The Must-Read Guide

to the Key Issues

at Every Major
Wall Street Bank

The must-read guide to the key issues

at every major Wall Street bank
Portia Crowe and Matt Turner
Jan. 12, 2016, 3:42 PM

Wall Street banks had a rough end of 2015, and

now analysts are looking ahead at whats to come
this year.
Societe Generale bank analyst Geoff Dawes and
his team put together a Banks Handbook for the
year ahead and took a deep dive into the issues
facing the top banks in the US and Europe.
Among other things, they listed the three biggest
strategic challenges each of the banks is facing.
These range from adapting to new regulatory
hurdles to following through on restructuring
plans.

Lucas Jackson/Reuters

We put together a list of 10 major banks and the

the biggest challenges they must overcome this
year, via Dawes note.

Copyright 2016, Business Insider, Inc. All rights reserved.

Goldman Sachs
Maintaining growth in banking
revenues after a period of robust
growth.
In the third quarter of 2015, Goldman Sachs
produced year-to-date net revenues of $5.48
billion its highest performance for that period
since 2007.

Ensuring large share buyback policy

can be resumed after being impacted
by 2015 DFAST process
Goldman Sachs

DFAST refers to the Dodd-Frank Act stress test,

Goldman Sachs CEO Lloyd Blankfein.
which assesses whether large banks have enough
capital to absorb losses in the event of an economic crisis. Goldman had to submit a revised dividend
and stock-buyback plan to the Fed, after finding that the initial plan would have left the bank short of
capital in a stressed scenario.

Managing potentially large RWA inflation from the BCBS Trading Book review
RWA refers to risk-weighted assets, which measures a banks assets weighted according to their
riskiness. The BCBS Trading Book review refers to a revised market risk framework from the Basel
Committee on Banking Supervision which looks set to increase some risk weightings, which in turn
will likely inflate total RWAs.
That is important, as it could mean banks will have to hold more capital against those assets.
RWAs are used to calculate bank capital ratios (a measure of stability), and any RWA inflation could
lead to a need for more capital.

Copyright 2016, Business Insider, Inc. All rights reserved.

Morgan Stanley
Implementing managements strategy
to improve wealth management
operations.
Wealth management has been a key focus for
Morgan Stanley since the financial crisis and is
its most profitable business. The president of
the wealth management division, Greg Fleming,
unexpectedly left the bank last week, and that
team is now under the purview of president Colm
Kelleher.

Deleveraging the FICC business

adequately to improve ROE.

Getty

Morgan Stanley CEO James Gorman.

In November, news broke that Morgan Stanley

would lay off 25% of its fixed income, currencies, and commodities team to help improve the banks
return-on-equity. UBS bank analyst Brennan Hawken estimated at the time that a 25% FICC cut could
boost ROE by 125 basis points or more, if reinvested into other divisions of the firm.

Managing the RWA impact from the BCBS Trading Book review.
Like at Goldman Sachs, the impact of the Basel Committee trading book review on risk-weighted
assets is a concern for Morgan Stanley too.

Copyright 2016, Business Insider, Inc. All rights reserved.

JPMorgan
Optimising overall business risk,
complexity, size and manage potential
GSIB related add-on in stress tests
JPMorgan tops a number of global bank rankings
in terms of how interconnected it is with other
banks, how difficult it would be to replicate or
replace, and how complex its business is.
Regulators are focused on these kinds of
institutions, which now have to hold more capital
than smaller, less-interconnected institutions.

Optimizing client relationship while

minimizing the downside risks to
business/revenues

JPMorgan Chase shareholder letter

JPMorgan CEO Jamie Dimon.

JPMorgan has been focusing on cutting the numbers of clients it deals with. Daniel Pinto, chief
executive of the corporate and investment bank at JPMorgan, alluded to the effort in a November
presentation, saying: What we have done in the last few years, and we are really more and more
focused in the last couple, we do a lot of work on client planning.

Whether to step-up investments in Asia to bolster presence/growth

JPMorgan finished 2015 as the number one investment bank in the US, and the number one
investment bank in Europe, according to Dealogic. In Asia, it ranked seventh.

Copyright 2016, Business Insider, Inc. All rights reserved.

Wells Fargo
Earnings growth in a low-rate
environment
In December, the Federal Reserve raised interest
rates for the first time in 9 years but theyre still
low, and will remain low for some time.
Wells Fargo is well positioned for continued
interest-rate hikes from the Federal Reserve,
according to Goldman Sachs. But analysts will be
keeping an eye on how the banks earnings change
as rates go up.

US-centric business model and its

limitations in supporting clients global
needs

John Adkisson/Reuters

Wells Fargo CEO John Stumpf.

Wells Fargo is Americas largest bank by market capitalization, despite not have much of a global
presence. That could be a problem in an increasingly globalized world.

