Feiger G -L

G K -L r
B S -L a t
H D -L
W M -L h

A I t W B n

D 0
S B a n k
w
C e
D T P D
N o P a u
K M Aa ce r r
U I O n
C o

T d p ab p o w b w i a b oo or h
l f e d a e u d a s e t x n o e
C @1 M &C I o c o
P i aP D r
T d I f u b M s o a m n b d o t F o c
\
I
I

CONFIDENTIAL

I W
B

LONDON OFFICEFIGTRAN~G SESSION

10 June 1994
O O S B E J

1 T i w b p n h

2 T e I d t i h x

3 T e t c o s p h i axua
w b m h a

4 T d s o L r w i t a i
W B T A - F 1 J H 1 R A O

T ‘rOpic L

0 B 8 r .

0 I t t s 8 nG F . t

0 W i w b 8 K G Wh . r a
● P r
● H t w
● H t a u

0 O o f a w 9 K G W v . r
● D o t m i
● D f r a
● K f f s a u

0 W it t s 9 D H . u
● O p o p e a v
● C o w h a
● P r

1 R M L s 0 M W c. e
“1have no idea what it means but 1lovethe action.”

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g
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D P 1 1 r 19 a

E d ● I ● M n ● D x d ru ● E ue
f e e c x
● T ● S e
● P ● Be
r ● C p a e
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● T e

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P W B P H R RA

a M
a
a

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a
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SOURCES OF ECONOMIC VALUE ALONG THE WHOLESALE BANKING* BUSINESS SYSTEM

a C
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d

c
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THE INVESTMENT BANKING SYSTEM TRANSLATES INTO TWO POWER CAMPS

FUNCTIONAL BUSINESS SYSTEM

-
‘, Research 1,

O r \ N i
} I ,
, A
L - 1

ORGANISATIONAL BUSINESS SYSTEM

cC ● S ● A o
● C F ● P o o i
●M ●M ● S a
● M B ● A e a r
 O
S W B P
P R T R E

● L

● F e x

● M

● O u e n

● D e

● S t e
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C c
+
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T o f C h a a

O C i a t o va c a u t am f

L o c B a t a c t b u t am s ( a r
s p p

B a B a ca b o e ac c c

T l T f 1t u t 5y a p b I i ( y
o i p a ‘ r o p n

S c C b d d I s U t t t l p s r
s o a b ( c p u n o

R c C b d i s a eo r t f c b r u t r
a t

S f E n i fy ( ar u f ( n s
m o f ( e - s a b u

1
B R I AS L Y A

R D e

A m ● N r w c r e a
● C t p o o l o a
● T o o t f p y

B r ● A t l s s u y

C ● U t l to w t l m s
n t t -
c i g t f u

P b ● I ta p as o t f r n

A ● C t f f e p a p i t t b o a
● C t b p a p o t s o o
m
● H n a d o o
B S O R I S L F OY A E A

R s D ee o

F o f e f F f o p o t m f a a t t a fe
a i n

U f F p t u n b p t e t s n df t
r t

A f P f a s g

C f P m I b o p f t c t t M me a
b o t w l t d s o u s

L m R c o t i o p r f t m a n
 F E

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B o c u ● P u
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C F E R A O
XL

I I r =8 J I I nr = ~

I
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$ @5 $

E r r t m r v o f i i $ i tx U ee e t n
Q i i f i U = 1 n
=$
1

,
M A
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Role Example

A ● I c do d
● D s t
● V a
● F a i
● A a ( p r r
● N e
● F o a

F ● P f d i i r

D cM b i ne i
p o ● B r o ao d e r
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D O

A N o
R B $ d a

1 S W G 1 5 a
2 M G 1 9 r
3 M S 9 3
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Value,
B A T A d a $i

● R ● N R o ● R t ● S W o 9 h i
C ● H o

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B B H e e
L B a

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● G S ●R

● A ● W ● N I ● M S 1 n a
● A B S ● E S
● G S

● K ● L B ● D i ● C L 1 r n

S m B o a
D E U
R D A E A Q

F i
M m a e ( Equities
e a a

S t d i w M a l t d n S i c c s
ad u t o y i w d o p u n
● C p o y o ● C s m
● M n ● M t n - o t r c a
● C o d ● C b e( w f c eo r
d o c - o fo
e
B a d l ● M b a v c se o
t b t ● F e r n ( l os o t s e l
n ● R o b b - I e e
● P s ● C d a p r
s
F i m e a P o f s t ● W r s
a o i a ( u o p n s
G p P o f s o p l
p
B d f p
r o a e
\
I

