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Team Innovation

UBS & Commercial Banking Industry


Throughout this presentation, you will get to know more about Commercial Banking Industry and firms
in the industry, in particular, UBS Group.
Both industry and firm level analyses with Five Force Analysis, Advanced Five Force Analysis,
Resourced Based View, and strategy analysis.
Firm level analysis on comparison of UBS with leader firm of the industry, Wells Fargo, on strategies
used.
Identify both industry and firm level issues and provide corporate strategic recommendations.

Commercial Banking Industry


Banks that provide financial services to retail and business customers in
the United States. The services are performed by accepting deposits from
customers and providing customers commercial, industrial, and consumer
loans.

Industry
Revenue
US$684.4
billion

Industry
Employmen
t
1,564,368

Industry
Growth Rate
+6.0% predicted
2015-2020

Main
Companies
JPMorgan Chase
Wells Fargo
Bank of America
Citigroup

Client Firm - UBS Group AG


Forbes: Ranked #20 on Worlds Biggest Banks, #73 on Worlds Biggest Public
Companies
Services Investment banking, asset management, wealth management for
private, corporate, institutional clients worldwide.
Particularly recognized in sponsoring sporting events around the world and global
asset management.

Incorporated

Market Cap (2015)

# of Employees
(2015)

Net Income (2014)

Canton of Zurich,
Switzerland

US$74.7 Billion

60,155

CHF$3,422 Million

Industry Leader - Wells Fargo


Forbes: #6 on Worlds Largest Banks
Announced to eliminate foreign transaction fees on all business line of
credit access card transactions made outside the U.S. to benefit small
businesses in the U.S. with desire to expand globally
Founded

Market Cap (2015)

# of Employees
(2015)

Net Income (2014)

New York City, 1852

$264 Billion

275,000

$23.06 Billion

Industry Financial Analysis


Financial Analysis: Based on Return on Equity Ratio
Firms

JPMorga
n Chase

Citigroup

Wells
Fargo

Morgan
Stanley

Industry
Average

Net
Income
(USD)

21,276
million

7,300
million

23,057
million

3,667
million

3,640
million

Total
Stockhold
ers Equity
(USD)

232,065
million

210,500
million

185,262
million

70,900
million

54,368
million

Return on
Equity (%)

9.38

3.47

12.45

5.17

7.62

UBS

6.7

Analysis of Financial Performance UBS Group


Industry Average
ROE

Economic
Average ROE

UBS Average
ROE

Industry Influence

Strategy Influence

7.62%

9%

6.7%

-1.38%

-0.092%

Return on
Equity

9%

1.38
%

7.6
2%

Economic Industry Industry


Average Influence Average

-.92
%

6.7
%

Strategy Companys
InfluenceProfitability

Analysis of Financial Performance Wells Fargo


Industry Average
ROE

Economic
Average ROE

Wells Fargo
Average ROE

Industry Influence

Strategy Influence

7.62%

9%

12.45%

-1.38%

4.83%

Return on
Equity

9%

1.38
%

4.83
%
7.6
2%

Economic Industry Industry


Average Influence Average

12.4
5%

Strategy Companys
InfluenceProfitability

Analysis of Industry Environment


Industry is below economy average ( = -1.38%)

UBS Group of Commercial Banking


Extent of Rivalry
Industry
Threat of Entry
Threat of Entry: LOW
Large amount of capital investment
required to start up
Government Regulations
Intense Competition
Doesnt lower industry

Threat

Suppliers

Power of Suppliers
Power of Suppliers: HIGH
Key Suppliers: Customer
deposits, Loans from other
financial institution
Suppliers concentration
dispersed
No forward integration
Fluctuation of Interest rates

Potential Entry

of Rivalry: HIGH
Rivals: JPMorgan Chase, Wells Fargo, Bank of
America
Strong Brand Identity
Low Industry Growth
Players have similar strategies
Lowers Industry as intense competition lowers profit
margin
Key

Industry
Rivalry
Buyers

Power of Buyers
Power of Buyers: MEDIUM
Key Buyers: Individual Customers,
Threat of Substitutes
Multiple choices for Buyers
Threat of Substitutes: LOW
Only substitutes for selected services, such as insurances, Product & Service are Necessity for
Buyers
mutual funds
Strong Brand Identity
Possible substitutes are very limited
Doesnt lower industry , because threat is very low.