Mortgage banking with peers scaling back, what is the opportunity

Mortgage lending and refinancing is a big part of Wells Fargos business, and some banks have been
pulling back from the business. That could create an opportunity for a bank like Wells Fargo.

Copyright 2016, Business Insider, Inc. All rights reserved.

Citigroup
Large overall exposure to EMs/Asia in
the current unfavorable environment
Emerging markets have been taken a hammering,
and that has repercussions for a bank like
Citigroup which has historically had a strong
position in many of those markets.

Need for further simplification of

business model
Citis chief executive and chairman have admitted
that the firms business model is too complex to
manage. CEO Michael Corbat said in 2014 that
it would take a couple of years to transform an
amalgamation of 35 local consumer banks to one
global firm, according to Reuters.

YouTube

Citigroup CEO Michael Corbat.

Improving RoTE: Card yet to pickup and new investments to take

3 years to turn profitable
RoTE refers to return on tangible equity, and card refers to the card business. Improved consumer
spending in the US could help the unit.

Copyright 2016, Business Insider, Inc. All rights reserved.

Bank of America
Brand erosion: most recently issues
around combining of Chairman/CEO
roles
In September, shareholder confidence in CEO
Brian Moynihan was put to the test when they
were asked to vote on whether or not he should
also retain the title of chairman.
In the end, Moynihan won the vote, but it was
damaging for the bank. And he ended up with
only a 63% yes vote.

Re-building ROTEs to mid-teens

As with Citigroup, the focus is on improving
returns on tangible equity.

REUTERS/Bobby Yip

Bank of America CEO Brian Moynihan.

Building capital and ramping-up payout to peer levels

Bank of America has had a little difficulty with the Feds Stress Test in the past, and investors would
like to see higher payouts to shareholders.

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Deutsche Bank
Deleveraging the I-Bank to improve
group ROTNAV
Deutsche Bank has announced a restructuring
of its investment bank in a bid to earn improved
returns. That includes cutting assets, which
should help improve ROTNAV (return on tangible
net asset value.)

Aggressive cuts in costs and bonuses,

while maintaining strength of the
franchise
CEO John Cryan took a veiled dig at the way
investment bankers are paid in an October
presentation.

REUTERS/Kai Pfaffenbach

Deutsche Bank CEO John Cryan.

Included on a presentation slide outlining the significant challenges at the banks market division
was a bullet point made up of three words: Inflexible compensation culture.

Building up market share in the US, where Deutsche Bank is weaker than global
I-bank peers
Deutsche Bank finished 2015 ranked ninth by investment banking fees in the US, according to
Dealogic, behind European peers Barclays and Credit Suisse.

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Credit Suisse
Improving the reported ROTNAV
after incurring net cost cuts and
restructuring
Improving ROTNAV is a recurring theme for
European banks. In short, the challenge is
improving returns while also incurring the costs
of job cuts and restructuring efforts.

Achieving acceptable IB ROTNAV

(especially in flow credit and
securitized products) in a tough FICC
environment

Thomson Reuters

Credit Suisse CEO Tidjane Thiam.

New Credit Suisse CEO Tidjane Thiam wasted

little time in making deep cuts to parts of the fixed income business. Now the bank has to deliver a
reasonable return in the businesses that remain.

Trying to improve wealth management growth and profitability, especially in US

and Asia
Thiam is high on Asia. In the first set up results since taking up his post back in July, he mentioned
Asia in four of the first five sentences in his results comments, and nine times in a letter to
shareholders.

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10

Barclays
To shrink the non-core assets without
destroying book value
Barclays created a non-core division back in 2014
housing all the assets it wanted to dispose of. The
challenge is getting rid of those assets at a fair
price when the market knows they want out.

To maintain a strong ongoing

investment bank even with higher
leverage-ratio requirements
A leverage ratio measures capital against total
assets, with regulators announcing January 11 that
a ratio of 3% had been set as a permanent level.
The ratio will be higher for systemically important banks.

REUTERS/Yuri Gripas

Barclays CEO Jes Staley.

To sustain strong US credit card growth even as loan book grows

Barclays operates the Barclaycard credit card in the US.

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11

UBS
Improving its track record of cost
reduction (especially in Corporate
Center) and meeting its 60-70% group
C/I target
UBS has cut staff and pulled out of business lines
under CEO Sergio Ermotti. Still, there is some way
until the bank hits its group cost/income target.
The ratio for the third quarter stood at 85.8% on
an adjusted basis.

Using excess capital wisely to

maximize shareholder return
UBS describes itself as the best-capitalized large
global bank.

Michael Buholzer/REUTERS

UBS CEO Sergio Ermotti.

Trying to improve internal compliance procedures and therefore avoid litigation

issues
UBS has a history of compliance issues, ranging from rogue trader Kweku Adoboli to Libor trader
Tom Hayes.

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