Financial Services Industry Profitability: Moderate Level Profitability Tiburon Research September 17, 2014.

Financial Services Industry Profitability: Moderate Level Profitability Tiburon Research September 17, 2014

14.09.17 – Financial Services Industry Profitability © Tiburon Strategic Advisors, LLC™ 1  Evolution of Financial Services Industry Profitability –Market History –Market Definition –Key Valuation Measures –Leading Financial Services Industry Profitability  Market Segmentation –Retail Bank Profitability –Insurance Company Profitability –Brokerage Firm Profitability –Investment Management Firm Profitability  Financial Services Industry Profitability Future Predictions –Decrease in Retail Bank & Insurance Company Profitability –Increase in Brokerage Firm & Investment Management Profitability Outline

14.09.17 – Financial Services Industry Profitability © Tiburon Strategic Advisors, LLC™ 2 Financial Services Industry Profitability Have Evolved through Three Phases, Including their Early, Middle, & Recent Phases Financial Services Industry Profitability History Early Phase Approximate Dates: 1956 - 1982 -- 1999 - 2014 Key Steps: Middle Phase Financial Services Industry Profitability Emerged 1920 - 19552014 Financial Services Industry Profitability Today Recent Phase 1983 - 1998 -- Source:3/29/11 Advisor Perspectives; 11/25/02 American Banker; 4/15/02 Fortune; 4/12/02 Wall Street Journal; 12/01 Money; 11/15/01 Schwab Conference Call (Lehman); Tiburon Research & Analysis

14.09.17 – Financial Services Industry Profitability © Tiburon Strategic Advisors, LLC™ 33 Source:Tiburon Research & Analysis Financial Services Firms Strategic Initiatives  CEO focus: better integration & interconnection in critical functions such as risk management, compliance, finance, & technology  --

14.09.17 – Financial Services Industry Profitability © Tiburon Strategic Advisors, LLC™ 4 Tiburon CEO Summit XXVI Attendees Said that a New Product Launch or Investment Strategy is the Top Strategic Initiative for their Firms in 2014 Tiburon CEO Summit XXVI Attendees By Top Strategic Initiative in 2014 Source:3/10/14 Tiburon CEO Summit XXVI Content Survey Data; Tiburon Research & Analysis

14.09.17 – Financial Services Industry Profitability © Tiburon Strategic Advisors, LLC™ 5 Source:3/5/14 Tiburon CEO Summit XXVI Content Survey (Curtis); Tiburon Research & Analysis Several Attendees Noted that they Intend to Use Technology to Enhance their Firm’s Efficiency Tiburon CEO Summit XXVI Content Survey Feedback Top Strategic Initiative in 2014 “Efficiency improvements using technology” –Scott Curtis Raymond James Financial Services Tiburon CEO Summit XXVI

14.09.17 – Financial Services Industry Profitability © Tiburon Strategic Advisors, LLC™ 6 Source:3/5/14 Tiburon CEO Summit XXVI Content Survey (Christian); Tiburon Research & Analysis Several Attendees Noted that they Intend to Improve their Firm’s Client Experience Tiburon CEO Summit XXVI Content Survey Feedback Top Strategic Initiative in 2014 “Improving the client experience” –Kent Christian Wells Fargo Advisors Financial Network Tiburon CEO Summit XXVI

14.09.17 – Financial Services Industry Profitability © Tiburon Strategic Advisors, LLC™ 7 Consumer Gains were Largest in the Standard & Poor’s 500’s Consumer Discretionary Sector at 324% Consumer Gains By Standard & Poor’s 500 Market Sector Source:3/8/14 Wall Street Journal (FactSet); Tiburon Research & Analysis Consumer Gains? Need S&P logo Time period?

