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CONTENTS

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June 2012

www.ibisworld.com | www.ibisworld.com.au | www.ibisworld.co.uk | www.ibisworld.com.cn

IBISWorld Industry ReportJ5511-GL

Global Commercial Banks

June 2012

About This Industry ................................. 2Industry Definition ........................................ 2Main Activities ............................................. 2Similar Industries ......................................... 2

Additional Resources ................................... 3Industry Performance .............................. 4

Executive Summary ..................................... 4Key External Drivers .................................... 4Current Performance ................................... 5Industry Outlook .......................................... 9Industry Life Cycle ....................................... 12

Products & Markets ................................. 13Supply Chain ............................................... 13Products & Services .................................... 14Demand Determinants ................................. 17Major Markets .............................................. 18International Trade ...................................... 19Business Locations ...................................... 20

Competitive Landscape ........................... 23Market Share Concentration ........................ 23Key Success Factors ................................... 23Cost Structure Benchmarks ......................... 25

Basis of Competition .................................... 27Barriers to Entry ........................................... 28Industry Globalization .................................. 29

Major Companies .................................... 30Bank of America Corporation ....................... 30JPMorgan Chase & Co. ............................... 31HSBC Holdings plc ...................................... 33Citigroup Inc. ............................................... 34Industrial and Commercial Bank of ChinaLimited ......................................................... 35Other Players .............................................. 36

Operating Conditions .............................. 37Capital Intensity ........................................... 37Technology & Systems ................................ 37Revenue Volatility ........................................ 38Regulation & Policy ..................................... 38Industry Assistance ..................................... 39

Key Statistics ........................................... 40Industry Data ............................................... 40

Annual Change ............................................ 40Key Ratios ................................................... 41Jargon ......................................................... 41

Global Commercial Banks


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WWW.IBISWORLD.COM Global Commercial Banks June 2012 2

About This Industry

Industry Definition

This industry comprises of banking enterprises that provide commercial, industrial and consumer loans aswell as offering deposit facilities to their customers. These corporations also accept term deposits, extendmortgage and real estate finance and invest in high-grade securities. Included in this industry arecommercial banks, foreign banks, savings and loan associations, credit unions, thrifts and other savings

banks.

Main Activities

The primary activities of this industry are:

Accepting demand and other deposits

Accepting time deposits

Investment in high-grade securities

Making commercial, industrial and consumer loans

Making mortgage and real estate loans

The major products and services in this industry are: Consumer deposits

Commercial deposits

Secured consumer loans

Secured business loans

Other non-interest income

Other loans

Other deposits

Similar IndustriesJ5521-GL - Global Investment Banking & Brokerage

Establishments in this industry engage in underwriting, originating and maintaining markets for issues ofsecurities.


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Additional Resources

For additional information on this industry:

www.imf.orgInternational Monetary Fund

www.fdic.gov

Federal Deposit Insurance Corporation

www.thecityuk.comTheCityUK

www.federalreserve.govUS Federal Reserve


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Industry Performance

Executive Summary

Banks perform a vital role within the markets they operate in, providing businesses, consumers andgovernments with access to financial products and services. They ensure the sustainability of the financialsystem by bringing together lenders and borrowers, which allows for the flow of funds.

The collapse of the US subprime mortgage market and consequential global recession shook the world'sfinancial system and threatened to destroy the core foundations that the financial system relies on tofunction. Throughout the world, banks suffered unprecedented losses as their loan loss provisionsskyrocketed due to their borrowers becoming unable to repay debt obligations. Coupled with this, banks

wrote off billions of dollars worth of assets, as values depreciated, during a time when the cost of fundingrose sharply due to credit availability disappearing. As a result, over the five years to 2012, the GlobalCommercial Banking industry is projected to decline at an annualized 1.2% to $5.14 trillion. In 2012,marred by persistent uncertainty surrounding the eurozone economy and slightly slower economic growthin China. Consequently, industry revenue is forecast to grow by a subdued 5.3% in 2012.

Looking ahead, the industry is set to fare well albeit at a slower rate compared with pre-crisis period. Banksoperating in developed economies are expected to perform better as deferred business and capital

expenditure moves forward. Banks in emerging markets held up well during the crisis and opportunitiesexist for large global banks operating in mature markets to expand into these regions and benefit from thegrowth that is expected to occur in the coming five years. Over the five years to 2017, industry revenue isexpected to increase 3.8% annually to $6.18 trillion.

Key External Drivers

The key sensitivities affecting the performance of the Global Commercial Banks industry include:

Economic Indicators - Investor ConfidenceInvestor confidence relates to consumers' and businesses' expectations regarding the opportunities thatexist in the market place to yield significant returns from their investment activities. If investors believe

that investments exist which will yield the required rate of return, given their investment horizon and therisks inherent, then they will seek finance to make those investments. Thus, as their confidence improves,the amount of finance they demand rises which translates into more lending for the banks from which they

yield interest income and fee and commission income.

Industrial Production IndexThe Industrial Production Index (IPI) measures the pulse of economic activity within its componentsectors, which make up a sizeable share of the total US GDP. Therefore, the index is closely followed asmeasure of total business activity and overall economic health. This driver is expected to increase in 2011,

but is a threat to the industry as it will not increase at the same rate as 2010.

Interest Rates - Bonds

Effectively, interest rates represent the cost of money. Therefore, as interest rates rise, consumers' andbusinesses' demand for borrowing falls, as it becomes relatively more expensive to attain funding.However, when interest rates are high, the loans that are issued attract more interest income. So, althoughtheir volume of loans issued falls, the amount of revenue generated does not fall necessarily as it dependson the change in interest rates, the magnitude of the fall in demand and the amount of revenue that theiroutstanding loans accumulate.

Stock Market Performance - Key IndicesThe performance of equity markets affects both the demand for bank lending and the quality of banks'lending portfolios. A positive development in the stock market will generally result in increased lending


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due to the wealth effect of rising share prices - investors feel wealthier and may therefore increase theirdemand for credit. Rising stock prices will also impact on the quality of the lending portfolio because

borrowers have an increased ability to meet repayments. Conversely, a fall in share prices will have anegative impact on borrowers' ability to service debt, resulting in increased risk for banks. This risk is oftenaccentuated by the fact that the demand for credit tends to rise with rising asset prices.

Total Value of Construction Put in PlaceThe performance of property markets affects the demand for bank lending products and the quality of the

banks' lending portfolio. The number of housing starts is an indicator of the overall performance of theresidential property sector, which is important because mortgages make up a large portion of banks'lending portfolios. This driver is expected to increase in 2011.

World GDPEconomic activity and interest rates have an influence on the level of savings, demand for credit, thequality of lending portfolios and the volume of financial transactions. Consequently, increased economicactivity, i.e. GDP growth, tends to result to an increase in global banking revenue. This driver is expected toincrease in 2011, representing an opportunity for the industry.

Current Performance

Over the five years to 2012, revenue in the Global Commercial Banks industry has decreased 1.2% annually

to $5.14 trillion. There have been three distinct phases over the past five years. First in 2007, the industryreached the pinnacle of its growth. Second, a sharp downturn in the global economy due to the subprimeand housing crisis in the United States. Lastly, an emergence of an economic recovery in many parts of the

world over the course of 2010 and 2011 facilitates a slow return on the path to prosperity. However,persistent uncertainty in the eurozone is forecast to impede growth in 2012. Industry revenue is expectedto grow at a subdued rate of 5.3%.

Good timesThe collapse of the US subprime mortgage market in mid-2007 put a sudden end to what had been aprosperous period for banks around the world. In the lead up to the crisis, banks operated in an economicenvironment of strong growth, with rising asset prices. Global stock markets continued to climb, reflectinghigher corporate profits. Meanwhile, real estate values boomed, driving up household wealth. Combined

with low interest rates, the combined result saw the demand for loans peaking as businesses andhouseholds went on a debt binge.

