Financial Services Industry Profitability: Moderate Level Profitability

1
Financial Services Industry ProfitabilityModerat
e Level Profitability

• Tiburon Research
• September 17, 2014

2
Outline

• Evolution of Financial Services Industry
  Profitability
• Market History
• Market Definition
• Key Valuation Measures
• Leading Financial Services Industry Profitability
• Market Segmentation
• Retail Bank Profitability
• Insurance Company Profitability
• Brokerage Firm Profitability
• Investment Management Firm Profitability
• Financial Services Industry Profitability Future
  Predictions
• Decrease in Retail Bank Insurance Company
  Profitability
• Increase in Brokerage Firm Investment
  Management Profitability

3
Tiburon CEO Summit XXVI Attendees Said that a New
Product Launch or Investment Strategy is the Top
Strategic Initiative for their Firms in 2014
Tiburon CEO Summit XXVI Attendees By Top
Strategic Initiative in 2014
Source 3/10/14 Tiburon CEO Summit XXVI Content
Survey Data Tiburon Research Analysis
4
Consumer Gains were Largest in the Standard
Poors 500s Consumer Discretionary Sector at 324
Consumer Gains By Standard Poors 500 Market
Sector
Source 3/8/14 Wall Street Journal (FactSet)
Tiburon Research Analysis
5
Outline

• Evolution of Financial Services Industry
  Profitability
• Market History
• Market Definition
• Key Valuation Measures
• Leading Financial Services Industry Profitability
• Market Segmentation
• Retail Bank Profitability
• Insurance Company Profitability
• Brokerage Firm Profitability
• Investment Management Firm Profitability
• Financial Services Industry Profitability Future
  Predictions
• Decrease in Retail Bank Insurance Company
  Profitability
• Increase in Brokerage Firm Investment
  Management Profitability

6
The Financial Services Industry Profitability can
Specifically be Analyzed by Individual Segments,
Including Retail Banks, Insurance Companies,
Brokerage Firms, and Investment Management Firms
Financial Services Industry Profitability Segments
Financial Services Industry Profitability Segments
Retail Banks
Brokerage Firms
Investment Management Firms
Insurance Companies
Source Tiburon Research Analysis
7
Outline

• Evolution of Financial Services Industry
  Profitability
• Market History
• Market Definition
• Key Valuation Measures
• Leading Financial Services Industry Profitability
• Market Segmentation
• Retail Bank Profitability
• Insurance Company Profitability
• Brokerage Firm Profitability
• Investment Management Firm Profitability
• Financial Services Industry Profitability Future
  Predictions
• Decrease in Retail Bank Insurance Company
  Profitability
• Increase in Brokerage Firm Investment
  Management Profitability

8
The Standard Poors 500 Consumer Discretionary
Sector Increased by 320 Since March 2009
Standard Poors 500 Performance By
Sector (March 2009 through March 2014)
Source 3/13/14 Financial Times (Bloomberg)
(Thomson Reuters Datastream) Tiburon Research
Analysis
9
Outline

• Evolution of Financial Services Industry
  Profitability
• Market History
• Market Definition
• Key Valuation Measures
• Leading Financial Services Industry Profitability
• Market Segmentation
• Retail Bank Profitability
• Insurance Company Profitability
• Brokerage Firm Profitability
• Investment Management Firm Profitability
• Financial Services Industry Profitability Future
  Predictions
• Decrease in Retail Bank Insurance Company
  Profitability
• Increase in Brokerage Firm Investment
  Management Profitability

10
The Leading Financial Services Institutions in
Terms of Profitability can be Specifically be
Defined by
Financial Services Industry Indicators
Financial Services Industry Indicators
--
--
--
--
Source Tiburon Research Analysis
11
Outline