Substitutes

Advanced 5 Forces Analysis (I)


What trends & changes are likely to affect industry structure
& industry ?
Recession and economic downturn
The 2008 recession and preceding bubble pop left the commercial banking industry in shambles,
to the point where the government had to bail them out
Loss of bank products to Brokerages and insurance firms
You are seeing credit cards from retail stores, loans from mutual funds and so on and so forth.
The monopoly banks had on mortgages and ATMs is not safe either
Tight government regulation
Changing capital and liquidity mandates, compliance costs and risk management costs have
forced the industry to change in unprecedented ways

Trends & Dynamics


Loss of bank products to other industries
(examples)

Other financial service institutions have co- opted commercial


banking services

Tightened government regulations


The government has come down hard on
commercial banks in the wake of recession

Impact on 5 Forces
Buyer Power
Rivalry
Substitute
Buyer Power
Potential Entry

Total Impact on Industry

Module #2: Industry Analysis

Advanced 5 Forces Analysis (II)


Potential entry: Fares better than industry average due
to its international presence and recognition
Suppliers: UBS services high net worth individuals,
and as such supplier power is higher than industry
average
Buyers: Buyer power would also be higher, since those
purchasing their services have the time and resources
to shop around
Rivalry: It is exposed to neither a lesser or greater
amount of this force. Industry forces are very similar in
CB due to how common the corporate structure is
Substitutes: Threat of substitutes is neither lesser or
greater. Alternatives to commercial banking is limited
for the individual investor

Mean Market
Cap

Mean Net
Income

Industry

$ 74,886

$106,777

UBS

$ 73,337

$ 4,838

Potential
Entry

Supplie
rs

Industry
Rivalry

Substitutes

Buyers

Analysis of Leader Firms Strategy & Profits


Wells Fargo pursues a Broad Market and Cost Leadership Strategy
Customer Centric, top employer, strong capital structure
Average firm
Key driver of Willingness to pay is access to services and trustworthiness of bank (byproduct of being a large institution)
Cost driver: low enough interest on deposits
Wells Fargo
Key driver of Willingness to Pay: Cross-selling- the process of offering customers the products and services they need, when they need
them, to help them succeed financially.
Reasons it gives a competitive advantage:
1. Its cheaper than new customer acquisition: It costs a bank much more to acquire customers than to sell to an existing customer.
2. It improves customer retention: Cross-selling means a customer gets a number of services from you. This leads to a longer and
deeper customer relationship.
3. It increases revenue per customer: More cross-selling means more revenue from the same customer.
Key driver of Cost: lowest cost (number one) of deposits among competition
4. Interest on interest-bearing deposits low
5. demand deposits free

Analysis of Leader Firms Strategy & Profits


leader firms strategic choices enable to achieve higher-than-average profits in its industry

Leading market share in mortgage and auto loans; strong in other retail and commercial loans
Diversified revenue sourcesstrong in interest and non-interest income
Large, low cost deposit base
Strong risk culturestrengthening it even more
Experienced management team and satisfied employees
Strong returns versus peers with lower volatility
Lower risk profile than large peers
Broader distribution, scale, and product set than regional banks

Tangible resources Wells Fargo is the best capitalized bank among its competition, only large bank
asides from Bank of America to not have a capital shortfall to meet the regulatory leverage ratio
requirement of 5%
Intangible Strong brand recognition, exceptional client loyalty and retention, low employee turnover
believes people are a competitive advantage source

Firm-Level Analysis (II)


UBS Strategic Activity Map: Narrow Market and Differentiation

Firm-Level Analysis (II)


Analyze your client firms strategy & profits
UBS Strategic Position: Narrow Market and Differentiation
Key Drivers of WTP in the industry:
Bank trustworthiness
Perceived quality of customer service
Return on Investment
Key Drivers of Cost in the industry:
Interest rates and cost to deposit
Consumer credit scores
Industry regulation
Underdeveloped technology infrastructure

Comparison of WTP and Cost

Commercial Banking Positioning Map

Firm-Level Analysis (II)


Analyze your client firms strategy & profits
UBS WTP Driving Activities:
UBS Young Professional Programs allow
young talent to be extensively trained, enabling
them to provide high quality services
Diverse globally allows more comprehensive
financial advising
Strong asset manager
In 2012 culled $300 million in risky assets,
reducing balance sheet risk
One of the highest revenue per financial
advisors in the industry

UBS Cost Driving Activities:


creation of entities that are specialized create
lower capital requirements
Multiple fraud and tax evasion sanctions
Securities unit for UBS was scaled back which
had a lower margin and wealth management
unit was increased, which has a higher margin