Allowing this to happen was a relaxation of lending standards by the banks as they faced more competitionfrom other lending institutions. In the process, banks neglected their risk management practices. As aresult, much of the growth experienced occurred because of growing fault lines that ran throughout theglobal financial system. This was exemplified in the United States more so than anywhere else. Thecollapse of the US subprime mortgage market came about as loans were issued to individuals who, inretrospect, should never have been able to borrow as much funds as they did. As much as the borrowersthemselves were to blame, ultimately it was the financial institutions, like the banks, that caused their owndemise having become highly leveraged and chasing debt-fuelled returns.

From crisis to crisisOver 2008, bank write-downs continued to mount. The most hurt were those banks heavily involved in thepurchase, repackaging and onselling of subprime loans. The collapse of Bear Stearns in March 2008, a firmheavily involved in the securitization of mortgages, was induced by large write-downs and a loss of marketconfidence. This loss of confidence in the banking system grew as the size and number of banksannouncing losses increased. Banks announcing quarterly losses over the first half of 2008 grew to includenot only investment banks but also many of the larger banks that had purchased these debt products.

In September 2008, Lehman Brothers announced its bankruptcy, which led to a complete loss ofconfidence in the global financial system. A string of financial institutions faced collapse. Governments in


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developed countries hastily stepped in to support a suddenly fragile financial system, pumping billions ofdollars in stimulus packages just to keep it functioning. Banks virtually stopped lending and the creditmarket froze. Activity in financial markets shuddered to a halt, signaling the end of securitization withinvestors pulling their money out of the market as quickly as possible. Stock markets around the globeplunged and entire economies faced downturn as a result. The global financial crisis had arrived.

Asset write-downsThe write-down of assets in the global banking system was huge. From the third quarter of 2007 to the end

of 2008, the Global Commercial Banks industry is estimated to have experienced about $750 billion inwrite-downs. Approximately 10 financial institutions, mainly banks, were responsible for over half theselosses. Although the largest share of asset write-downs originated in the United States, the global nature ofthe banking system resulted in banks across the globe having exposure to these assets.

Initially, the write-downs in assets that banks recorded on their balance sheets were those associated withUS subprime mortgages. As time went on and conditions worsened, the effects spread and a broader rangeof assets depreciated in value. These included residential and commercial mortgages, consumer andcorporate debt and investments held on banks' balance sheets.

Write-downs continued to be a problem for banks throughout 2009, but they were brought under controlsomewhat in 2010. The International Monetary Fund (IMF) forecasts that potential write-downs onmature market credit for global market participants will reach $4.1 trillion. Of this, $2.5 trillion isestimated to be attributable to banks around the globe for the period from 2007 through 2010. Moreover,

banks are expected to face a further $340 billion in asset write-downs through their exposure to emergingmarkets. Together, this brings total expected asset write-downs to $2.8 trillion for the global bankingsystem.

Loan lossesThe events that unfolded in the United States in mid-to-late 2007 caused many countries around the worldto experience an economic downturn of some sort, while many others battled recession. As a result, bankssaw the rate of delinquencies, bankruptcies and charge-offs rise drastically as corporate and individual

borrowers encountered financial difficulty and failed to service their debt obligations.

Many people found themselves without a job as unemployment rose and continued to rise in many

countries. This made it difficult for borrowers to repay their debts and made it impossible for them to beissued with new debt, particularly because banks' lending standards tightened. Consequently, businessessaw demand drop, as people no longer had the financial capacity to purchase as much as they were able toin the past. As a result, corporate profits declined; with many being highly leveraged, they too found itdifficult to pay down their debts.

Over the course of 2008 and 2009, banks incurred unprecedented loan loss provisions. In the first threequarters of 2009, US banks set aside more than $173.3 billion for loan loss provisions, equivalent to morethan one-third of their total revenue. During the same period, they charged off close to $124 billion inloans issued. This is in addition to that set aside for loan loss provisions. Comparing this with the sameperiod a year ago, loan loss provisions grew in dollar value and as a percentage of total revenue. Given thatthey generally increase when economic growth stunts and unemployment rises, IBISWorld estimates loan

loss provisions continued to rise into 2010. According to Moody's global speculative-grade, corporatedefault rates reached 8.3% in April 2009, up from 1.7% in April 2007. By the end of 2009, Moody'sestimated that corporate default rates reached about 15%; thus, continuing to eat directly into banks' profitmargins.

Role of governmentThe attitude of governments in developed economies toward direct intervention in the banking systemunderwent an abrupt reversal following the bankruptcy of Lehman Brothers. The liquidation of the

banking conglomerate triggered mass hysteria in the world of finance and confidence plunged. With that,


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the global banking system went into a downward spiral that forced governments to intervene in order tominimize losses and restore stability.

The primary concern of governments was to provide capital to banks under financial distress to allow themto recover, which was expected to restore confidence and stability. Taxpayer funded initiatives, such asproviding banks with access to funds and direct capital injections, government guarantees on deposits and

various forms of bank debt, were some of the ways that governments intervened. However, theirapproaches to dealing with the problems associated with toxic assets have differed between countries. The

US Government introduced a raft of packages to support the banking system, the most recent wasannounced in February 2009, named the Financial Stability Plan, which proposed a private-publicpartnership to purchase impaired bank assets. Meanwhile, the UK Government has guaranteed to limit theimpact of further losses on banks. The Swiss and Irish governments took yet a different approach, placingassets considered at risk of being written-down into a separate asset management company.

Most governments had to inject billions of dollars into specific banks at risk of collapsing or facingbankruptcy due to the size of losses incurred and their exposures. In many cases, this involvedgovernments taking an ownership stake in banks, particularly in Europe.

The German Government took a 25% stake in the Commerzbank after it experienced losses following theacquisition of Dresdner Bank. The UK Government committed about $2.2 trillion to bolster the nation's

banking system through various measures. Beyond that, it nationalized Northern Rock PLC and Bradford& Bingley PLC. In October 2008, the British Government partially nationalized the Royal Bank of Scotlandand the newly merged HBOS-Lloyds TSB. Then, in January of 2009, the government increased its stake inthe Royal Bank of Scotland to 70%. Meanwhile, several European governments took a stake in Fortis NV, aDutch-Belgian bank, as the Irish Government nationalized the Anglo Irish Bank.

In the United States, a similar trend occurred with the US Government having provided capital injectionsto nine of its largest banks over the course of 2008. It also provided guarantees against pools of assets that

were vulnerable to large losses, as in the cases of Citigroup and Bank of America, both of which receivedabout $45 billion in assistance.

According to the IMF, the various measures introduced by governments around the world to restore capitalstrength in their respective financial systems are estimated to have cost taxpayers a combined total of $8.9

trillion. This includes the provision of liquidity facilities, asset purchase schemes and guarantees on bankdebt issuances.

Mergers and acquisitionsThe banking assets of the global banking system have been reshuffled and it is not over yet. Banks insearch of capital have sold parts of their business or have retreated from their overseas operations. Othersare acquiring or merging with competing banks as they look for greater economies of scale to reduce costsand to increase the size of their retail deposits.

In 2008, the majority of mergers and acquisitions occurred out of necessity, in the fight for survival.However, 2009 saw more strategic mergers and acquisitions take place as management looked to placetheir banks in a competitively advantageous position where they could stand to benefit from the changed

operating environment.

Much of this restructuring involved US investment banks, which have now become part of the commercialbanking system through mergers or acquisitions. The largest deals to date include the takeover of MerrillLynch by Bank of America, the acquisition of Wachovia by Wells Fargo, and in the United Kingdom themerger of Lloyds TSB with HBOS. One of the largest bank failures in history occurred in September 2008

when Washington Mutual was placed into receivership and sold to JP Morgan Chase. Investment banksMorgan Stanley and Goldman Sachs converted to a bank holding company structure, which allowed themto expand their retail banking operations and grow their retail deposit base.


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Although the Global Commercial Banks industry was already undergoing consolidation, the occurrence ofthe global recession acted as a catalyst to this, accelerating the process. This caused industry enterprisenumbers to decline 2.1% per year to 54,674, in the five years through 2012.