14.09.17 – Financial Services Industry Profitability © Tiburon Strategic Advisors, LLC™ 9 Financial Services Profitability can be Analyzed Many Ways Source:4/12/02 Wall Street Journal; 12/01 Money; 11/15/01 Schwab Conference Call (Lehman); Tiburon Research & Analysis -- Comments

14.09.17 – Financial Services Industry Profitability © Tiburon Strategic Advisors, LLC™ 10 Financial Services Industry Profitability Segments The Financial Services Industry Profitability can Specifically be Analyzed by Individual Segments, Including Retail Banks, Insurance Companies, Brokerage Firms, and Investment Management Firms Source:Tiburon Research & Analysis Financial Services Industry Profitability Segments Retail BanksBrokerage Firms Investment Management Firms Insurance Companies

14.09.17 – Financial Services Industry Profitability © Tiburon Strategic Advisors, LLC™ 11 Financial Services Industry Market Capitalization ($ Trillion) Financial Services Industry has $2.7 Trillion Market Capitalization, With Retail Banks & Insurance Companies Accounting for $2.4 Trillion Source:4/1/11 Yahoo Finance Web Site; 4/1/11 Lightyear Capital Web Site; 4/1/11 Wikipedia Web Site; Tiburon Research & Analysis New York Stock Exchange market capitalization = $13.4 trillion Financial services = ~20% of S&P 500 market capitalization Market capitalization = $13.4 trillion x 20% Ratio used retail banks (50%), insurance companies (40%), brokerage firms (9%), & asset managers (1%) Another source said $59 trillion

14.09.17 – Financial Services Industry Profitability © Tiburon Strategic Advisors, LLC™ 13 Financial Services Industry Profitability can be Measured Many Ways Source:4/12/02 Wall Street Journal; 12/01 Money; 11/15/01 Schwab Conference Call (Lehman); Tiburon Research & Analysis -- Comments

14.09.17 – Financial Services Industry Profitability © Tiburon Strategic Advisors, LLC™ 14 Financial Services Industry Profitability Indicators The Financial Services Industry Profitability can Specifically be Measured by Revenues & Net Profits Source:Tiburon Research & Analysis Financial Services Industry Profitability Indicators RevenuesNet Profits

14.09.17 – Financial Services Industry Profitability © Tiburon Strategic Advisors, LLC™ 15 Financial Services Industry Revenues ($ Trillions) The Financial Services Industry Generates $13.1 Trillion Revenues, Down 10% Since 2006 Source:Tiburon Research & Analysis $65.7 trillion (total household assets) x 20% Copied from Future of Advice Needs update

14.09.17 – Financial Services Industry Profitability © Tiburon Strategic Advisors, LLC™ 16 Financial Services Industry Net Profits ($ Billions) The Financial Services Industry Earns $3.9 Trillion, Down 10% Since 2006 Revenues x 30% $426.5 billion in 4Q/10 Source:3/18/11 Wall Street Journal (US Department of Commerce); Tiburon Research & Analysis Copied from Future of Advice Needs update

14.09.17 – Financial Services Industry Profitability © Tiburon Strategic Advisors, LLC™ 17 Financial Services Industry Net Profits As a Percentage of Corporate Net Profits Financial Services Industry Earnings Have Traditionally Averaged About 25%- 35% of All Corporate Profits, with 2010 Results Back in Familiar Territory Source:4/13/11 Hellman & Friedman Presentation (Thorpe); 3/18/11 Wall Street Journal (US Department of Commerce); Tiburon Research & Analysis 4Q/08 Needs update

14.09.17 – Financial Services Industry Profitability © Tiburon Strategic Advisors, LLC™ 18 US Corporate Profits Share from the Finance Sector The Finance Sector Accounted for 26% of US Corporate Profits in 2013 Source: 9/13 Business Week; Tiburon Research & Analysis

14.09.17 – Financial Services Industry Profitability © Tiburon Strategic Advisors, LLC™ 19 Down Jones Industrial Average By Sector Financials Make Up 17% of the Dow Jones Industrial Average Source:9/11/13 Wall Street Journal; Tiburon Research & Analysis