P O I S E R S

7
A I
$
8 netesdue
1999
Negotiate L b
B A
c b
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P I S S I e r A n B C r y
D
f
o
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(amount,fore, prospectus, demand bys the investors Syndicate
etc.) pricingetc. securities peys Syndhte
withadvice fremthe Specutetive issuerlseffer fssuesa
Cheosingthe from(lead) issuer svndicete lessfee for ‘tombstone’
underwriters undetiritirs memberrney underwriting ad ‘forrecord
(leadmansger, reteina on~ to
c-lead Syndicste pesilbn advertisedeal
mensgers; formalisd saess
domesficand
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ordinators solicited
 I

D
D E R

P D U ee r

F Ac o o p t b a B o s f a aob d o t
t o t s as a f a p f p m p
f p a af d

I
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e n t m d b t c x t
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b n a o t b as m o m b b p a u
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S E X

I
S i

● A r C Ah a o t b f ab a 7Y0 f o a L f r I w
o
l t h af r l
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I w l t h af r

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● Bb f b a L + f r a a m a a t p 8 ot A l

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● BD L + t b a 8 t A b a r L f A I e Bp 9°/0 a e
b 1 8 o
+

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B Bank

“ Thbswapopportunity
typkallycccumbecawefloating ratelenders
donotdstingukh
theCIOMmtingatothesamed~ee m tied rateIendemorWereing
view onyieldcuweorexchmgerate. Inreality,however,
thoMerencasarenotm big= inthisexaqk, butmeasured
ratherinbasispolnta
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E O R M T V A E O

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bill f u
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D R E R

? D e

; c M c a om a an f b w t i af u o r
c f d t a c r c a o t c e
r c o u a o t m e n

M O m i c s a i r r e r oo a
r a c p r o

s D a b r e p c e e t e

3 A m a h t d p s r u d
c a p t r e l t u I r o

. E i O m w
i m d u i st o s m
C d m c e l e
o s

L E i i d t l o t c n sm b
q D e i t U l a u c o
d e

A A k a i g r a s d n i s g t
m a i T i c t r c n a t a
s o t f s a aw Ab i d om i
c ac f i s a p s ( a e
B H 1 ae
T E c
,
.
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S T E R C

T s e
● E q
● B
● C o
● M m i n
● F o a o d u e

:
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l
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n
f
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3
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T ● R
a
p a ak v

. S a v I
F ● L t p p w l o
e f a e u i i al x
f i

L H

P r o

3
. .
5 DISTINCT TRADING MODELS

M Characterfsatlon Example o

C S S s p a h m NatWeste F -b d r a o
c s b o h

W C K D i m s c h p Na s o F -m c oi oa
a l m t v b a f m a

B T C t h m p f G e Sa InFX,Intereet
a rata
r
s d o andequityrleke p

F H I n p w i c s t Ba Tn r
e sounterparties
f h m o p

C O E ( a t o s t pG S uax t
i a m a l C n S o
m a e t i t e o n x
ac s o p p f a o o
b r o f m i

3
 I.Nllmlnmn/

I
A O T R S C B S N I E R O T
i 1 =t n r e n

‘ f i
M I 5 ~ a
●

a u

S f p
c u

S f p
s t

S t ● P p
s I tt
S
● H r
N s p

P o s
g
N
r e

3
 ‘

W I S R E P

- M l
“ w ~ “ 2 ~ “ ~ “ w ~ “ 2 I “ h 1 W
y q ~ t o
T h
m t
3:’0’;’ \ ! ‘f”””’” t i o 3
i T n T p T a h b a
“ Will b 1 h 1a a p d a 2 l 2 a s a
f y a p o 2 t c t n 2
2 o s 1 i p n
t y f a
2
Spread !
t + t r
T h a T h T h P ‘ -
s p o m a m a
2 s a p s profit T
b a 2 1 o2 o 2 s
w i w a t s s a 2
2 v h w w
f t 2 w 2
3
H I S P P

