Market_Report_INVESTMENT BANKING AND CAPITAL MARKE

InvestmentBankingandCapitalMarketsMarketReport—FirstQuarter2007May22,20071ContentsOverviewofFirstQuarter2007Results2MarketReview•Fixed-IncomeandEquityTrading9•CorporateFinanceandAdvisory16Focus:TheFXMarket24DataDefinitions33BCGInvestmentBankingContacts352ContentsOverviewofFirstQuarter2007Results2MarketReview•Fixed-IncomeandEquityTrading9•CorporateFinanceandAdvisory16Focus:TheFXMarket24DataDefinitions33BCGInvestmentBankingContacts353TheinvestmentbankingindustrymadeasolidstarttotheyearinaquartermarkedbyuncertaintyTheBCGperformanceindexrose23.5percentinthefirstquarterof2007•Onaverage,pre-taxprofitmarginsofleadingplayersdeclined1.5percentagepointswhilerevenuesincreased28.5percentoverthepreviousquarterThequarterwasmarkedbyuncertainty•Equitymarketsexperiencedasignificant,buttemporary,spikeinvolatilitytowardstheendofFebruary,emanatingpartlyfromAsia•TheUSsubprimemarketcollapsedafterrisinginterestratesandastagnanthousingmarketleftborrowersunabletomeetrepayments,sparkingconcernsaboutaspill-overeffectonthewiderlendingmarketandtheUSeconomy(theseconcernshavesincelessened)Despitethisuncertainty,investmentbankspostedstrongfirstquarterresultsFixed-incomeandequitytrading•Salesandtradingrevenueswere35.7percenthigherthanthepreviousquarterand20.7percenthigherthanthesameperiodlastyear.Equityandcreditderivativescontinuedtogrowstrongly•Lowerrevenuesfromresidential-mortgage-relatedactivitieswereoffsetbystrongerrevenuesinotherfixed-incomebusinessesCorporatefinanceandadvisory•Corporatefinanceandadvisoryrevenueswere0.4percentlowerthanthepreviousquarterbut31.5percenthigherthanthesameperiodlastyear.Despitelowerlevelsofequityunderwritingandadvisoryactivity,thepipelineremainshealthySource:BCGanalysis4IndustryperformancecontinuedtoclimbBCGinvestmentbankingperformanceindex131.596.673.395.0133.983.5133.5119.2165.3135.7193.8239.4172.4050100150200250Q2/04Q4/04Q2/05Q4/05Q2/06Q4/06Q1/07Index(Q1/01=100)2004200520062007Note:TheBCGInvestmentBankingPerformanceIndexiscalculatedbasedonaggregateprofitsoftenleadingbanksSource:Companyreports;BCGanalysis5TradingvolumesstayedstrongwhilethevalueofequityunderwritingfellTradingvolumesCorporatefinance/advisoryvolumesEquitytrading04812Q1/04Q3/04Q1/05Q3/05Q1/06Q3/06Q1/07$TM&Aadvisory20200400600800Q1/04Q3/04Q1/05Q3/05Q1/06Q3/06Q1/07$BU.S.bondtrading102004006008001,0001,2001,400Q1/04Q3/04Q1/05Q3/05Q1/06Q3/06Q1/07$BEquityorigination020406080100Q1/04Q3/04Q1/05Q3/05Q1/06Q3/06Q1/07$BEMEAAmericasAsia-Pacific1.Dailyaveragetradingvolumesfortreasuries,agencies,asset-/mortgage-backedsecurities(ABS/MBS),andcorporatebonds2.AnnouncedtransactionsSource:ThomsonSDC;WorldFederationofExchanges;FederalReserveBankofNewYork;BCGanalysis6Revenuesofleadingplayersincreasedbymorethan28percentinthefirstquarter15%20%25%30%35%40%45%50%55%60%1.02.03.04.05.06.07.08.09.010.0Revenues($B)Pre-taxprofitmargin(%)Pre-taxprofitmarginsandrevenues:Q12007vsQ42006Q1/07Q4/06Ø+28.5%Ø-1.5%Q4/06Ø:38.5%Q1/07Ø:37.0%GSMSMERDBUBSCSCitiLEHBSCJPMNote:Øcalculatedonarevenue-weightedbasis;revenueincludesinvestmentbanking,institutionalsalesandtrading,principalinvestmentsSource:Companyreports;BCGanalysis7Revenuesandprofitmarginsofleadingbanksincreasedoverfirstquarter2006results15%20%25%30%35%40%45%50%1.02.03.04.05.06.07.08.09.010.0Revenues($B)Pre-taxprofitmargin(%)Pre-taxprofitmarginsandrevenues:Q12007vsQ12006Q1/07Q1/06Ø+25.0%Ø+3.7%Q1/07Ø:37.0%Q1/06Ø:33.3%MSMERDBUBSCSJPMCitiLEHBSCGSNote:Øcalculatedonarevenue-weightedbasis;revenueincludesinvestmentbanking,institutionalsalesandtrading,principalinvestmentsSource:Companyreports;BCGanalysis8Revenuesofleadingbankswere23percenthigherthantheywereduringthesameperiodlastyearRevenuesbycompany:Q12007vsQ12006Totalrevenues1Q06Total1Q07Total$B46.911.78.938.947.858.6+20.7%+31.5%+22.7%%Change0123456789$B0607GS0607DB0607Citi0607MS0607MER0607LEH0607JPM0607CS0607UBS0607BSCCorporatefinance&advisoryrevenuesTradingrevenuesNote:NotincludingprincipalinvestmentsandotherrevenuesSource:Companyreports;BCGanalysis9ContentsOverviewofFirstQuarter2007Results2MarketReview•Fixed-IncomeandEquityTrading9•CorporateFinanceandAdvisory16Focus:TheFXMarket24DataDefinitions33BCGInvestmentBankingContacts3510TheindustryachievedsolidrevenuegrowthfromsalesandtradingactivitiesFixed-incometrading•FirstquarterrevenuesfromFICCtradingincreased33.5percentoverthepreviousquarterand20.8percentoverthesameperiodlastyear–Creditderivativescontinuedtogrowstrongly•ThevalueofMBSbondtradinggrew8.3percentoverthepreviousquarter,despitethesubprimemortgageproblems,whiletheoverallbondmarketgrewbyasimilaramountEquitytrading•Firstquarterrevenuesfromequitytradingincreasedby39.5percentonthepreviousquarterand20.4percentonthesameperiodlastyear–Marketsenduredasignificantbuttemporaryspikeinvolatility–Equityderivativescontinuedtogrowstronglyandhedgefundscontinuedtobeveryactive–Equity-tradingvolumesclimbed21.4percentinthequarter,asmarketsrecoveredsubstantiallyacrosstheglobeSource:BCGanalysisFixed-incometrading11Revenuesfromfixed-incometradingincreasedby34percentinthefirstquarterU.S.weeklyaveragebo