14.09.17 – Financial Services Industry Profitability © Tiburon Strategic Advisors, LLC™ 20 Source:Tiburon Research & Analysis Financial Services Firms Stock Prices, Valuation Levels, & Market Capitalizations Financial Services Firms Stock Prices, Valuation Levels, & Market Capitalizations  Financial services firms are…  22% of the DJIA  FIG stocks are up  Envestnet hit $1.0 billion market capitalization  Huge multiples on Fin Tech firms  ENV over 400! Rich Repetto (Sandler O’Neil)

14.09.17 – Financial Services Industry Profitability © Tiburon Strategic Advisors, LLC™ 21 The Standard & Poor’s 500 Consumer Discretionary Sector Increased by 320% Since March 2009 Standard & Poor’s 500 Performance By Sector (March 2009 through March 2014) Source:3/13/14 Financial Times (Bloomberg) (Thomson Reuters Datastream); Tiburon Research & Analysis

14.09.17 – Financial Services Industry Profitability © Tiburon Strategic Advisors, LLC™ 23 The Leading Financial Services Institutions in Terms of Profitability can be Defined Many Ways Source: Tiburon Research & Analysis -- Comments

14.09.17 – Financial Services Industry Profitability © Tiburon Strategic Advisors, LLC™ 24 Financial Services Industry Indicators The Leading Financial Services Institutions in Terms of Profitability can be Specifically be Defined by… Source:Tiburon Research & Analysis Financial Services Industry Indicators --

14.09.17 – Financial Services Industry Profitability © Tiburon Strategic Advisors, LLC™ 25 Bank of America & Citigroup Have Large Market Capitalization But Relatively Low Price-to-Book Value Ratios Market Capitalization Comparison Source:3/29/11 Advisor Perspective; Tiburon Research & Analysis Market Capitalization LowHigh Small Large American Express Price-to-Book Value Ratio Citigroup Bank of America Corporation Morgan Stanley UBS State Street Corporation Northern Trust Corporation Wells Fargo Corporation JP Morgan Chase Raymond James Financial Considered deep value

14.09.17 – Financial Services Industry Profitability © Tiburon Strategic Advisors, LLC™ 27 Financial Services Industry Profitability can be Segmented Many Ways Source:Tiburon Research & Analysis -- Comments

14.09.17 – Financial Services Industry Profitability © Tiburon Strategic Advisors, LLC™ 28 Financial Services Industry Profitability can Specifically be Segmented to Include Retail Bank Profitability, Insurance Company Profitability, Brokerage Firm Profitability, & Investment Management Firm Profitability Source:Tiburon Research & Analysis Financial Services Industry Profitability Market Profitability Retail Bank Profitability Brokerage Firm Profitability Investment Management Firm Profitability Insurance Company Profitability Financial Services Industry Profitability Market Profitability

14.09.17 – Financial Services Industry Profitability © Tiburon Strategic Advisors, LLC™ 29 Retail Banks Have the Highest Revenues in the Financial Services Industry Financial Services Industry Revenues By Segment ($ Billions) Source:Tiburon Research & Analysis Needs data

14.09.17 – Financial Services Industry Profitability © Tiburon Strategic Advisors, LLC™ 30 Retail Banks Have the Highest Earnings in the Financial Services Industry Financial Services Industry Earnings By Segment ($ Billions) Source:Tiburon Research & Analysis Needs data

14.09.17 – Financial Services Industry Profitability © Tiburon Strategic Advisors, LLC™ 31 Investment Management Firms Have the Highest Return on Earnings at 25.7%, with Insurance Companies Next at 10.7% Financial Services Industry Return on Earnings By Segment Source:4/6/11 Yahoo Finance Web Site; Tiburon Research & Analysis Average Return on equity

14.09.17 – Financial Services Industry Profitability © Tiburon Strategic Advisors, LLC™ 32 Brokerage Firms & Investment Management Firms Have the Largest Net Profit Margins at 8.6% & 8.3% Respectively Financial Services Industry Net Profit Margin By Segment Source:4/6/11 Yahoo Finance Web Site; Tiburon Research & Analysis Average