——

——

“ w “ 2 “ y mat w)II “ 2 “ y W
y youquote
c o
- me f 1
of . . . ?“ of . . . ?“ T h
m t
t tt i o 3
T A T BI T As h b a
T A 2 a s a
n h 1a s o b a 2 f
ap o 2 a n 2
p p a r
Spread (

t t t P g (
T Ah T Ah a T Ah
r spread poeitionprofit paidepreedof e
Total .:
of2.5 s h o 3s p 2 s h
b a 2 h g u s a 2 w
w I w f 2 t W w 2
2 2
n 9 A m 9t ,

KEY TYPES OF PARTICIPANT AND THE DOMINO EFFECT

PROFESSIONALS

3
 ,.

2iAm,#,cw,2!s,>2,

INCOME EFFECTS OF MARKET MAKING

‘ P
R 1 P 2 r
I
Professional3 r .
P
total o
C
E
P + R

- + S

- o P O
F
G O W M P H R R A
$v i 1 1 n o

4 -

3 -
# B i
@ ● * E i
2 -
- -
* h

- .................. = * *
1
m m .

;
I 1
,
1
1
1
I
1 1 1
I

Source: 4
, ‘,
 I

F A W B B F H O UA

S e c
O O F V O

F D Ee os

S D e i Cc m s u i

D A r ce t b a L e r f f r o c o b s
r b c e

R B c c e a i t a B a - o c r n io e r
c d e m e c m a r po f

G I i f lm g C G uo gn a A o runb a
a g b h t f E c i 2 h m l r
c
g i n a r

T M e o m ei f R t s p f a nt c
d e

P S g r p t p i U B iF o B B r e p r vn
g e c n i c F aS G I ne p i
m L A a

G d G n t g f o f o B B
e U vi v
i m n t a

E m N m o a t w w m C L A a E E a p
f r e i q

I M e i i n f T n o r ix v r sa f
t s t i

Source:GlobalSanklngCmfeleme,Valdez
4
4
 S L M D Y E E N A
$

6
5
—

2
—-. . _ .. ——

D —.— [
1 1 1 1 1

“ V o ~ n f d i c n a a t e
S E u r o o n w

. .
 l

F A W L C L O O E

I s I r t
● V c m w o a
o v
● N c f I b o n
M a l r t e e
s l a o y a
● A f u p a b
c f l p o o

i S D I uo r C d b n
● Disintemrediation- use o s ● L s d d
e t ● L d I w c e e
instruments– is well developed In the U.S. c a d l ● L co u p e
a t al e U a i l t v ● E c e hx s oS i
i i o c ● A a r n oo b cc
● C v i s m r o c l v p oe a i
c t g e e t I o to c b q m n o u
c l m i U o a r

R e e n
● R oc a r c e oe
h I c s a n
e s m g n e
● C g h e p u a
d l
 i I

WOIWIB,W.94WA89

T P W L R E
7 m a r g

A s i f [ n v p

A l I v

P b e 1 x r e
u
O e o
Q
p x

P b t b 0 r e

A p r o e 7 o v e

A r r o e e v 1 e

R g e

4
 I !

P U B L C R U E
%

M t
4p r
3 e

2p r

1p ( p
p v l

Source: Disgukedclient
data

.,
 I

L K F F S E A U

Relationships Good relationshipswith borrowersso that by being involvedearty in

the deal the bank can influencedeal structureand its role

Size Sufficientmarket share to understandpricingand supply/demand

Skills S c a s s t

P d a s o h s p er

S G a t s e c b p ( ng o r ub
c c a t b t p - i af o b a a
l b

C E c r a t e t wis
f used as a
r c o o
relationshipbuilder,net returnsto the institutionare attractive

Breadth A productportfoliowhichis broadenough(includingoperational

products,etc.) to generate sufficientcross-sellingrevenue to make
relationshipswith creditextensionprofitable

5
.