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Industry Outlook

Over the next five years, the Global Commercial Banks industry will experience moderate results. Annualrevenue growth of 3.8% is expected in the five years through 2017, with revenue reaching $6.18 trillion. In2013, industry revenue is expected to increase 6.0%. However, profit margins are expected to narrow dueto stricter capital requirements and further regulation that will restrict the undertaking of risky activities.

Availability of capitalFor the post-global recession business environment, IBISWorld expects drastic changes to occur in the

landscape that banks will be operating in throughout the world. One of the major changes will be thereduction in the amount of capital that banks will have access to. Although governments spent up big inorder to bail out their domestic banks, and protect their entire financial system and wider economy fromcollapsing, their capacity to do so in the future has reduced drastically. Many governments slid from havinga current account surplus to a deficit, while others moved from a small deficit, deep into debt. For thisreason, expected changes will aim to prevent future collapses, as the global economy cannot afford to

withstand another shock of this magnitude.

Among the changes expected are regulatory enactments that will increase disclosure of informationrequirements and enhance transparency. This will allow for more accurate risk assessments to beconducted, which will enable credit agencies and regulatory bodies to quickly identify companies with thepotential of encountering financial distress. It will also act as a good indicator to the company itself that its

risk levels are too high. In the process, confidence in valuations, methodologies and assumptions willimprove, making for a far more complete and sustainable financial system.

Banks already began to hoard capital and boost their capital reserves in response to the market's greatersensitivity to risk. Regulatory changes also necessitated this. Beyond that, banks are going throughdeleveraging process, which is expected to continue over the next couple of years. Deleveraging willcontinue until debt falls in line with managements' target bands where it is more sustainable and wouldallow the company to shield itself from any unexpected, catastrophic events like those of the financialcrisis.

The catastrophe that the collapse of the US subprime mortgage market brought on effectively putsecuritization out of business. Currently, government bodies make up the greatest proportion of investors

participating in securitization markets. Over the coming five years, securitization will return to prominenceas investor confidence builds and participation rates increase. However, the dollar value of assetssecuritized and, therefore, the size of the market are expected to be lower than previously. Thus, banks willrely less on securitization in accessing capital, with retail deposits becoming fundamentally important.IBISWorld expects to see further consolidation occurring because of this, with banks looking to grow theirnetworks and customer base in order to cover more of the market and attract a larger proportion of retaildeposits.

The battle for retail deposits will intensify throughout the next five years as banks look to attract customerdeposits by offering attractive rates on their deposit accounts and reducing fees charged. As a result, duringthe five years through 2016, the lending growth rates of banks will be linked to growth in their retaildeposits, which may act as a constraint, prohibiting lending due to a lack of funds, causing demand forloans to exceed supply.

New banking structureThe importance of retail deposits to commercial banks over the coming years will reshape the industry.Much of the consolidation activity that took place in Europe and the United States provided theopportunity for some large banks such as Wells Fargo and JP Morgan to increase their access to retaildeposits and enlarge their branch networks.

The range of services and products provided to customers is an important feature in attracting newcustomers and maximizing the value obtained from these customers. Banks are likely to increasingly offer


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their customers a range of banking and wealth management services and products. The cross selling ofproducts to clients allows banks to introduce clients to products that may have a higher profit margin thansimple deposit accounts. It also allows banks to gain economies of scale on the high fixed cost of anextensive branch network. While the growth in wealth management and cross selling of products is alreadyapparent, it is expected to grow in importance over the coming years.

Regions of noteBanks within many emerging economies escaped much of the damage metered out to banks in developed

economies. They have been far less exposed to subprime-related assets. Many of the BRIC (Brazil, Russia,India and China) banks already operate in regulatory environments that are relatively conservative.Household savings ratios are higher and leveraging by businesses is lower. Although these banks may needto adjust to declining asset values, they are less exposed to large losses and will continue to operate asusual in the coming five years.

Boding well for banks in the emerging economies is the strong economic growth forecast to occur in theseeconomies in the five years ahead. Having financial markets that are in the growth stage of their life cyclemeans that capacity exists for the development of more complex products and services. With time, banksin these markets will offer a wider array of products and services to the market, which will see them expandthe range of sources that they derive revenue from. Furthermore, cross selling of products will become amajor strategy for increasing sales volume as a single customer can be sold multiple, complimentaryproducts at the one time. For example, a bank issuing a mortgagee with a loan for the purchase of a homecan also sell them house and contents insurance. Thus, both interest related and non-interest relatedactivities are expected to generate more revenue for banking enterprises, which will see the industrygrowing in these regions.

Due to the potential for growth within emerging markets, large, global commercial banks are expected toresume their pre-crisis plans of expanding operations. IBISWorld expects the potential of these markets tolure many back as soon as they regain the capital strength to do so. Tapping into these markets offers

banks, particularly those operating in the mature markets of North America and Europe, the chance toshare in the growth that these markets are expected to undergo. Consequently, those that manage toexpand into these markets successfully and take ownership of a significant share of the market will be ableto outperform their domestic peers.


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Industry Life CycleThis industry is in the mature stage of its life cycle.

Life Cycle Stage

Life cycles vary across geographic regions

The number of banks is in decline

The industry is undergoing consolidation

The largest banks operate globally

Banks in different regions of the globe are at different stages of their life cycle. Banks in developedcountries are at a mature stage of their life cycle, reflecting the large and mature financial systems in whichthey operate. Banks in some of the emerging economies are in the growth phase of their life cycle. Theyhave great potential to expand the range of products and services on offer to both households and

businesses. Over the 10 years to 2017, industry valued added is expected to increase 1.3% annuallycompared to World GDP which is expected to increase 5.5% annually.

For banks, one of the most important determinants of their future growth is the level of economic growth.This influences household disposable income, savings and spending. It also drives business borrowing andinvestment. Over the ten years from 2006 through 2016, the North American region experienced an

average annualized decline in industry value added of 2.6%. This compares to the Indian and Central Asianregion's annualized growth of 10.2% over the ten-year period. Over the next five years, banks in developingeconomies are expected to grow at a faster rate than their US and European counterparts.

However, given the current dominance of the mature European and US banks, the overall industry isconsidered to be in its mature phase. The global financial crisis has accelerated many of the trends alreadypresent in this mature industry. Increasing consolidation has been underway for many years, driven bytechnological development. There has also been increasing convergence as individual banks offer a widerrange of services to consumers and business. With the demise of the large stand-alone investment banks,investment banking services have now entered the domain of commercial banks. Emerging from thecurrent crisis will be a few very large global financial institutions that offer a wide range of products andservices across many countries.

Some of the effects of the financial crisis are expected to extend beyond the recovery of bank revenue andprofits. The current crisis has seen some US and European banks reduce the reach of their globaloperations. This has been driven by the scarcity of capital, with banks either conserving capital fordomestic markets or selling overseas assets to raise capital. A more lasting change is the introduction ofgreater regulation, which may constrain the growth of banks in developed economies in years to come.Likewise, the part-nationalization of banks in the United States and Europe may act as a constraint onfuture growth.


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Products & Markets

Supply Chain

Key Buying Industries

Z01 - Global ConsumersConsumers are the major demand linkage for banks, as they require various loans and product servicing.

Key Selling Industries

Z01 - Global ConsumersNot only are consumers demand linkages through loans, but they also provide a significant funding sourcefor banks through deposits. Therefore, they are a key supply linkage.


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Products & Services

Commercial deposits 24.0%

Consumer deposits 28.0%

Other deposits 4.0%

Other loans 4.0%

Other non-interest income 6.0%

Secured business loans 15.0%

Secured consumer loans 19.0%

Commercial banks across the world primarily earn revenue and profits by accepting deposits and lendingfunds from these deposits. The industry therefore provides both products and services. The servicecomponent of the industry includes all the deposit accounts they provide, including savings deposits fromsmall-time consumers to large deposits from corporate clients. Banks provide various other servicingactivities, but deposits constitute the bulk of the sector. The product component of the industry is where

banks generate their income. By offering various loans to consumers, they are able to generate interestincome. Furthermore, banks also invest deposits in various markets to generate capital gains.