14.09.17 – Financial Services Industry Profitability © Tiburon Strategic Advisors, LLC™ 34 -- Comments Retail Banks are Profitably Source:Tiburon Research & Analysis

14.09.17 – Financial Services Industry Profitability © Tiburon Strategic Advisors, LLC™ 35 Retail Bank Profitability Key Issues Retail Bank Profitability Have a Number of Key Issues, Including Macro Economic Pressure and Segment Competition Source:Tiburon Research & Analysis Retail Bank Profitability Key Issues Marco Economic Pressures Segment Competition

14.09.17 – Financial Services Industry Profitability © Tiburon Strategic Advisors, LLC™ 36 Retail Bank Stocks are Sensitive to Macro Economic Pressures Source:9/1/03 New York Times; 3/2/03 Fortune; Tiburon Research & Analysis -- Comments Bank stocks fell 12% in 2002 compared to 23% for the overall market

14.09.17 – Financial Services Industry Profitability © Tiburon Strategic Advisors, LLC™ 37 Retail Bank Stocks Have Been Steady for a Number of Reasons, Including Falling Interest Rates, Surging Deposit Growth, & Booming Mortgage Loan Markets Source:9/1/03 New York Times; 3/2/03 Fortune; Tiburon Research & Analysis Falling Interest RatesSurging Deposit Growth Booming Mortgage Loan Markets Retail Banks Valuations Reasons for Steadiness --

14.09.17 – Financial Services Industry Profitability © Tiburon Strategic Advisors, LLC™ 39 -- Comments Insurance Companies are Profitable Source:Tiburon Research & Analysis

14.09.17 – Financial Services Industry Profitability © Tiburon Strategic Advisors, LLC™ 40 Insurance Company Profitability Have a Number of Key Issues Source:Tiburon Research & Analysis Insurance Company Profitability Key Issues Insurance Company Profitability Key Issues --

14.09.17 – Financial Services Industry Profitability © Tiburon Strategic Advisors, LLC™ 42 -- Comments Brokerage Firms are Profitable Source:Tiburon Research & Analysis

14.09.17 – Financial Services Industry Profitability © Tiburon Strategic Advisors, LLC™ 43 Brokerage Firm Profitability Has a Number of Key Issues Source:Tiburon Research & Analysis Brokerage Firm Profitability Key Issues Brokerage Firm Profitability Key Issues --

14.09.17 – Financial Services Industry Profitability © Tiburon Strategic Advisors, LLC™ 45 -- Comments Investment Management Firms are Profitable Source:Tiburon Research & Analysis

14.09.17 – Financial Services Industry Profitability © Tiburon Strategic Advisors, LLC™ 46 Investment Management Firms Profitability Has a Number of Key Issues Source:Tiburon Research & Analysis Investment Management Firm Profitability Key Issues Investment Management Firm Profitability Key Issues --

14.09.17 – Financial Services Industry Profitability © Tiburon Strategic Advisors, LLC™ 48 Financial Services Industry Profitability Future Predictions Financial Services Industry Profitability Future Predictions Include Decrease in Retail Bank & Insurance Company Profitability & Increase in Brokerage Firm & Investment Management Profitability Source:Tiburon Research & Analysis Financial Services Industry Profitability Future Predictions Decrease in Retail Bank & Insurance Company Profitability Increase in Brokerage Firm & Investment Management Profitability

14.09.17 – Financial Services Industry Profitability © Tiburon Strategic Advisors, LLC™ 49 The Fixed Income, Currencies, & Commodities Business Represents Up to One- Third of the Net Profits of Some Investment Banks, Including Goldman Sachs Group Investment Banks Net Profits Share from Fixed Income, Currencies, & Commodities Businesses Source: 9/24/13 Financial Times; Tiburon Research & Analysis Tiburon CEO Summit XXV Page