F E

5
D F D E A
$
1

,-
,,
,’
,
9 ,/ 7

d
I
I
,’ I
,.
,- 5 i
,
,’ , j W L
. 1
I ●T z ‘ t m
/— , ● T w a 5
,
1 , f b
O ● E t
● E l
T
N Y
L o
1
Source: B BankofEngland;
Valdez I

5
.
 m

F A W F E O XO

I s s e n t c
. Fragmentedindustryin spot,forwsrdssndswsps
● @tbns snd exchsngeIradedpmductsmore
concentrated
● Marketisdominstedby commercial banks
● Someinvestmentbsnkshsvesggressh’efy entersd
msrketandgainsdshsre
● Economksare drivenbycustomsrbusiness and ‘true’
posfikming

E c d v u C o e
● Globslisetbnof fbredincoms/squify
businesses ● Despiteconcernsoncreditratings,majorbsnks
has bd to incressd hedgingdemsrsb remainrnsrkelleaders
● Increasedintemstionafflow ,[=,, ● fnlensecumpatifbnto werthe investor/nroney
● fnvestorlfundmsnsgersegmentfastestgrowing ● Affrsctiveproftisbilify
fromcustomer -9W sWmenl. e~~fly the nsmesvbwsd
● $, D s Y a f m ov E to have‘highinforrnstbn’
c ocontent
s h s d ● Potentialforposhbningprufiisremsins
t s ● Moveto onfinesystemsto exscufesmsfltrades
h
by sc.mscu~titors

E f x s
● W oc b s s i s
op t d
● C d musingcmee-hder growih so
of irrveafmsnfs
● PotentislImpsctof EMUiECUuncsrfsin
C O C I F D O H U E

n
n b E
r . . D
. . ..... aa a.

1 P a 4

2 L p 3 i r

3 M i 3 n

4 B o s 2 e

5 C f 1 i

6 R m 1 a

7 S p i b 8 r e

6 S p i e 8 r e q

9 c 7 u

1 S o q 6

1 I o f 2 n
1 R 1 e

source: EummneYMaY1994
 ,,
d I

F E K F F S X O A U

Coreteam . T a s w a at w f p a r
t c c ( a r n f w u C
b c o
. P c m a d b s n o o
o t r

Segmentation ● S c t f o t w m a p e
c - e o b he a
✎ C l n o c d w f i a
i m l o s n i

F ✎ F o b at d w c c t k
✎
U i o c o b a n m
o t m p

S ● S e s t c we y rn
h m r a b s t y a s
h e f

5
 .,

M A
 I
I

W M A A O C E Q R

V o e c Numberof deals q a
$b ; 9 0 2
1
— B

—
—
15 ,

1
7 1
5
4 5 10 ,
3
C 7
C
2
-
- .- - - f

n 1 ■ 1 ■ U m m :
1985 86 87 88 89 90 91 9 1 1 8 87 88 89 90 91 9 1

S S D t e o
5

:volvlng customer demsnd
Totalvalueof globsldealsdowndue
to recessbn
Cmss-barderdealshsvedeclined
evenmoresignfiicsntly
Increasingcustomersophisticslbnhas
Iedto moredealsbeingdoneinhouse
Veryfew bigdesls
~{~;:~~sls haschangedsincethe
- Hostiledeslsare virtualfynon-
existent
- Prhrsfisst&nssre upin Europe-
e.g., Gsrmeny,Frsnw, Itafy
- GmMh marketsars LatinAmsrics
snd S.E. Asisas Europeremainsin
rscession
I s a e tn
, Feeshsvedeclinedsigntiicently-
$1.06b in 1989to$205m in 1992for
all dealsgloballybuti~mved in 1993
* Highlyconcenlratd market:top 10
firmsaccountfOr7TY0of feesin 1992
I o n
● Hightycompsfiftiemarketwith
entrenched,conmntrstsdplayers
● Whilebusinessmy resume,unlikely
thetpmffiabilii wii supfxrrfsignifiint
investmentor newentrsnls
I
E f x
.S of IPO markethas hurtMU t
businessas cmnpaniescan nc.wfind.s
premiuminthe publicmsrksts
. Lowerinterestratesandbefferatock
pricesmayIesdtoincresseddsmsnd
5
M K F F S A U