• Evolution of Financial Services Industry
  Profitability
• Market History
• Market Definition
• Key Valuation Measures
• Leading Financial Services Industry Profitability
• Market Segmentation
• Retail Bank Profitability
• Insurance Company Profitability
• Brokerage Firm Profitability
• Investment Management Firm Profitability
• Financial Services Industry Profitability Future
  Predictions
• Decrease in Retail Bank Insurance Company
  Profitability
• Increase in Brokerage Firm Investment
  Management Profitability

12
Brokerage Firms Investment Management Firms
Have the Largest Net Profit Margins at 8.6
8.3 Respectively
Financial Services Industry Net Profit Margin By
Segment
Source 4/6/11 Yahoo Finance Web Site Tiburon
Research Analysis
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Outline

• Evolution of Financial Services Industry
  Profitability
• Market History
• Market Definition
• Key Valuation Measures
• Leading Financial Services Industry Profitability
• Market Segmentation
• Retail Bank Profitability
• Insurance Company Profitability
• Brokerage Firm Profitability
• Investment Management Firm Profitability
• Financial Services Industry Profitability Future
  Predictions
• Decrease in Retail Bank Insurance Company
  Profitability
• Increase in Brokerage Firm Investment
  Management Profitability

14
Retail Bank Profitability Have a Number of Key
Issues, Including Macro Economic Pressure and
Segment Competition
Retail Bank Profitability Key Issues
Retail Bank Profitability Key Issues
Marco Economic Pressures
Segment Competition
Source Tiburon Research Analysis
15
Outline

• Evolution of Financial Services Industry
  Profitability
• Market History
• Market Definition
• Key Valuation Measures
• Leading Financial Services Industry Profitability
• Market Segmentation
• Retail Bank Profitability
• Insurance Company Profitability
• Brokerage Firm Profitability
• Investment Management Firm Profitability
• Financial Services Industry Profitability Future
  Predictions
• Decrease in Retail Bank Insurance Company
  Profitability
• Increase in Brokerage Firm Investment
  Management Profitability

16
Insurance Company Profitability Have a Number of
Key Issues
Insurance Company Profitability Key Issues
Insurance Company Profitability Key Issues
--
--
Source Tiburon Research Analysis
17
Outline

• Evolution of Financial Services Industry
  Profitability
• Market History
• Market Definition
• Key Valuation Measures
• Leading Financial Services Industry Profitability
• Market Segmentation
• Retail Bank Profitability
• Insurance Company Profitability
• Brokerage Firm Profitability
• Investment Management Firm Profitability
• Financial Services Industry Profitability Future
  Predictions
• Decrease in Retail Bank Insurance Company
  Profitability
• Increase in Brokerage Firm Investment
  Management Profitability

18
Brokerage Firm Profitability Has a Number of Key
Issues
Brokerage Firm Profitability Key Issues
Brokerage Firm Profitability Key Issues
--
--
Source Tiburon Research Analysis
19
Outline

• Evolution of Financial Services Industry
  Profitability
• Market History
• Market Definition
• Key Valuation Measures
• Leading Financial Services Industry Profitability
• Market Segmentation
• Retail Bank Profitability
• Insurance Company Profitability
• Brokerage Firm Profitability
• Investment Management Firm Profitability
• Financial Services Industry Profitability Future
  Predictions
• Decrease in Retail Bank Insurance Company
  Profitability
• Increase in Brokerage Firm Investment
  Management Profitability

20
Investment Management Firms Profitability Has a
Number of Key Issues
Investment Management Firm Profitability Key
Issues
Investment Management Firm Profitability Key
Issues
--
--
Source Tiburon Research Analysis
21
Outline

• Evolution of Financial Services Industry
  Profitability
• Market History
• Market Definition
• Key Valuation Measures
• Leading Financial Services Industry Profitability
• Market Segmentation
• Retail Bank Profitability
• Insurance Company Profitability
• Brokerage Firm Profitability
• Investment Management Firm Profitability
• Financial Services Industry Profitability Future
  Predictions
• Decrease in Retail Bank Insurance Company
  Profitability
• Increase in Brokerage Firm Investment
  Management Profitability