14.09.17 – Financial Services Industry Profitability © Tiburon Strategic Advisors, LLC™ 50 Almost All Investment Banks are Realizing Lower Revenues from their Fixed Income, Currencies, & Commodities Businesses, Including at Citigroup and Morgan Stanley, which Each Posted a 21% Decline Investment Banks Fixed Income, Currencies, & Commodities Businesses Quarterly Revenue Change Source: 9/25/13 Wall Street Journal; Tiburon Research & Analysis Citigroup Morgan Stanley Bank of America Corporation JP Morgan Chase & Company Tiburon CEO Summit XXV Page

14.09.17 – Financial Services Industry Profitability © Tiburon Strategic Advisors, LLC™ 51 Financial Services Firm Revenues Share from Wealth Management Wealth Management Fees Represent a Larger Portion of Revenue in 2012 at 11%, Almost Double that of 2008 Source: 10/1/13 CNN Money.Com Web Site; Tiburon Research & Analysis Tiburon CEO Summit XXV Page Asset and/or wealth management?

14.09.17 – Financial Services Industry Profitability © Tiburon Strategic Advisors, LLC™ 52 Wealth & Asset Management Investment Banking & Trading Morgan Stanley Revenues By Business Morgan Stanley’s Revenue Sources Shifted After the Financial Crisis with a Reduction in Investment Banking & Trading from 70% to 50% of its Revenues, While Wealth & Asset Management Filled the Gap Source:2/25/14 Morgan Stanley 10Q Report; 9/10/13 Wall Street Journal; Tiburon Research & Analysis Other Businesses 2013 data?: 41%, 41%, & 12%?

14.09.17 – Financial Services Industry Profitability © Tiburon Strategic Advisors, LLC™ 53 Source:10/1/13 CNN Money.Com Web Site; 9/25/13 Wall Street Journal; 9/24/13 Financial Times; 9/10/13 Wall Street Journal; Tiburon Research & Analysis Role of Wealth & Asset Management  The history  Asset & wealth management account for relatively small shares of revenues and net profits of most large financial services firms  The news  FICC down  Asset & wealth management up Tiburon CEO Summit XXV Page Move up to chapter one? Fee-based products, especially wealth management, remain a focus for the big banks

14.09.17 – Financial Services Industry Profitability © Tiburon Strategic Advisors, LLC™ 54 Tiburon CEO Summit XXVI Attendees Said that the Importance of Asset & Wealth Management to Financial Services Firms will Increase Over the Next Five Years Tiburon CEO Summit XXVI Attendees By Importance of Asset & Wealth Management to Financial Services Firms Over Next Five Years Source:3/23/14 Tiburon CEO Summit XXVI Content Survey Data; Tiburon Research & Analysis

14.09.17 – Financial Services Industry Profitability © Tiburon Strategic Advisors, LLC™ 55 Tiburon CEO Summit XXVI Attendees Said that Big Banks Will Not Divest Asset & Wealth Management Businesses in the Next Downturn Tiburon CEO Summit XXVI Attendees By View Retail Banks’ Strategy in Next Market Downturn Source:3/30/14 Tiburon CEO Summit XXVI Content Survey Data; Tiburon Research & Analysis

14.09.17 – Financial Services Industry Profitability © Tiburon Strategic Advisors, LLC™ 56 Source:3/30/14 Tiburon CEO Summit XXVI Content Survey (Wietz); Tiburon Research & Analysis Several Tiburon CEO Summit XXVI Attendees Commented that Banks will Divest Non-Core Businesses in the Next Downturn Tiburon CEO Summit XXVI Content Survey Feedback View Retail Banks’ Strategy in Next Market Downturn “Yes, banks will divest asset & wealth management businesses in the next downturn. Those are considered non-core and thus will be the first to go” –Craig Wietz First Rate Investment Systems Tiburon CEO Summit XXVI

14.09.17 – Financial Services Industry Profitability © Tiburon Strategic Advisors, LLC™ 58 -- Comments Retail Bank Profitability is Likely to Decline Source:Tiburon Research & Analysis