When combining the two products and services, deposits constitute the core activities for a bank, as theysign up customers and create bank accounts. This represents a significant amount of time because theyalso service and manage these accounts. Although these deposits are the essential source of funds in orderto generate income, they are actually an expense for banks, as interest expenses are paid to depositors.

While this is the case, it is an essential activity. Deposits generate the bulk of their funds and they are able

to charge higher premiums on the loans they make as opposed to these deposits they receive. The followingdiscussion revolves around both the services (deposits) and products (loans) that the commercial bankingindustry undertakes.

Deposits

While the industry generates income from interest and non-interest bearing activities, commercial bankswill also provide the services of deposit accounts. Deposit products provide a relatively stable source offunding and liquidity for commercial banks. Firms will earn interest revenue from investing deposits inearning assets, through client facing lending and asset and liability management activities. Deposits alsogenerate various account fees such as non-sufficient fund fees, overdraft charges and account service fees,

while debit cards generate interchange fees. Interchange fees are volume-based and paid by merchants to

have the debit transactions processed.

As deposits do not generate revenue and are actually an expense, it is difficult to include them in thissegmentation. Nonetheless, they do constitute an important business activity, as they tend to service themajority of their loans. Rather than segmenting this industry by revenue (therefore excluding deposits),they have been included through the time spent handling and managing, and through their importance tothe industry. It is therefore estimated that deposits account for about 60% of the industry's activities.

Deposits will generally include traditional savings accounts, money market savings accounts, certificates ofdeposits, individual retirement accounts, time deposits, core retail deposits, and regular and interest-


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checking accounts. It is estimated that household savings contribute the majority of deposits, hence theirmarket share of 28% of the industry. Meanwhile, the second most significant deposit category is fromcorporate clients, at about 24% of the industry's activities. Other deposits are from governmental agenciesand various other business sectors, representing a mere 4% of industry activity.

Income sources

Banks generate income both from interest and non-interest earning activities. The interest earning

activities are the core area of revenue generation, and include the interest earned on loans, from mortgagesto credit cards. Non-interest income on the other hand is generally obtained from fees, charges andcommissions.

The majority of lending within this industry relates to consumer lending. More specifically, it revolvesaround secured lending, such as vehicle loans and residential mortgages. Mortgage products are typicallyavailable to customers through a commercial bank's retail network, geographic branch centers, andthrough sales account executives and sales force personnel who offer customers direct telephone andonline access to products. Firms will also serve customers through any partnerships they may have with

various mortgage brokers.

In general, mortgage product offerings are for home purchasing and refinancing needs, where thesemortgage products will have fixed or variable rates. Commercial banks will manage these mortgageportfolios through their balance sheets for asset and liability management purposes, or, as increasingly

being observed, repackaged into products and then on-sold into the secondary mortgage market toinvestors (i.e. collateralized debt obligations and securitization) - while still retaining customerrelationships.

The mortgage business includes the origination, fulfillment, sale and servicing of first mortgage loanproducts. Servicing activities primarily include collecting cash for principal, interest and escrow paymentsfrom borrowers, and accounting for and remitting principal and interest payments to investors and escrowpayments to third parties. Servicing income includes ancillary income derived in connection with theseactivities, such as late fees. Overall, secured consumer loans account for about 19% of the industry'sactivities (but constitute a significantly greater share when representing revenue generation as depositsare included in the segmentation).

Regarding business lending, this includes a range of lending-related products and services offered tofinancial businesses and non-financial businesses. These are primarily offered to customers through clientrelationship teams and various product partners that are associated with the commercial banks. Productsinclude commercial and corporate bank loans and commitment facilities, which will cover business

banking clients, middle market commercial clients, and large multinational corporate clients. Real estatelending products are likely to be issued to public and private developers, home builders and commercialreal estate firms. Products also include indirect consumer loans, which allow firms in the commercial

banking industry to offer financing through automotive, marine, motorcycle and recreational vehicledealerships across the United States.

Business lending is dominated by loans to non-financial businesses, and revolves around secured business

loans. IBISWorld believes that these secured loans include loans for production equipment, warehousemachinery, and structures and buildings. Interest income is the main source of revenue for firms thatprovide these types of loans, with origination fees making up the remainder. Loans to financial businessesaccount for a smaller proportion of revenue compared to that of non-financial businesses. These loans aretypically short-term borrowed money loans, with interest income being the main source of revenue. Thesesecured business loans account for about 15% of the industry's activities. However, they once againconstitute a significantly greater share when representing revenue generation as deposits are included inthe segmentation.


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Other lending activities include home equity loans, and other unsecured interest income activities such aspersonal lines of credit.

Finally, the other non-interest income activities for the commercial banking industry include servicingfees; financial planning; insurance commission fees; securitization fees; net gains on sales of loans, realestate and other assets; investment banking, advisory, brokerage and underwriting fees; venture capitalrevenue; and various other fees. Servicing fees are the major part of the other non-interest incomecategory, which includes the reported income from servicing real estate mortgages, credit cards and other

financial assets held by the industry's customers. In total, these revenue streams account for about 6% ofthe industry's activities.


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Demand Determinants

DepositsAffecting the demand for deposit facilities banks offer to their clients is the real after-tax investment returnthey generate. When deciding to deposit funds with a bank, customers will compare alternative investmentoptions and the returns they offer given the risks inherent.

Traditionally, investments in deposit and savings accounts have been regarded as a relatively low risk

investment when compared to stocks and real estate. Thus, people with a risk-averse attitude are morelikely to demand such products. Moreover, any volatility in equity prices, falls in corporate profits or aslowdown in economic activity can affect investor confidence and increase the demand for deposits, asinvestors look to minimize risk and protect their wealth.

Loans/advancesLoans are a form of debt financing. The demand for loans is determined by the real after-tax cost of debtrelative to other sources of funding, i.e. capital raising through equity issuance. Generally, the interest ratecharged on a loan represents the cost of money to the borrower. As such, any increase in interest rates willtranslate into a fall in demand for debt financing because it becomes relatively more expensive to borrow.

Negatively affecting the demand for loans although in a less direct way than an interest rate increase

include an economic downturn, rising unemployment, declining wages, asset value depreciation and/or afall in investor/business confidence. All of these factors affect the ability of households and businesses totake out a loan and to service it in the subsequent period.

The trending behavior of borrowers has also emerged as a significant factor affecting the demand for loans.With households going on a debt binge for much of this decade leading up to the global financial crisis, thedemand for loans skyrocketed. Since then, demand has curtailed as more difficult economic conditionshave caused consumer behavior to change, resulting in many aiming to reduce their level of indebtedness.From a business perspective, the development of securitization markets around the world has seencorporate banking clients bypassing the banks, raising debt capital directly through financial marketsthrough the issuance of commercial paper and corporate bonds.

OtherOther factors which influence the demand for banking products and services include competitiveness ofbanks in key market segments relative to other financial institutions, and more commonly, non-traditionalsuppliers; accessibility of distribution networks and diversity of product/service offering to meetcustomers' needs; and the general cost to consumers of maintaining accounts (i.e. fees).


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Major Markets

Consumer and retail customers 45.0%

Small businesses, corporations and institutions 35.0%

Governmental clients 15.0%

Other 5.0%

Consumer and retail customers

The consumer and retail customer market segment is expected to account for the largest part of acommercial bank's customer base. Although these customers most often deal in relatively small transactionsizes, the sheer proportion of customer numbers makes this market segment significant.

Consumer and retail customers provide a substantial amount of deposits for commercial banks, whereaccount keeping fees and investments made on the deposits make these customers highly profitable.Furthermore, with the high degree of competition in the Global Commercial Banking industry, the abilityto attract and retain these customers is considered essential. If a commercial bank has a satisfied base ofretail customers, they are then able to market various other products and services to them at minimalcosts. For example, banks may entice customers to branch out from their primary banking activities(deposits) into mortgage products, fund management services, credit cards, and other banking sectors

within that specific company.