Relationahlps ● Strongrelationships
withC b u f m
p s t g s a e r s

I ● N c o r i s i t ng e o
expetiisa s m a

E ● S t t s a b x d n w t r
t ar o t e c o t a a x

R ● A t m l a a t re t c a b
q s o c s i u

M ● C o d t g t d d a f e u
r o p s e ae

C ● W t p f e o p i o ti m e x
r t

5
 9m7!s94LN~A001EQ

D a E U
E N I U R S
$

1
4 i
1C
4 6 I 1
1 ,’
3 , 9 ,
3 :. . *
71 ,<
E 7 ,. u
. ,. 58 ,“
FRNs z 4
,4

3 3
E 2 2 2 u
7
1 1 1 1 1 1

Source:BankofEngland;
Quaner&Bulletins
1990-94
6
L P D A E I R I
$
U L d U
1 = 1 =$ $
L d
2

7
L e
@
L e

Japan Germany
IOWO = S2,S67 1 = $1,666 Listeddebt

D
2

Note: M oc s
L e
I m e 1 n
L 6
e

e
7

xo r
i

Source: E M c oI ou I w q i a 6
1
Debt:MarketvalueI!stedbon&(excluIngpublksector
d~t); FelV
F A W U N O D O

i s tn
● P c n b r t r
. N g s i o s mn
d t s G v c i f o
U
. L d n v t p t i e
s e

C d I o u I C oe n
. R b e i c o e● Graduelfy growingbusiness a
efferend-1960 f ● H s c x
g b w a t r slump o y o● S es h vh i 1 y
t a ac b o
. Competitiveenvironment r (cumrrrorr m
stockspreads3-6%, investment
● D ik i o i
. Nesdto n
commitownsquifyto underwriting l
gradedsbt0.5%) n e
l m f b b m a increasesrisk e r ● a buildexperience
Marketshsrefoughtoverto o
i d s d 1t m ● Irrnovativeness s
inproducts s i c a
I

E f x
. I d r n ei
● L r o t e c r
b c i U s m n
. Gmwlhof emergingrnsrkets

6
.
 !

T 1 M O P E I 1 A U

1 C First Boston 1 9
2 U B o S 1 w 6
3 G S 1 7 o
4 M L 1 7 e
5 S B 1 6r a
6 D B 1 e 6
7 M S 1 7 t
8 J M 1 6
9 S B C 1
o 0
1 N S 1e 6
1 L B 1 r
1 S W S 9 e 4 a
1 B P 9 6 a
1 I B o J n 8 4
1 A A B 7 6

6
 ,

M S O M P I E B I A U H
p e
L a C o o
“M L
S B e B r a
G S
1 7
M L M S
O 1 t
4
1 m
1 D B e
@

s B o e
S B Dauts
& e Bank r a
D B Goldman Bechs e
7 G S 7
8 M S
m
86
@
O

Soutc.: Eummon.yliS4 6
T 1 M O I E I N A T

Rank’” Bank Amount$mlo no of I

1 Merrill Lynch 2 1
2 Morgan Stanley 1 6
3 Goldman Sachs 1 1
4 CS First Boston 1 1
5 SG Warburg Secudtles 1 1
6 Lehman Brothers 1 9
7 SalomonBrothers 1 8
6 ABN-AmroBank 1 1
9 BardaysdeZoeteWadd 9 6
1 B S 9 3 t
1 B P 8 a
1 D B 8 e1
1 J M 8 4
1 S B C 7 1o
1 U B o S 7 w 1

.
..
..
6
 wz20001m6.m.94,w061

P P I E OR N 5 YO I U V T

Country Stockfor sala,

$b
France 30-40
U.K. 20
Italy 10-15
Sweden 10
Germany 8
Spain 5-8
TheNetherlands 5
Finland 3-5
Belgium 3
Austria 3

. Co-wartve d-w basedonannouwodplana

.. Excludng ‘E-em Euwe’
source: Morgan Srmley, TbB B a
8
 ( !