Firm-Level Analysis (II)


Analyze your client firms strategy & profits
Why UBS WTP and Cost is Different:
Willingness to pay for UBS is not as high because they appeal to consumers
on a rational level, without imparting the emotional benefits that would
increase business trustworthiness and thus increase WTP to levels that
would be on par with Wells Fargo
UBS hasnt achieved the low interest rates on interest bearing deposits that
Wells Fargo has, so their costs are higher
UBS has had multiple investigations and fines levied against them for
regulatory infractions including but not limited to tax evasion,
discrimination, money laundering and currency manipulation
This affects costs because of the regulatory fines and WTP because it
decreases consumer perception of trustworthiness

Analysis of Leader Firms Strategy & Profits


VRIO Framework
How the leader firms resources affect its profitability Strong company leadership with high employee
retention fosters a culture and environment where customers also loyally stay by the firm, and strengthen the brand
name
Resources

Best capitalized

Strong brand recognition

Client loyalty

Low employee Turnover

Is it Valuable (V)?

Yes

Yes

Yes

Yes

Is it Rare (R)?

Yes, only BoA has been able to not have


had no capital shortfall to meet
regulatory leverage ratio requirement of
5%

Yes, provides a wide


variety of services that
most other commercial
banks do not provide
under one roof

Yes, most banks do not


obtain high employee
loyalty and therefore
clients are not as loyal

Yes, most banks have high


employee turnover

Is it Difficult to Imitate
(I)?

Yes, if competing firms raise capital,


their EPS and return on equity will likely
fall. This will lower their valuation. In
contrast, if they dont raise capital, their
future growth will likely be limited.

No, other firms have


established strong brand
awareness

No, it is possible to
create customer reliance
via programs and
benefits

Yes, banking culture would


have to change to lower
employee turnover

Is firm organized to
capture value?

Yes, but needs to work on certain


fields such as technology
infrastructure development as this will
help with reducing costs and increase
profitability

Yes

Yes

Yes, Wells Fargo has had low


employee turnover for a
while

Analysis of Client Firms Strategy & Profits


VRIO Framework
How the client firms resources affect its profitability UBS Resources only provide them temporary
competitive advantage given that none of them meet the full VRIO criteria

Resources

Capital Competency

Young Professionals
Program

Expert Financial
Advising

Is it Valuable (V)?

yes

yes

yes

Is it Rare (R)?

No, Other banks have knowledge and


expertise to claim capital competency

Yes, Brings in educated


talent

No, not unusual to have


quality financial
advisors on staff

Is it Difficult to Imitate
(I)?

No

No, Easy to set up these


kinds of programs

No

Is firm organized to
capture value?

No

Yes

Yes

Horizontal Scope
Business division

Segment

Products/Services

Banking in
Switzerland

Individual,
Corporate and
Institutional
clients

Wealth Management, Retail Banking,


Corporate & Institutions clients: Payment transactions,
international transactions, financing, corporate finance,
investment, foundation, succession retirement provision

Wealth
Management in
the USA

Individuals and Security backed lending, UBS mortgage, UBS credit and
small businesses debit cards, education planning, retirement plans, estate
planning

Horizontal Scope

Vertical Scope
Scope is mixed given the high power of suppliers and the way the commercial bank is
able to utilize these deposits to provide loans and other services to customers

Assessment of Strategic Issues: Industry-Level


Key challenges affecting industry profits:
Interest rates and cost of deposit
Underdeveloped technology infrastructure

UBS can:

Invest in technology infrastructure or vertically integrate with tech


infrastructure providers
Specifically invest in e-banking and m-banking
Modify capital structure to allow for lower interest rates and cost of
deposits

Assessment of Strategic Issues (II): Firm Level


Key challenges affecting firm profits:

Regulatory fines
Perceived trustworthiness of bank
Lack of market penetration in certain areas

UBS can:

Refrain from future illegal actions


Currently under investigation for tax evasion in multiple countries and have
received many fines for regulatory infractions
Engage in better customer relations
This will improve how trustworthy consumers perceive UBS as and make
them more inclined to invest or pay more, raising WTP and profit
Market more to underpenetrated markets, such as the Americas and Asia

Assessment of Strategic Issues: Corporate


Strategy
Key horizontal scope issues
Smaller range of financial services compared to competitors
Less focus on employee and customer incentive programs in the
Americas/Asia
Key vertical scope issues
Underdeveloped technological infrastructure - competitors have
integrated to online & mobile banking
Use of outside research firm RepRisk to run risk analysis on CSR
initiatives

