iEXPERT REPORT 52311

Investment Banking & Securities

Dealing in the US

December 2019

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Investment Banking & Securities Dealing in the US December 2019

Snapshot Total Revenue Annual Growth Annual Growth

2019 2014-2019 2019-2024

$125.8bn 1.5% 2.1%

Profit Margin Wages as a share of Revenue Number of Businesses
2019 2019 2014-2019

25.1% 35.9% 3.1%

Industry Strucuture Level Trend Level Trend

Life Cycle Mature Regulation Level Heavy Increasing

Revenue Volatility Low Technology Change High

Capital Intensity Low Barriers to Entry High Increasing

Industry Assistance High Decreasing Industry Globalization High Increasing

Concentration Level Medium Competition Level High Increasing

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Investment Banking & Securities Dealing in the US December 2019

Key Industry Data

Products & Services

Segmentation

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Investment Banking & Securities Dealing in the US December 2019

Major Players

Cost Structure

Industry Performance
Performance Strong returns in various financial markets and continued macroeconomic growth have benefited
Summary operators in the Investment Banking and Securities Dealing industry over the five years to 2019.

Operators provide underwriting, originating and market-making services for a range of financial
instruments including bonds, stocks and derivatives. Revenue growth was hindered during most of the
current period due to structural changes to the trading services that industry operators were permitted to
conduct. However, operators have benefited from numerous trends, including increased demand for initial
public offerings from private companies. Overall, industry revenue has increased an annualized 1.5% to
$125.8 billion over the five years to 2019, including 1.1% growth in 2019 alone. Similarly, industry profit has
expanded over the past five years, primarily due to increased advisory fees.

Early during the current period, industry revenue was stymied as a result of declining fixed income,
commodities and currencies (FICC) trading revenue. Several structural trends are crucial in explaining the
industry's declining revenue from FICC, the most significant of which is regulatory change. Among the
most important legislative changes is the Volcker Rule, which restricts bank-holding companies with
federally insured deposits from proprietary trading. Additionally, higher capital requirements and the trend
of transitioning derivative trading to central clearinghouses are anticipated to structurally dampen the
industry's FICC revenue. This trend led industry revenue growth to remain muted during the early portion of
the period, despite rising fees from investment banking services.

These changes have forced the industry's smaller operators to evolve. Since competing in FICC requires
scale and massive investments in technology and compliance, boutique investment banks have

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Investment Banking & Securities Dealing in the US December 2019

alternatively focused on merger and acquisition (M&A) advising, increasing their share of this product line
from 25.0% in 2010 to 29.0% in 2014, according to the Economist. As a result, boutique investment banks'
total share of M&A revenue is forecast to continue growing over the five years to 2024. Furthermore, the
industry as a whole is projected to continue benefiting from continued macroeconomic activity and rising
interest rates during the outlook period. Overall, industry revenue is forecast to rise an annualized 2.1% to
$139.8 billion over the next five years.

Industry Issues Threat

Investment banks help companies raise capital by underwriting their first sale of stock (equity) to public
investors; this is known as an initial public offering (IPO). A high number of IPOs represents increased
business demand for capital, which leads to higher underwriting revenue for the industry. The number of
IPOs is expected to decrease in 2019, posing a threat to the industry.

Opportunity
The performance of the stock market heavily influences revenue for industry operators. When equities
markets are performing well, the industry generates more revenue from trading activities and experiences
increased demand from downstream clients for strategic advisory services. The S&P 500 index is
expected to increase in 2019, representing a potential opportunity for the industry.

Call Preparation Questions

Role Specific Sales & Marketing
Questions
How do you emphasize the value of your company's services?

By cultivating a relationship with clients, an investment bank can get a better understanding of a client's
needs and supply them with the proper products.

How diversified are your product offerings compared to competitors?

Products offered by investment banks generally varies based upon the size of the bank. Smaller banks
look to provide advisory services, as it is not capital intensive and based on relationships, while bulge
bracket banks provide wholesale investment banking services.

Strategy & Operations

What is your company doing to reduce costs?

Investment banks have tried to automate varies process in recent years to cut costs and increase
efficiencies. For example, trading services and trade execution have been an area banks have automated
in recent years.

What international operations do you conduct and how could benefit from increasing your international
reach?

Only large investment banks have the economy of scales needed to operate globally. Having the ability to
operate internationally helps banks diversify risk associate with any one market.

Technology

What new IT and data systems have you invested into in recent years?

New data driven systems have been implemented by investment banks to help employees further analyze
data, while also reducing the labor intensity of the work employees conduct.

To what extent are your processes automated and how do you plan on investing in automation over the
coming years?

While certain investment banking services cannot be automated, activities like trading and trade execution
have been automated in recent years to cut costs and increase accuracy.

Compliance

How do you expect the proposed changes to Dodd-Frank to effect your business?

Dodd-Frank has had widespread effects on investment banks. One such example has been the Volcker
Rule which restricts investment banks from proprietarily trading securities on a short-term basis.

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Investment Banking & Securities Dealing in the US December 2019

How have the increased capital requirements under Basel III affected operations?

While Basel III has increased the stability of investment banks, it has also cut into banks profitability. This
has hurt investors valuations of banks as well.

Finance

What methods have you adopted to improve cash flow in recent years?

Investment banks have started to provide ancillary financial services, such as wealth management, to
supplement their core investment banking services and improve cash flow.

How does your profit margin compare to those of your competitors?

Investment banks' profit margins vary based on the size of the bank and the type of banking services they
provide.

External Impacts Impact: Initial public offerings

Questions How has the current number of initial public offerings affected your company? How can you adapt as the
number of initial public offerings declines?

Investment banks help companies raise capital by underwriting their first sale of stock (equity) to public
investors. A high number of IPOs represents increased business demand for capital, which leads to higher
underwriting revenue for the industry.

Impact: Corporate profit

How will you capitalize on increasing corporate profit? Do you track changing business activity levels?

Changes in corporate profit influence the performance of equities markets because they affect how
companies are valued, which in turn influences trading and business activity.

Impact: S&P 500

Do you diversify your asset portfolios? How do you respond to an increasing S&P?

When equities markets are performing well, the industry generates more revenue from trading activities
and experiences increased demand from downstream clients for strategic advisory services.

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Investment Banking & Securities Dealing in the US December 2019

Internal Issues Issue: Access to a highly skilled workforce

Questions What measures do you take to retain highly skilled laborers? Have your strategies for retention changed as
a result of increased regulation?

An experienced and highly trained staff is necessary for this industry. Clients are attracted to individuals
and teams that have successfully raised debt and equity in the past.

Issue: Market research and understanding

How do you ensure your employees are tending to their portfolios? How can this be demonstrated to
potential investors?

The ability to provide quality research will attract more investors to buy securities.

Issue: Provision of a related range of goods/services ("one stop shop")

What steps will you take to cater to the consumers' needs? How will you raise sufficient funds to maximize
returns?

It is essential to have the right mix of product offerings that raise sufficient funds on the sell side to
maximize returns on the buy side.

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