Small business, corporate and institutional clients

Unlike the aforementioned market segment, small businesses, corporate and institutional clients will dealin a much larger scale of transaction value. Although there may be fewer clients in this category, theirdollar value of dealings is substantially larger. Corporate clients require large forms of business lending,and they too deposit cash into commercial banking accounts.

Generally, larger corporate and institutional clients will deal with commercial banks whose assets aregreater than $1 billion. According to data from the Federal Deposit Insurance Corporation, commercial

banks with assets in excess of $1 billion had a greater exposure to commercial and industrial (C&I) andcredit card loans. On the other hand, commercial banking institutions with less than $1 billion in assetshad a greater exposure to residential mortgages, commercial real estate and agriculture loans.

IBISWorld believes that this market segment accounts for 35% of the industry.

Governmental clients

Commercial banks in this industry provide loans to and accept deposits from government institutions.Loans will vary across regions and governmental departments, but tend to be similar to other market


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segments and can include various types of real estate lending, personal loans, auto loans, and various othergovernmental-type loans.

Other

Customers in the "Other" market segment demand a range of other products and services. The Othercategory holds only a small market share, and generally involves a once-off, niche type of transactionalservice. These customers can often be involved in student loan services, retirement services, auto finance,

and other forms of real estate.

International Trade

Exports in this industry are low and steady.Imports in this industry are low and steady.

The level of trade within the commercial banking industry is insignificant. Activity by individualcommercial banks outside their domestic market generally occurs through the establishment ofsubsidiaries domiciled in the foreign markets. Liberalization and leveling of regulatory and legislative

barriers across the globe has resulted in a lowering of entry barriers into foreign banking markets.


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Business Locations

Region %

Europe 47.4

North America 22.6

North Asia 6.1

India & Central Asia 6.0

Africa & Middle East 5.1

South America 4.4

South East Asia 4.4

Oceania 4.0

Three regions dominate the Global Commercial Banks industry: Europe, North America and North Asia.The geographical distribution of bank assets reflects both the degree of deregulation and the developmentin financial and capital markets. The relative shares have started to even out as developing nations areadvancing and as the globalization of the banking industry continues. The commercial banking industrystill has a considerable way to go yet before becoming completely globalized, and as this trend continues,the three regions' shares of global bank assets is expected to diminish. The following discussion outlinessome of the features of the geographic spread of these three regions.


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EuropeThe European region is solely responsible for generating more than half of the industry's total revenue.IBISWorld estimates that in 2011 it will account for 47.4%. Although remaining the most important regionfor this industry, its significance has declined considerably over the last two years, having held a 55.1%market share of total industry revenue in 2008. The main contributing factor to this has been the financialdistress many European banks have faced as a result of the global financial crisis which saw large increasesin loan loss provisions, charge offs and a considerable increase in the cost of funding. At the same time, the

majority of European countries have suffered an economic downturn is some shape or form which has seendemand for banking products and services fall from levels experienced in the years prior.

Of course, for the European region to lose ground to other regions around the world, means that they havebeen more affected by the global financial crisis and/or that it is taking banks in that region longer torecover from the downturn. According to IBISWorld, regions around the world that have noticeablyincreased their market share of total industry revenue at the expense of Europe include India and Central

Asia, Africa and Middle East and North America.

However, countries within Europe that contribute significantly to the revenue generated include those ofthe United Kingdom, responsible for around 27% of the region's revenue, Germany, accounting for some16.5% and France, with a share of around 11%.

In terms of assets, the European region is also the most dominant having an estimated market share of55.9%, in 2010. As with revenue, the total value of assets under the control of European banks has declinedconsiderably, falling from $67.6 trillion in 2008 to $62.8 this year. This has occurred on the back ofdepreciating asset values and through the contraction in the size of their loan books.

With economic conditions deteriorating and investor confidence plummeting, asset values dipped sharplyas observed through the decline in share market indices and deflated real estate prices. Consequently,consumer and business confidence fell along with their wealth. Combined with rising unemployment,many borrowers forfeited on loans issued, while demand for borrowing dropped, which resulted inEuropean banks' loan portfolios deteriorating in value and size.

In regards to enterprise numbers, Europe is a much less significant region in the global context given its

dominance with respect to total industry assets and revenue. IBISWorld analysis suggests that the reasonfor this is due to Europe's general integration and proximity of countries, which reduces the desire ofpotential entrants into the market place establish themselves in a highly competitive region, within amature and saturated market. IBISWorld estimates that Europe is home to 14.8% of total industryenterprises, making it the third largest region globally.

North AmericaThe North American region generates an estimated 22.6% of total industry revenue, making it the secondmost significant region in the world. Within this region, the United States is of crucial importance beingthe global financial hub that it is, where the majority of the region's banking activities are conducted.Coupled with this, North America also accounts for a large portion of global banking assets, estimated to be16.1%, housing 29.1% of the industry's enterprises.

More and more the North American region, the United States in particular, is becoming less dominant interms of its share of global banking activity. Being a relatively mature market, it is falling behind emergingmarkets where economic growth and the demand for banking products and services is booming, as

witnessed in China and India. The subprime collapse and the global financial crisis that ensued have madematters worse, having had a far more profound and detrimental effect on banking activity within the North

American region than any other part of the world. Many American banks have had to write off billions ofdollars in assets, whilst the economy wide impact these events have had resulting in far less revenue beinggenerated as banking activity fizzled out. Looking ahead, the recovery is expected to be far morechallenging for banks operating in the North American region than those in other parts of the world.


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Therefore, it is expected that further ground will be lost, with the region becoming less significant. Havingsaid this, the United States will continue to be a focal point of global banking activity from a long-termperspective and any losses in overall market share are expected to be minimal.

North AsiaBased purely on geographic size, the North Asian region is the largest in the world. Comprising of countriessuch as China, Japan, Korea and Hong Kong, it accounts for the greatest percentage of industryenterprises, estimated to be around 40%. Creating the need for the existence of a large number of

enterprises is the demand emanating from China's population of 1.3 billion people who are locatedthroughout the country, in both, urbanized and remote regions. To effectively capture the market bankingenterprises of all sizes operate throughout China, with the majority being small co-operative type

businesses.

China and the North Asian region also account for a large proportion of the industry's total assets havinggone through a period of rapid growth over the last five years. On the back of this growth, three of China's

big-four state owned commercial banks have risen into the top 10 global banks in terms of assets undermanagement. Looking ahead a further five years growth of a similar scale is expected which is expected tosee the nation's banks grow their asset base and become even bigger, increasing the regions significance interms of assets owned. Other main reasons why China has a high asset base are due to government controlover foreign exchange flows, central bank intervention restrictions and the competitive nature ofmarketplace in which they operate.

A point to note is that, although the North Asian region is the largest in terms of enterprise numbers, withthe second largest asset base accounting for 18.4% of the industry's total, its significance in terms ofrevenue is comparably small. Despite the size of the market, the relative underdeveloped nature of theregion's banking product and service offering impedes on its ability to generate substantial gains inrevenue from a global perspective. IBISWorld analysis shows that although the region is experiencingstrong growth overall, its accountability, as a percentage of total industry revenue, is unlikely to grow at thesame pace. This is because more mature economies, like those of Europe and North America, are far betterequipped to develop innovative ways to grow their revenue sources and retain their dominance in a globalmarket place. Nevertheless, the North Asian region holds a 12.1% market share of total industry revenue,

which is expected to increase slightly over the next five years.


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Competitive Landscape

Market Share Concentration

Industry concentration is low.

Commercial banking globally displays low concentration, with the four largest players accounting for about8.8% of total industry revenue. Due to the sheer size of the industry and the revenue generated by

thousands of industry players, the relative share of each industry player is minimized. The four largestindustry players are truly global in their operations, as they have operations in every corner of the globe;however, the thousands of other industry players make them appear to have a relatively small status.

