NEW YORK, March 20 /PRNewswire/ -- The largest investment banks are
increasingly directing their attention to Europe, the Middle East, and
Africa (EMEA) to capture more of Europe's growing cross-border M&A business
and origination activity, says a new report by The Boston Consulting Group
Investment banking markets in the EMEA region have grown in importance
and now represent 36 percent of the industry's global revenues. Some
investment banks predict that in the next three to five years, up to 75
percent of revenue growth will come from outside the United States. As a
result, several have transferred some decision-making authority and
organizational emphasis away from their home operations toward Europe.
The shift is one of several trends transforming the global investment-
banking landscape, according to BCG's latest quarterly Investment Banking
and Capital Markets report. Other trends include the growing influence of
financial sponsor and hedge fund clients, the increasing importance of risk
management in proprietary trading, and the continued need for product
innovation and technology investment to drive profit growth.
"Increasingly, the largest investment banks are moving from a product
to a customer focus," said Svilen Ivanov, leader of BCG's
investment-banking practice and coauthor of the report. "To meet the
cross-functional needs of alternative-investment clients, they are
mobilizing capabilities across their organizations or within specific
divisions around core clients and developing innovative client-coverage
Building on the industry's record performance in 2006, the outlook for
2007 remains positive, with global revenues predicted to grow 10 to 15
percent, to around $335 billion. Pretax profits are expected to rise 9 to
15 percent. Among the industry's main sources of revenue, equity trading is
forecast to post the strongest growth -- about 20 percent -- in 2007.
The report's in-depth analysis of fourth-quarter and annual performance
shows that investment banks finished 2006 on a strong note. Profit margins
at ten leading banks (Bear Stearns, Citigroup, Credit Suisse, Deutsche
Bank, Goldman Sachs, JPMorgan Chase, Lehman Brothers, Merrill Lynch, Morgan
Stanley, and UBS) increased by an average of 6.5 percentage points in the
fourth quarter, while revenues increased 18.7 percent over the previous
Fixed income and equity trading did not experience the typical seasonal
drop-off in the fourth quarter due to robust derivatives and commodities
activity. Trading revenues for the leading banks increased 13 percent in
the fourth quarter and were 45 percent higher than the same period a year
earlier, on average. Gains in advisory work were also strong, as the value
of M&A deals surged 34 percent over the previous quarter.
For the industry as a whole, investment banks posted record revenues
and profits for the year on the back of strong corporate profitability,
deep pools of global liquidity, strong equity markets, low inflation, and
tightening credit spreads. Total annual revenues jumped 33 percent to $289
billion, while profits soared 38 percent to $90 billion.
Both trading and advisory work helped fuel the stellar performance.
Fixed- income revenues grew 29 percent in 2006, as favorable market
conditions drove higher trading activity. Revenues from equities trading
surged 42 percent, due in part to sustained growth in equity derivatives.
At the same time, corporate finance and advisory revenues remained strong,
growing 30 percent for the year.
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SOURCE The Boston Consulting Group