14.09.17 – Financial Services Industry Profitability © Tiburon Strategic Advisors, LLC™ 60 -- Comments Brokerage & Investment Management Firm Profitability is Likely to Increase Source:Tiburon Research & Analysis

14.09.17 – Financial Services Industry Profitability © Tiburon Strategic Advisors, LLC™ 61 Trust Banks Share Buybacks are Expected to be 30% through March 2015 Expected Share Buybacks By Bank Type (Through March 2015) Source:3/17/14 Wall Street Journal (Goldman Sachs Group); Tiburon Research & Analysis

14.09.17 – Financial Services Industry Profitability © Tiburon Strategic Advisors, LLC™ 62 Trust Banks & Credit Card Firms Earnings per Share are Expected to be 5% through March 2015 Earnings per Share By Bank Type (Through March 2015) Source:3/17/14 Wall Street Journal (Goldman Sachs Group); Tiburon Research & Analysis

14.09.17 – Financial Services Industry Profitability © Tiburon Strategic Advisors, LLC™ 63 Source:9/24/13 Commonwealth Financial Network Email (Rooney); 9/24/13 Tiburon CEO Summit XXV Content Survey Data; 9/14/13 The Economist; 9/13 Business Week; Tiburon Research & Analysis FIG Profitability  8.3% ROE  Up moderately  Depends on interest rates  26% of corporate profits

14.09.17 – Financial Services Industry Profitability © Tiburon Strategic Advisors, LLC™ 64 Tiburon CEO Summit XXV Attendees Anticipate that Financial Services Firms Profitability Will Increase Over the Next Five Years Source:9/24/13 Tiburon CEO Summit XXV Content Survey Data; Tiburon Research & Analysis Financial Services Firms Profitability Over Next Five Years By Tiburon CEO Summit XXV Attendee Vote

14.09.17 – Financial Services Industry Profitability © Tiburon Strategic Advisors, LLC™ 65 Source:9/24/13 Commonwealth Financial Network Email (Rooney); Tiburon Research & Analysis Some Attendees Believe that Financial Services Firms Profitability Over the Next Five Years is Dependent on Short-Term Interest Rates Financial Services Firms Profitability Over Next Five Years “90% depends on if or when short-term rates go up” –John Rooney Commonwealth Financial Network Tiburon CEO Summit XXV

14.09.17 – Financial Services Industry Profitability © Tiburon Strategic Advisors, LLC™ 66 Source:10/1/13 CNN Money.Com Web Site; 9/25/13 Wall Street Journal; 9/24/13 Financial Times; 9/10/13 Wall Street Journal; Tiburon Research & Analysis Role of Wealth & Asset Management  The history  Asset & wealth management account for relatively small shares of revenues and net profits of most large financial services firms  The news  FICC down  Asset & wealth management up

14.09.17 – Financial Services Industry Profitability © Tiburon Strategic Advisors, LLC™ 67 Financial Services Firm Revenues Share from Wealth Management Asset Management Fees Represent a Larger Portion of Revenue in 2012 at 11%, Almost Double that of 2008 Source: 10/1/13 CNN Money.Com Web Site; Tiburon Research & Analysis

14.09.17 – Financial Services Industry Profitability © Tiburon Strategic Advisors, LLC™ 68 Source:Tiburon Research & Analysis Tiburon Strategic Advisors Focus on corporate-level strategy -Serve senior executives only at financial services companies -Key services: market seminars, market research, & strategy consulting -Served over 400 corporate clients and completed over 1,700 projects since 1998 -Host semi-annual CEO Summits, offer free weekly research releases, and offer free business benchmarking tools for all types of advisors Chip Roame background -McKinsey & Company -Charles Schwab & Company -Tiburon since 1998 Comments

Financial Services Industry Profitability: Moderate Level Profitability Tiburon Research September 17, 2014.

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Financial Services Industry Profitability: Moderate Level Profitability Tiburon Research September 17, 2014.

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