February 2017

Disruption in Investment Banking and Capital Markets

Sohee Park

Managing Director and Global Head of Strategy, UBS Investment Bank

Opportunities for new entrants

1

Investment Banking & Capital Markets: an industry in flux

Boutique advisory houses and electronic trading players taking

share

Next wave of regulations to further drive up capital requirements

Market disruption from geopolitical risks and unpredictable policies

Revenue pools at c.USD 250bn, a third lower than the peak in 2007Declining

revenue pool

Regulations

Uncertain

environment

New entrants

2

Investment banks are adapting their strategies

1. Source: Dealogic, Coalition

1 CS2 DB3 BARC3 MS3 GS3 JPM3 BAML3 Citi3 CS DB BARC MS GS JPM BAML Citi

Eq

uit

ies

Cash Equities Top 2 Top 3 Top 10 Top 10 Top 3 Top 3 Top 6 Top 3 Top 10 As-is Invest Invest na na na na Invest

Equity

DerivativesTop 2 Top 2 Top 6 Top 10 Top 3 Top 3 Top 3 Top 10 Top 10 As-is Invest Invest na na na na na

Prime Services Top 5 Top 2 Top 6 Top 10 Top 3 Top 3 Top 3 Top 10 Top 10Optimize

clientsOptimize Invest na Optimize Optimize na Invest

FIC

C

Macro

(FX/Rates/

Macro Options)

Top 6 Top 10 Top 3 Top 6 Top 6 Top 3 Top 3 Top 3 Top 6

Optimize

Primary

Dealership

Scale back Optimize Optimize

Credit Top 9 Top 5 Top 3 Top 10 Top 10 Top 6 Top 3 Top 3 Top 6 As-is Optimize Optimize Optimize

EM na Top 5 Top 3 Top 10 Top 10 Top 6 Top 3 Top 6 Top 3 As-is Optimize Optimize Optimize

FRC Solutions na na na na na na na na na Invest na na na

Securitized na Top 2 Top 6 Top 10 Top 10 Top 6 Top 3 Top 6 Top 3 na Optimize Optimize Optimize

IBD

Advisory Top 9 Top 8 Top 10 Top 6 Top 3 Top 3 Top 3 Top 6 Top 6 Invest Invest Invest Invest Invest Invest Invest Invest Invest

ECM Top 8 Top 7 Top 10 Top 10 Top 3 Top 3 Top 3 Top 3 Top 6 Invest Invest Invest As-is As-is As-is As-is As-is As-is

DCM/LCMOutside

Top 10Top 6 Top 6 Top 6 Top 10 Top 6 Top 3 Top 3 Top 3 Invest Optimize As-is As-is As-is As-is As-is As-is As-is

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Market position Strategy by business

Strategies of the investment banks are similar: invest in capital-

light businesses while optimizing capital intensive ones

3

New competition in M&A Advisory, Sales & Trading and

Research

New competition focusing on 1-2 segments of the Investment

Banking and Capital Markets and being better than the existing

players

4

Winners in disruption will be the ones who deliver higher RoE

Return on

Equity (RoE)=

Revenues – Costs

Equity

Lower equity by balance sheet

velocity and efficiency

Lower costs by Automation

Higher revenues using Big

Data and AI to identify

opportunities

Most important metric for

shareholders

Technologies driving revenues, costs and capital usage

ILLUSTRATIVE

5

How do we expect disruption to happen?

Front office Middle office Back OfficeFront office Middle OfficeFront Office

Technology

Origination

Issuance

Sales

Trading

Trade Capture

Trade Confirmation

Product Control

ILLUSTRATIVE

Settlements

Record Keeping

Compliance

1. Disaggregation of the value chain by new entrants dominating a vertical

2. New entrants empowered by technologies disrupting the entire value chain

6

Q & A