U K F F SN D A UE

R L t r we l c a e l o
g b e f p s o rs

E C u r o e x ro g n xn
h s f i

C E t s u m n a u

S C t p l i a

B f e o s c e

6
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,
 w0001m8.m.mPOm

D M D E E R AV
$t r

1 C

7
5 1
5.8 ;’
4
4.2 ,“
, 3
., , .
,
4 $
~ ; - , 3
O i n J2 s
T i B n r s
1 1 1 1 1 1 =

. N p a o a y e w o s i u r o( t mi i f tf onei r enwi f
c c I su t i f o oms m I u O I eu
r SWWS,
curfuancyandcro=+urrency
n np Interest
n tr
swaps,caps,collars,
floorsandswaplions) 7r
,.
S FIA;ISDA.BIS o u
,
 )

F A W I D M E O R
Industry s and economics t
. Broad basedcompetilbnforplainvanilla
business
. Highermarginstrucfumlproductsare focusat
leadinghouses
. Developmentof liquidsecondarymarkets
. Competitionrapidlyincreasingas skillsbacome
morewidespread

E c d v u I C e o
● I e u s m n e [ = Many,firrnssettingu
p pspecislpurposeAAA
c ratsd
- H p oc f t e o r vehklesi n r
s I o ● increasingspacislisatbnbyncurrsncy,cweurdryor
- M complextailorsdpreducfs risktype
- Newtypesof users(e.g.,fundmanagers) ● C r gmWhbutslowingpmfifability, ● Capacitywntinuingtoo be addsdby Eurepean
● Continued linkageto debtunderwriting
(akut as basicproductsgradusffymature univeraafbanks,Jspanaaebanksand
● Profitability
increasinglydrivenby newpredud rmnfinsncislinstifutbne;smallfirmsbsinq
113)unbundlingco~orate decisionson interest
rateandcurrencyrisk innovat”nn or bw COS1, highvofumestrategies acquired
● OverallrfskprofileIiketyto riseas marginal ● Manybanksmanagingon a gbbsf basisbut
. Shiftinfocusfmm rsducingfundingcosts10
provkJingliabilitymanagementandasset-lad playemattemptto maintainpmffiIevefsandnew increasinglyfotdingswapsintoa broader
products productsare increasingly dflicutfto evaluate derivativesumbrelfsinorderto
● Intarestrateswapgrowlhcontinues rapidlywhile . Enduserandcounterpartriskrsrnsinsa rnspt - Provide‘packagsd’deals
currencyis slewerto ftst(daclinsd1993) cormern - Achievesmerbr riskmsnsaement
● Signifanf innovations wfihhighmarginsremain - Rsducecests
in commodifyand equity-link~swaps
. Emergenceof Treasu~ as profficentrevs.pure
hsdgingonty(e.g., Proctor&Gamblebssas) ~ E
● BIS and.Governmentregufstorsmayalbw
x

netiing,whichwilldrsmstkalfyrsducersquirsd
cs iial,butthismaybsoffselby includingnrsrfret
I ● SomeWall Streetfmusesfecusingexcfuaivefy
highervaluedproducts
● Rapidirnitatianof newproducfs
t fikefy
on

E in ~ifaf weighings
ns
. lncrsassdd.bclosureandregutato~oversightwill
providemoreIranspsrenq
. Incrsassdvolatilityof interssfrslesptadicfsdin
nextseveralyearsmayaiddemand
● Effectof EMU uncertain forswapdemand 71
. .
D K F F S E R A U

V Depth of orders to allow efficient hedging and market making o

T Ability to combine swaps and underlying productsein tailored,

s innovative forms k

Highly analytical, technical skills for pricing and trading

Rating Strong capital base/credit rating

RelationehlpsStrong relationship with banks, large corporate

Systems First class risk management and position keeping system

Low c h q c a s s e
S T
\

E M T W O QR A
$

{ CAQR
5 : 15%
‘
,,,
,
3 - - - - . - - - - ,

1966 1967 1966 1969 1~ 1991 1 1

7
 F R E D R B AE N V V

D g U l ea
U interestrates S
5
—
i.<

4
4
—
3 y

I
k e
3 2 2
Y c
:

P e

[ [ 1 —
{ 1988 1987 1988 1989 1990 1991 1992 1993 1 1 1 1 1 1 1 1

Total revenue 25 26 19 19 15 26 29 so
70

. InckdesIn1992:BearSteam, DillonRead,Firtieoston,Goldmn,Kiddar,Lazard,MorganStanley,
Salonmn,
Wenheim
Soume: Sacurilias
Induw &aclation, FederalR-ewe Board
7
. .
\

!.