The financial crisis has led to a number of major corporations to either lose market share or gain marketshare. Two organizations come to mind, both with opposing share growth. Citigroup has been severelyaffected by the global financial crisis, and its market share has declined in the two years prior to 2010.Citigroup once held the top position within this market; however, they have since fallen and have nowstarted on their long journey to recovery. On the other hand, the credit crisis has seen the merger betweentwo of the five biggest British banks, HBOS and Lloyds. This will ultimately create a significantly player

within the industry, thus once again affecting the industry's concentration level.

In given time, the level of concentration will increase, but this is not expected to expand to moderate levelsfor many years. The large industry players will continue to seek to enter untapped markets, in particular,emerging markets such as China and India.

Key Success Factors

The key success factors in the Global Commercial Banks industry are:

Membership of joint marketing/distribution operationsDeveloping innovative alliances/joint ventures that help expand distribution channels and extendcustomer reach are crucial, reducing costs and the reliance on branch networks.

Willingness to outsource when appropriateOutsourcing specific, non-core banking activities to other entities that have operating efficiencies in thoseareas allows banks to reduce the costs associated with those activities and helps improve profit margins.

Superior financial management and debt managementA bank's management of its interest rate and other operational risks is crucial to its survival. Thus, banksmust employ a rigorous and conservative risk management policy that instills confidence in theircustomers that the bank is financially strong.

Ability to raise revenue from additional sourcesIncreasingly, the ability to generate revenue from non-interest related activities is becoming paramount to

banks' success. Therefore, banks need to look into expanding their product and service offering to non-

traditional segments, i.e. super/insurance.

Economies of scaleIn an increasingly competitive market, achieving efficiencies and cost reductions through economies ofscale has never been more important. Thus, banks face pressure to reduce per unit costs, which are a keydriver of profitability.

Access to the latest available and most efficient technology and techniquesSuccess depends on prudent investment in, and proper application of, technology in retail banking,customer information systems, risk management and distribution channels. Technology allows banks to


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deliver better services more efficiently.

Control of distribution arrangementsBanks are increasingly looking to change the role performed by branches toward becoming sales centersfor complex products and services, cross selling of products and providing information to customers,rather than being transaction processing hubs.

Production of goods currently favored by the market

A priority for banks is customer satisfaction. To achieve this, banks must offer their customers a productrange and level of service that meets their needs and wants, keeping in mind convenience, flexibility,accessibility and choice offered.


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Cost Structure Benchmarks

Interest Expenses 45.0%

Wages 10.5%

Loan Loss Provisions 8.5%

Depreciation 3.9%

Rent 3.0%

General & Admin 2.0%

Fees & Commissions 2.0%

Advertising 1.1%

Other 12.8%

Profit 11.2%

Interest expense

The single largest cost faced by global commercial banks is interest expenses. These are determined by theamount of liabilities, type and maturity of the liabilities, market interest rate conditions, and competitionin lending markets. The most significant item comprising interest expenses comes from domestic officedeposits, with foreign office deposits, federal funds purchased, trading liabilities and other borrowedmoney, and subordinated notes and debentures making up the remainder of interest expenses bankingenterprises incur.

Wages

Labor costs are the second most significant expense item for commercial banks, estimated to account foraround 10.5% of industry revenue in 2012. The profitability of a commercial bank can be directly related tothe quality of its employees and consumer satisfaction; as a result, staff expenses will always be high forthis industry. Commercial banks will employ numerous salespeople, tellers, and customer servicepersonnel across their network of branch offices. Average wages differ considerably from region to region,

with the highest wages being attributable to the North American ($65,508) and Oceania ($57,319) regions,while the Indian and Central Asian region has the lowest average wage of $8,968.

Profitability and loan loss provisions

In 2012, global banking profit is expected to recover slightly from the horrid years of 2008 and 2009.Although expected to be well below where it stood prior to the crisis, it will climb back to double digits, at11.2%. With many banks having written of billions of dollars worth of assets since the last quarter of 2007,profit of, mainly, US and European banks tumbled. Beyond this, the economic conditions that have been

witnessed throughout the globe have seen loan loss provisions skyrocketing, affecting all banks, not justthose in the developed world. In the United States, in particular, loan loss provisions account for more


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than 30% of total banking revenue. IBISWorld expects that loan loss provisions will continue to be declinein 2012.

Rent

A key to success in attaining and retaining banking customers is to have an easily accessible branch. Banksare ever expanding their presence across the globe, although the number of enterprises is in decline(primarily as a result of acquisitions and industry exits). Having a presence across the industry through

branches helps reach customers. This is particularly true within emerging economies where the use ofinternet banking is reduced. Establishment numbers in these regions are high, which adds to rent costs.IBISWorld expects that rent costs account for 3.0% of industry revenue.

Other

There are various other expenses related to this industry, including professional fees and commissions,advertising, utility expenses, depreciation, data processing, and telecommunication fees. As competitionhas intensified in this industry, IBISWorld believes that these costs have also escalated.


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Basis of CompetitionCompetition is medium and increasing.The activities within the Global Commercial Banks industry are very competitive and vary across differentregions. Generally, the lines of activity and markets served by this industry involve competition with banks,thrifts, credit unions, government agencies, mortgage brokers, co-operatives, and other non-bankorganizations offering financial services. Firms in this industry will also compete against banks and thriftsowned by non-regulated diversified corporations and other entities which offer financial services throughalternative delivery channels, such as the internet.

The basis of competition centers on various factors. These include customer service, interest rates on loansand deposits; quality and range of products and services; lending limits; and customer convenience, suchas locations of offices. Customers' ease of access to banks' services is an important aspect of a banks'competitiveness. Relatively modest concentration levels indicate that local, state and regional markets are

very important to banking organizations, which highlights the importance of an accessible network ofdistribution channels, such as bank branches, ATM's, EFTPOS, telephone and internet banking, in gaininga competitive advantage. The importance of such a distribution network is further highlighted by theobservation that, despite the large decline in the number of commercial banks and the explosion in thenumber of ATM's, growth in the number of banking offices has continued. Transaction execution,innovation, technology, reputation and price are also methods on which firms compete in this industry.

Competition for retail deposits is likely to increase, as banks position to be less reliant on retail deposits. Afactor that may lead to lower competition is the increased regulatory regime expected over the next few

years. Greater regulation may manifest itself in the form of greater constraint on the activities in whichparticular banks can engage, and restrictions on the entry and/or activities of foreign banks in domesticmarkets.


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Barriers to Entry

Barriers to entry are high and decreasing.

Barriers to Entry checklist Level/Impact

Industry Competition MediumIndustry Concentration Low

Life Cycle Stage Mature

Capital Intensity High

Technology Change Medium

Regulation and Policy Heavy

Industry Assistance Medium

SOURCE: IBISWORLD

In order to operate as a commercial bank in domestic banking markets, the corporation or a similar

organization has to receive prior approval of the central bank and/or other regulatory bodies. In order tooperate in international banking markets, or to acquire all or parts of assets of a commercial bank in aforeign jurisdiction, the corporation must obtain approval of the central bank and/or regulatory body ofthe particular international jurisdiction. Banks can also be restricted in their range of activities, inacquisitions of other banks and in interstate banking activities. Furthermore, commercial banks are subjectto capital and operational requirements based on risk and leverage. These capital requirements haveincreased in light of Basel II, and the global financial crisis will see greater capital requirements for

banking organizations.

The relaxation of global financial markets, starting in the early 1980s, has led to increased competition inthe commercial banking industry. Commercial banks face competition from other credit intermediaries,

both bank and non-bank, as well as organizations outside the financial services industries. Businesses tendto be very large and have strong market capitalization. This makes it difficult for new entrants to make animpact, and generate any decent market share.


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Industry Globalization

The level of globalization is low and increasing.

Banking is increasingly becoming global in nature. The deregulation of financial markets in countriesacross the globe and the adoption of more uniform regulation lowered barriers to entry of foreign banksinto new markets. International capital standards, outlined in the new Basel II capital accord implies that

very little adjustment to a bank's operational and capital standards is required in order to enter bankingmarkets of participating countries. Such international alignment of financial market regulation and capital

requirements opens up banking markets for increased international competition and consolidation.

