or decline in industry metrics. The inflation goods and services produced by the industry minus the adjustments in IBISWorld’s reports are made using the cost of goods and services used in production. IVA is also US Bureau of Economic Analysis’ implicit GDP price described as the industry’s contribution to GDP, or profit deflator. plus wages and depreciation. DOMESTIC DEMAND Spending on industry goods and INTERNATIONAL TRADE The level of international services within the United States, regardless of their trade is determined by ratios of exports to revenue and country of origin. It is derived by adding imports to imports to domestic demand. For exports/revenue: low is industry revenue, and then subtracting exports. less than 5%, medium is 5% to 20%, and high is more EMPLOYMENT The number of permanent, part-time, than 20%. Imports/domestic demand: low is less than temporary and seasonal employees, working proprietors, 5%, medium is 5% to 35%, and high is more than 35%. partners, managers and executives within the industry. LIFE CYCLE All industries go through periods of growth, ENTERPRISE A division that is separately managed and maturity and decline. IBISWorld determines an industry’s keeps management accounts. Each enterprise consists of life cycle by considering its growth rate (measured by IVA) one or more establishments that are under common compared with GDP; the growth rate of the number of ownership or control. establishments; the amount of change the industry’s ESTABLISHMENT The smallest type of accounting unit products are undergoing; the rate of technological within an enterprise, an establishment is a single physical change; and the level of customer acceptance of industry location where business is conducted or where services or products and services. industrial operations are performed. Multiple NONEMPLOYING ESTABLISHMENT Businesses with no establishments under common control make up an paid employment or payroll, also known as nonemployers. enterprise. These are mostly set up by self-employed individuals. EXPORTS Total value of industry goods and services sold by US companies to customers abroad.
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Jargon & Glossary
IBISWorld Glossary PROFIT IBISWorld uses earnings before interest and tax WAGES The gross total wages and salaries of all (EBIT) as an indicator of a company’s profitability. It is employees in the industry. The cost of benefits is also calculated as revenue minus expenses, excluding interest included in this figure. and tax. VOLATILITY The level of volatility is determined by averaging the absolute change in revenue in each of the past five years. Volatility levels: very high is more than ±20%; high volatility is ±10% to ±20%; moderate volatility is ±3% to ±10%; and low volatility is less than ±3%.
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