SOURCESOFTRADINGPROFITSANDRISK

M o J
M
m S m
I

/
/ A
Marketspreads(bidtoffer)

T c
1

J r
T t r
p r
L w

M f b a t I
P o
t A b m t

V l t 1 l

7
. .
C V O A

R
%
T I AB ● U

P
. e
C

E
I n
Investment
m &o 1 1 17Y. 1
mgmt& other —

U 3 n 3 d
4
U 5 n
1
1
C 1 o 6

4 C 2 4
T r
( t 2 r p a
T 1
J ~
1 1 w 1

7
 u

F A W T O R

l s a e t cd
Intensefycompetitivemarketwithmsny
dealers
Shsrerefsttielyconcentralsdamongtoptier
andincreasing
Excesscapacityhascauseddealingspreads
to declineto abouthailof 1986 levels
Industryprofitability
highlyvolatile
Numberof smsllerlmsrginsl playersstillrmde
economicpressure(e.g., smslferforeign
institutions)
,

ndustryoutlook
;rrstomerdemand
Customertmdingvolumegrowingvsryslowly
MufuaVmnevmarketfundsegmentfastest
Increasinglyglobal
Continuingcametifive intensify
Largestplayershavesignificantscale
advantages(inpositioning,risk
management,information)
Vofatileearnings;riskadjustedreturnson
squifyunattractiveexceptpmbsbfyfor
fargestplayers
Spreadslikely10remainnsrrowand
earningsdependento posifionin#mventory
fundingprofils
Marketvofetilifywillcontinueto generste
proffis
:ompetltlve
conduct
L-l firmsexcelon hemsmsrketsbutfaw are gbbal
leaders
Largestpfsyersheavifyrelianton~sitioning and
pursuemultiplestrategrns
– Use bsfsrrcesheetcapacityand largecustomer
flowkrrowbdgeto peatiiononbalancesheet
aggressively- highns~igh vofstilify
- Empby ‘quantjocks’10pfscelargebatsIn futures
markets(highsrrisk)
Sabmon Brothersscfmdsloncorneringmsrkethss
tarnisheditiusfry andledto ctrangesaimsdal easing
psrfkipstbnin auctkmsand numberof dealers(e.g.,
on finebidding,eliminstiend volumerequirements)
Emergenceof onlinesystemsforsmsflertrades
Sbw, but iwreasingavaifabifityof pricingInformstbn
to customers

1
, f t a
I t c t i n r
P c i r e i o n
d p ( f r i r n o
r
P a t s t v r e i
V e m o m
7
T K F F S R A U

C ● A t a c I p m l s a d
● A t s v e u s b
● A t m q t p a f l o b
B ● B p l i t e r i r n
p t c ( d r s r e o
m s e o
● I p i k o m n ( L tr
T
R ● S i r a ( t 3d sn w e l
c u
S ● S o c b e o p p e( t a g
l e i v n i
● G c i t b s i p
S yn u
● C m o i a p a no
● S c r t gu e t s
R a
c ( o i r F w I e u
W B R H I O
Y

W
3 ● G S
● M S
● J M
● C F B
2

.----\
,. .\ . .
1
●. * A *

. . . . = L

0
1 0 6 8 8 9 9 1

81
 .
,.