Many large global banks have a presence in hundreds of countries across the globe. Banks are also involvedin cross-border lending. Around 87% of the assets of US banks are US assets. For UK banks, around 64% oftheir portfolio assets are UK assets, with another 12% of assets coming from the rest of Europe.

While the last decade saw banks extend their global reach more so than ever, geographical diversificationdid not provide the spreading of risk that it might have achieved in other times. In some cases, it added to

banks' woes. Globalization of banking is currently making somewhat of a retreat. Some global banks havesold or reduced their stakes in the large Chinese banks. European banks are also withdrawing fromemerging markets in Eastern Europe. This withdrawal has been driven by the need to raise capital orconserve capital for domestic markets where serious financial distress has been experienced because of the

global financial crisis. According to IMF, the proportion of cross-border assets in banks' total assets fellover the recessionary years of 2008 and 2009, with cross-border lending falling at an even faster rate thanoverall lending.

There have been some cross border purchases such as the purchase of some Lehman Brothers operationsby Barclays. Increased regulation of the banking system globally may make it harder in some cases forforeign banks to purchase domestic banks in the future.


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Major Companies

Major Player MarketShare

Bank of America Corporation 2.1% (2012)

JPMorgan Chase & Co. 2.1% (2012)

HSBC Holdings plc 1.9% (2012)

Citigroup Inc. 1.7% (2012)

Industrial and Commercial Bank of ChinaLimited

1.6% (2012)

Other 90.6% (2012)

Bank of America Corporation

Market Share: 2.1%

Headquartered in Charlotte, North Carolina, Bank of America (BoA) is the largest commercial bank in theUnited States. Through its banking subsidiaries and various non-banking subsidiaries, Bank of Americaprovides a diversified range of financial services and products.

In 2011, Bank of America operates through three business segments: global consumer and small businessbanking; global corporate and investment banking; and global wealth and investment management. Thecompany restructured its business operations in 2009 following the acquisition of investment bank MerrillLynch. As of December 2010, Bank of America had 59 million consumer and small business relationships

with more than 6,100 retail banking offices and nearly 18,700 ATMs. The bank has about 243,000employees.

Subprime

In May 2009, as part of its stress test, the Federal Reserve notified Bank of America that it would need toincrease its Tier 1 common capital by $33.9 billion.

In October 2008, Bank of America received a $25 billion capital injection from the US Government as partof its capital purchase program. In January 2009, the government provided Bank of America with an

additional $20 billion. The additional funds were required in light of the bank's rising consumer loanlosses and unexpectedly large fourth-quarter write-downs from its Merrill Lynch acquisition. Under theterms of an agreement with the government, Bank of America is responsible for the first $10 billion offuture losses on a pool of $118 billion in illiquid assets. The government will take responsibility for the next$10 billion in losses, and 90% of any losses after this.

In return, the government has taken about a 6.0% stake in Bank of America, to become its largestshareholder. Bank of America also agreed to cut its dividend payments and put restrictions on executivepay.


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Recent acquisitions and events

Over the past five years, Bank of America maintained an aggressive strategy of acquiring companies. InSeptember of 2008, Bank of America agreed to buy Merrill Lynch, in a deal worth $29.1 billion. Theacquisition finalized on January 1, 2009. This acquisition added around 16,000 financial advisors and a50% economic ownership of the Blackrock Inc. investment management company.

Another major acquisition occurred in late 2007, when Bank of America made a $2 billion investment in

Countrywide Financial, and in early 2008 agreed to buy the troubled company. The deal was initiallyvalued at $4 billion, but finalized at about $2.5 billion. The acquisition made Bank of America the largestresidential mortgage lender and servicer in the United States.

Financial performance

Operating condition have remained poor despite the worst being over. Interest income for 2011 was 12.3%lower compared with the previous year. The bank reported an $8.8 billion loss in mortgage bankingincome. These factors translated into lower revenue for the year. Over the five years to 2011, total bankrevenue successfully grew at an annualized 9.7%, due primarily to its previously mentioned acquisitions.

Bank of America Corporation - financial performance

YearRevenue$ million

Growth% change

NPBT$ million

Growth% change

2006 72580 26.9 N/A N/C

2007 66833 -7.9 20924 N/C

2008 72782 8.9 4428 -78.8

2009 119643 64.4 4360 -1.5

2010 134194 12.2 -1323 N/C

2011 115074 -14.2 -230 -82.6SOURCE: ANNUAL REPORT

JPMorgan Chase & Co.

Market Share: 2.1%

JPMorgan Chase & Co. has its origin in the Manhattan Company, which was created in 1799 to bring waterto New York City. Manhattan Company had a provision in its incorporation documents to provide bankingservices and was brought into competition with the Bank of New York as the Bank of Manhattan. The Bankof Manhattan merged with Chase National, named after Abraham Lincoln's secretary of treasury and

architect of the national bank system, Salomon Chase, in 1955. The merged company renamed itself ChaseManhattan and remained the largest US bank into the 1960s.

The JPMorgan Chase business structure has six main segments. The firm's wholesale businesses comprisethe investment bank, commercial banking, treasury and securities services, and asset managementsegments. The firm's consumer businesses comprise the retail financial services and card servicessegments. IBISWorld considers the retail financial services and commercial banking segments to have themost relevance to this industry, while the four other business segments are more relevant to other financialindustries.


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The retail financial services segment aims to help meet the financial needs of consumers and businessesthrough regional banking, mortgage banking and auto finance segments. Retail financial services providesconsumer banking through the United State's fourth-largest branch network and third-largest ATMnetwork. Through this segment, JPMorgan Chase became a top-five mortgage originator and servicer, andholds strong market positions in home equity originating and non-captive originating of automobile loans,as well as being one of the largest student loan originators.

Acquisitions

In July 2004, Bank One Corporation merged with JPMorgan Chase & Co. The transaction united theinvestment and commercial banking strength of JPMorgan Chase with Bank One's large consumer bankingoperations. The combined company amassed assets of $1.1 trillion, coupled with a network of 2,300

branches in 17 states. It continued to trade under the name JPMorgan Chase & Co., eliminating anestimated 10,000 jobs in an effort to save $2.2 billion in the three years through 2007. The majority of joblosses occurred in the retail banking segment. JPMorgan Chase has since become one of the largest creditcard banks with 119.4 million general-purpose cards in circulation around the world in 2008 with a totalamount outstanding of $183.3 billion.

In 2008, JP Morgan Chase made two significant acquisitions. One of which was Bear Stearns, for which itinitially offered $270 million, equating to $2 per share. However, further negotiations led to the offer beingraised to $10 a share, costing the company $1.2 billion to complete the transaction. Later that year, it alsoacquired Washington Mutual, which encountered liquidity issues in the tough economic climate.

Beyond its acquisition activity, in October 2008, JPMorgan Chase accepted a $25 billion capitalinvestment by the US Treasury under TARP. By mid-2009, an arrangement was made to repay the debtowed to the government, the company was deemed financially strong enough to do so after passing thegovernment's stress test.


Over the five years to 2011, company revenue increased 14.5% annually to $106.5 billion. JPMorgangenerated $67.25 billion (net of interest expenses) in 2008, down 5.8% on the previous year. The fall intotal net revenue was due in large part to $10 billion of markdowns on mortgage related positions. Fees

from investment banking fell, while lending and deposit related fees rose by 29% to $5.09 billion. Netinterest income rose by 47% due mainly to a fall in interest expenses.

JPMorgan Chase & Co. - financial performance


Growth% change

NPBT$ million

Growth% change

2006 61999 14.3 19886 N/C

2007 71372 15.1 22805 14.7

2008 67252 -5.8 2773 -87.8

2009 100434 49.3 16067 479.4

2010 102694 2.3 24859 54.7

2011 97234 -5.3 26749 7.6

2011 106541 3.7 18111 4.3SOURCE: ANNUAL REPORT


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HSBC Holdings plc

Market Share: 1.9%

HSBC is one of the largest global banks, with operations throughout the United Kingdom and Europe,North and South America, Asia-Pacific, Australia, the Middle East, and Africa. Globally, HSBC has about10,000 offices in 82 countries and territories, servicing approximately 130 million customers.