Our Recommendations: Increasing WTP

Improve consumer trust in the company


Consumer trust or perception of trustworthiness is one of the key drivers of WTP in
the industry
Wells Fargo is currently more trusted than UBS so increasing trustworthiness would
make UBS more competitive
This could be accomplished through consistent returns, marketing and customer
service training

Expand financial services offerings


UBS is currently very reliant on its relatively small range of commercial services
By expanding their services, UBS would be able to strengthen their key strategic
activity: offering expert financial advice
UBS would also be able to increase WTP by increasing consumer perception of
value and reliability with a wide range of financial services

Our Recommendations: Decreasing Costs

Become more compliant with regulations


UBS has incurred millions of dollars in regulatory penalties
They could reduce overall costs by making an effort to become more compliant with
regulations
This would then increase profit, as well as overall consumer perception of the
company and brand
In doing so, UBS should institute business ethics training for all employees

Develop own technological infrastructure


UBS currently licenses software from an outside company
This softwares infrastructure is developmentally behind
By developing their own software, UBS would be able to reduce costs while
providing more value to their consumers

Bibliography:
Our Strategy, Wells Fargo, accessed November 2nd, 2015.
https://www.wellsfargo.com/about/corporate/vision-and-values/our-strategy/
Our Six Priorities, Wells Fargo, accessed November 2nd, 2015.
https://www.wellsfargo.com/about/corporate/vision-and-values/our-priorities/
Saul Perez, Why Wells Fargos strategy is different from other banks,. Market Realist, October 9th, 2014.
http://marketrealist.com/2014/10/why-wells-fargo-is-leveraging-technology-to-cut-costs/
Alden, William. 2014. 'Signs Of Progress In UBS Investment Bank Overhaul'. Dealbook.
http://dealbook.nytimes.com/2014/02/04/signs-of-progress-in-ubs-investment-bank-overhaul/?_r=0.
BBC News,. 2015. 'UBS Confirms Fresh Tax Evasion Probe In The US - BBC News'. http://www.bbc.com/news/business-31349135.
Bloomberg.com,. 2012. 'Swiss Attorney General Opens Criminal Investigation Of UBS'.
http://www.bloomberg.com/news/articles/2012-08-31/swiss-attorney-general-opens-criminal-investigation-of-ubs.
Bloomberg.com,. 2015. 'BlackrockS Hildebrand Sees Credit Suisse Doing UBS-Like Revamp'.
http://www.bloomberg.com/news/articles/2015-06-29/blackrock-s-hildebrand-sees-credit-suisse-doing-ubs-like-revamp.
Forbes.com,. 2015. 'Wealth Management, Not Investment Banking, Keeps UBS On Top'.
http://www.forbes.com/sites/halahtouryalai/2014/05/06/wealth-management-not-investment-banking-keeps-ubs-on-top/.

Bibliography cont.
Wetfeet,. 'Industry Overview: Commercial Banking - Wetfeet.Com'. N.p., 2015. Web. 3 Nov. 2015.
Reuters,. 2015. 'UBS To Pay $545 Mln Over Forex Scandal, Rivals Await Fate'.
http://www.reuters.com/article/2015/05/20/banks-forex-settlement-idUSL1N0YB0FZ20150520.
Settlements, UBS. 2015. 'UBS Sets Aside $2 Billion For Currency Rigging And Tax Evasion Settlements'. Business Insider.
http://www.businessinsider.com/ubs-sets-aside-2-billion-for-currency-rigging-and-tax-evasion-settlements-2014-10.
Ubs.com,. 2015. 'Our Strategy | UBS Global Topics'. https://www.ubs.com/global/en/about_ubs/about_us/strategy.html.
Schwarz, Jrgen et al. 'Five Trends Disrupting The Corporate Banking Landscape'. www.bcgperspectives.com. N.p., 2015. Web. 3 Nov. 2015.
Financials.morningstar.com,. 'UBS: UBS Group AG Top Competitors And Peers'. N.p., 2015. Web. 3 Nov. 2015.
UBS.com. 2015. UBS Group AG 2014 Annual Report. N.P., 2015. Web. 3 Nov. 2015.
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IBIS World. 2015. Industry Report: Commercial Banking Industry in the US.
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Liyan Chen. 2015 Global 2000: The Worlds Largest Banks. Forbes.com. 2015. Web. 3 Nov. 2015. http://www.forbes.com/sites/liyanchen/2015/05/06/2015global-2000-the-worlds-largest-banks/
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