Uf~WIB.WR.6.M

W B C O W A L H A IO

G w L s i
u n

L
w
s
I L
i
i

J
High Low

Returns

8
 / I
ND ~15.Wn,6.9U4

C O W A
H L A RI

P i m p

● N ● R i
● I ● L s n
● S p f a ● W b w c p a r
a c ta o t t t h

P i s p

● S s ● S s (
● F i m b l o n
● D i s p ● I o r e n
n m a

H L
R
8
P A P L R O E R F

I
Q 12%

~ Morgan Stanley
*
= ~CSFirst Boston
A M L
A C
u A S
~
A Morgan
A B
A D e u
~ B a
~ P
S G W ~ ~ Y a
D K ~
~ L % I a

H L
R

source: Globalbanking
conrernce
 IN/2ZLllUl15.Wn.6.9b

S U S T

● E s c

● O r r

● M e

● S W a
● L a
● B S t
 ,,
.

E O B U

W h

● B b s o s
p l

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● E b b

W h

. I m g e d

● L o p o o

● I
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● C L y

8
 WDW115.WO.6.W

F T R P L R E O

● C i
● S a
● P a
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● E e w m n n
d i

● Mobi!islng people andc q

● D ap c e e

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 LNmml/s.wfl.6.9ul

P L P P S O
R P R R O E

P 1 p A r r

S S g E g u
F D G e

C e R g r G q o

M a a G c C e q

P N cr R g i o v

I m G n aR g v

8
.
.,
P P R R O

E t ● P ● F r
p ● M l
D e
● E
u n
B t ● M m r
● B
u n

● S l ● P v y
l

L M H —
S o c t o

Source:Tmdepre86,McKlnsey
matisia
 fN/720w1fi.wn.6.w

L L F T P E E

L I f c e m
Individual product/markets particularly difficult to Individual product strengths unlikely to create long
predict and volatile term success

E o t l t e B i vs t c e i t f o x e o
c e o

O l t 5 a r f D p va m I a c e
p ro a o t s d ep

I F i l p ] r e n

9
W C H I A R

● N h i e
● P w t l t p h e
● H t m g i a a
● N f o s m a
● W d s o p e
t e
● G i n e
- k p B
- m o t e v c b t f R c
● F o e m po n l o p t
c p a i n a
● I s p f a a c n t
● O a e f f n p p p

S McKtnsey
an~k, GldIalS t o a i u
9
.!
 W B C O S H U O

● A t w o t t

“ : $

P ● Solvetoughestproblems

x
Createposilhre
external
{
●

image

B l
& c e
● E w w t ‘ x o p
c a t o c\ l p
situations
- --—..-..- \
● S e s a t x r
c a p

. .
 E M
E E W B x
1

9
R M E W E C U H E X

I
I
E
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a c m I E

n
E

. D s f f t e a t
c o e s f ac v f t
client

I B
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B d S
● E c p t e i a a i
i b n
R M E W E C U H E X
.. J M
-
- ● R c m b i E ( e
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-
- i m r a c i o
----
. - -
N
● R t E b
P R
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s a p o a

B
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d i
● B ab E b b ( s
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w B

B
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‘
‘
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. ‘
‘ ● R as i ( t a l i
‘ m a t a a
‘
‘
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‘ g i t u o c i w m b
‘
f i n i

9
 ,, /

R M E W E C U H E X

, E I n
,’ ‘ ● R t o o t l b o f m r
, a g b o
,,’
,
.’
,’
,’
,
G S
● R t o ( b o toreduce
e
operational
rkkassociated
w m s o I

O R N G A
S ● R c i T dK
● M c a i b I o s d
( m

‘
‘ CEDEL

-“’’’’’’’”ss
● Identify
shorttermopportunities
toimprove
corebusiness
(clearfrrg
ofEurobonds
andincreaslngty
domestic
equities)

9
R M E W E C U H E X

S
A .
,. .
,
,.’
,

N
c D

U B
a

Y
p

o S
G T

w
● R s f t i f e s
d a p m a w a f s e
- c b p ( p f l o o
- - c
-
-
 R M E W E C U H E X

, M A M
;
● D a i as a n o f
t U i i m b n

B
1 ● D a i an s f l
c c i E a i A

, ● D a i as U f t
i p n

;
B
● D as f d s o t c
I m
,
,
S B C o
● P as f t i o b
b ( t t f e u
S T

CEDEL
● Evaluate
potential
ofdeveloping
a centralctaatinghousefor
- over
thacounterderivatives -
-------