Business segments

HSBC operates across four distinct segments: commercial banking; personal financial services; globalbanking and markets; and private banking. It also has a small "other" segment. Collectively, thesesegments provide consumer and commercial banking services, investment banking, credit cards, assetmanagement, private banking, securities underwriting and trading, insurance and leasing. Most specific tothe industry are the commercial banking and personal financial services segments.

Through HSBC's commercial banking segment, the company aims to be the leading international businessbank. This segment provides businesses and customers payments, collections, liquidity management,account, and wealth management services worldwide. Through this segment, HSBC will also offerinsurance protection, employee benefits programs and pension plans, trade services (credit, collections

and financing products), leasing, finance and factoring, and credit cards.

The company's personal financial services segment provides customers with a vast range of basic bankingproducts and services. These include deposit accounts, various mortgage and finance loans, debit andcredit cards, insurance and investment services, local and international payments services, and taxpayerfinancial services.

The global banking and markets division provides customized financial solutions to clients worldwide.These clients tend to be larger, such as governments and corporations. The services provided by the private

banking segment include investment services, global wealth solutions, specialty advisory services andgeneral banking services. Finally, HSBC's other division comprises the company's captive private equityfunds, strategic relationships with third-party private equity managers and other investments.


Over the five years to 2011, company revenue increased 7.2% annually to $99.2 billion. As with most banksand financial service companies that operate globally, the recent financial crisis affected HSBC. However,overall the company has fared well, with continued success in its consolidated performance. Specific to theUnited States, however, mortgage defaults plagued HSBC and the company ended up shutting downDecision One in 2007, which was the US-based wholesale subprime lending unit of HSBC Finance. HSBCalso placed its US vehicle lending business in run-off, while the consumer finance operations will begin tofocus on card and consumer lending.

Following the subprime credit crisis, which had a severe impact across the United States and Europe,HSBC lifted its direction towards emerging markets in Asia for stability and growth. IBISWorld believesthat this will be a key strategic direction for the company going forward.


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HSBC Holdings plc - financial performance


Growth% change

NPBT$ million

Growth% change

2006 70070 13.6 21240 N/C

2007 87601 25 22709 6.9

2008 88571 1.1 7646 -66.3

2009 78631 -11.2 5298 -30.7

2010 98918 25.8 4006 -24.4

2011 99152 0.2 3112 -22.3SOURCE: ANNUAL REPORT

Citigroup Inc.

Market Share: 1.7%

Citigroup, Inc. is a diversified holding company with businesses that provide a broad range of financialservices. Citigroup operates across North America, Latin American, Africa, Europe, the Middle East and

Asia.

Citigroup's predecessor, Travelers Group Inc. (TRV), was founded in 1864 as the first US accident insurer.In 1997, TRV bought investment bank Salomon Brothers and formed Salomon Smith Barney Holdings.Citigroup formed when Citicorp merged into a newly formed, wholly owned subsidiary of Travelers GroupInc. in October 1998. Following the effectiveness of the merger, that subsidiary changed its name toCiticorp, and Travelers changed its name to Citigroup Inc.

In 2008, Citi restructured, with its business segments reduced from five to two. The aim of this restructurewas primarily to allow Citigroup to focus on its core banking operations. The two new operating units areCiticorp and Citi Holdings. Citicorp encompasses the group's global business and consumer bankingoperations. It includes the retail bank business, corporate and investment bank, and Citi Private Bank andholds the group's core operations. It has relatively low-risk, high return assets. The other unit is CitiHoldings, which is made up of brokerage and asset management; consumer finance, mortgage loans, andprivate label credit cards; and a special asset pool. Citi Holdings has about one-third of staff and includesthe $310 billion in assets covered by a loss-sharing agreement with the government.

Subprime events

Citigroup has been one of the banks most affected by the global financial crisis. In November 2008, the

company announced that it was going to shed 52,000 jobs from its global operations.

By November 2008, the US Government had agreed to protect $301 billion of loans and securities on thecompany's balance sheet, in order to support investor confidence in the bank. Citigroup also received $45

billion from the government in return for non-voting preferred stock. In addition, Citigroup agreed not topay common stock dividends in excess of $0.01 per share per quarter for three years beginning in 2009.

In September 2008, Citigroup announced plans to acquire Wachovia Bank in a $2.16 billion deal. Theacquisition would have created the third-largest branch network in the United States and given Citigroup a10% share of total US deposits. This plan fell through, with Wachovia eventually acquired by Wells Fargo.


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In 2008, the company announced that it was scaling back its US mortgage business after it suffered nearly$10 billion worth of fourth-quarter losses in 2007 due to mortgages and the subprime crisis. In November2007, the Abu Dhabi Investment Authority a Middle Eastern sovereign fund purchased a 4.9% stake inCitigroup for $7.5 billion.


Over the five years to 2011, company revenue increased at an annualized rate of 1.9% annually to $78.3billion. The banks operating profit decline was more dramatic, due to the reported NPBT loss of $53.1billion in 2008 due to the financial crisis. This loss was attributed to mark-to-market losses of $32 billionand an increase in loan loss reserves. Although Citigroup's revenue rebounded strongly in 2010, the bank'snet revenue declined in 2011 due to lower loan balances and lower interest earning assets in the bank'sportfolio. Despite this, the bank successfully recorded improvements in its NPBT margins due tosubstantially lower provisions for loan losses.

Citigroup Inc. - financial performance


Growth% change

NPBT$ million

Growth% change

2006 86327 7.8 28489 N/C

2007 77300 -10.5 776 -97.3

2008 51599 -33.2 -53055 N/C

2009 80285 55.6 -7799 -85.3

2010 86601 7.9 13184 N/C

2011 78353 -9.5 14624 10.9SOURCE: ANNUAL REPORT

Industrial and Commercial Bank of China Limited

Market Share:1.6%

Although ICBC was only founded on January 1, 1984, it is the world's largest bank by profit and marketcapitalization. In 2006 the bank listed simultaneously on Hong Kong Stock Exchange and Shanghai StockExchange. However, the bank's largest shareholder is Huijin, a wholly state-owned company that wasincorporated in 2003. Within the decade, the bank has expanded rapidly. As of 2010, the bank had 16,227domestic branches, 203 overseas branches and over 1,500 correspondent banks. The bank maintains closeties with Goldman Sachs, who was one of its initial strategic investors prior to the IPO in 2007.

Over the five years through 2011, ICBC's revenue grew at an annualized rate of 21.0% a year. The 55%growth in 2007 compensated for the slow year in 2009, when revenue was hit by the slowing worldeconomy. True to its reputation, the bank's operating profit substantially exceeds the largest bank based onearnings, HSBC. HSBC's net profit before tax of $3.1 billion pales in comparison with ICBC's $42.5 billionin 2011. Based on NPBT margins, the bank is highly profitable compared with its peers, primarily becauseits operating expenses are substantially lower, averaging 5.0% per year.

Although most banks were severely affected by the financial crisis, due to the nature of their dealings andtheir focus on European and North American markets, ICBC survived relatively unscathed. The bank's


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focus on China helped the bank navigate through the downturn. China continued to record GDP growthabove 9.0% while most of the developed economies were going through a recession.

ICBC's largest market is that surrounding the Yangtze River Delta, where the major cities of Shanghai andNanjing are located. Its corporate banking business contributes an estimated 53.1% of bank's total revenue.However, economic indicators suggest that China may be slowing down over the next year. Consequently,the bank's personal banking segment is expected to play a greater role in driving growth for the bank in thenext year.

Industrial and Commercial Bank of China - financial performance

Year RevenueGrowth

% change NPBTGrowth

% change

2007 36260.21 n/c 19658.9 N/C

2008 45440.03 25.3 21036.5 7.0

ibis global banks breifing

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