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The Fixed Income, Currencies, Commodities
Business Represents Up to One-Third of the Net
Profits of Some Investment Banks, Including
Goldman Sachs Group
Investment Banks Net Profits Share from Fixed
Income, Currencies, Commodities Businesses
Source 9/24/13 Financial Times Tiburon Research
Analysis
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Almost All Investment Banks are Realizing Lower
Revenues from their Fixed Income, Currencies,
Commodities Businesses, Including at Citigroup
and Morgan Stanley, which Each Posted a 21
Decline
Investment Banks Fixed Income, Currencies,
Commodities Businesses Quarterly Revenue Change
Citigroup
Morgan Stanley
Bank of America Corporation
JP Morgan Chase Company
Source 9/25/13 Wall Street Journal Tiburon
Research Analysis
24
Wealth Management Fees Represent a Larger Portion
of Revenue in 2012 at 11, Almost Double that of
2008
Financial Services Firm Revenues Share from
Wealth Management
Source 10/1/13 CNN Money.Com Web Site Tiburon
Research Analysis
25
Morgan Stanleys Revenue Sources Shifted After
the Financial Crisis with a Reduction in
Investment Banking Trading from 70 to 50 of
its Revenues, While Wealth Asset Management
Filled the Gap
Morgan Stanley Revenues By Business
Other Businesses
Wealth Asset Management
Investment Banking Trading
Source 2/25/14 Morgan Stanley 10Q Report
9/10/13 Wall Street Journal Tiburon Research
Analysis
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Outline

• Evolution of Financial Services Industry
  Profitability
• Market History
• Market Definition
• Key Valuation Measures
• Leading Financial Services Industry Profitability
• Market Segmentation
• Retail Bank Profitability
• Insurance Company Profitability
• Brokerage Firm Profitability
• Investment Management Firm Profitability
• Financial Services Industry Profitability Future
  Predictions
• Decrease in Retail Bank Insurance Company
  Profitability
• Increase in Brokerage Firm Investment
  Management Profitability

27
Retail Bank Profitability is Likely to Decline
Comments

• --

Source Tiburon Research Analysis
26
28
Outline

• Evolution of Financial Services Industry
  Profitability
• Market History
• Market Definition
• Key Valuation Measures
• Leading Financial Services Industry Profitability
• Market Segmentation
• Retail Bank Profitability
• Insurance Company Profitability
• Brokerage Firm Profitability
• Investment Management Firm Profitability
• Financial Services Industry Profitability Future
  Predictions
• Decrease in Retail Bank Insurance Company
  Profitability
• Increase in Brokerage Firm Investment
  Management Profitability

29
Trust Banks Share Buybacks are Expected to be 30
through March 2015
Expected Share Buybacks By Bank Type (Through
March 2015)
Source 3/17/14 Wall Street Journal (Goldman
Sachs Group) Tiburon Research Analysis
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Trust Banks Credit Card Firms Earnings per
Share are Expected to be 5 through March 2015
Earnings per Share By Bank Type (Through March
2015)
Source 3/17/14 Wall Street Journal (Goldman
Sachs Group) Tiburon Research Analysis
31
Asset Management Fees Represent a Larger Portion
of Revenue in 2012 at 11, Almost Double that of
2008
Financial Services Firm Revenues Share from
Wealth Management
Source 10/1/13 CNN Money.Com Web Site Tiburon
Research Analysis
32
Tiburon Strategic Advisors
Comments

• Focus on corporate-level strategy
• Serve senior executives only at financial
  services companies
• Key services market seminars, market research,
  strategy consulting
• Served over 400 corporate clients and completed
  over 1,700 projects since 1998
• Host semi-annual CEO Summits, offer free weekly
  research releases, and offer free business
  benchmarking tools for all types of advisors
• Chip Roame background
• McKinsey Company
• Charles Schwab Company
• Tiburon since 1998

Source Tiburon Research Analysis
31