Banking, Investment Banking and Securities

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Transcript of Banking, Investment Banking and Securities

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    F I N A N C I A L S E R V I C E S

    T H E S T A T E O F

    T H E B A N K I N G I N D U S T R Y

    B a n k i n g a n d

    I n v e s t m e n t B a n k i n g & S e c u r i t i e

    A p r i l 1 J u n e 3 0 , 2 0 0 3

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    A p r i l 1 t h r o u g h J u n e 3 0 , 2 0 0 3

    P u b l i s h e d A u g u s t 2 0 0 3

    The State of the Banking Industry is published by KPMGs Banking practice for members of the Banking

    and Investment Banking and Securities Industries. Information and statistics contained in this document

    were obtained from publicly available materials. The information provided here is of a general nature and

    is not intended to address the circumstances of any particular individual or entity. Although we endeavor

    to provide accurate and timely information, there can be no guarantee that such information is accurate as

    of the date it is received or that it will continue to be accurate in the future. No one should act upon such

    information without the appropriate professional advice after a thorough examination of the facts of the

    particular situation.

    For additional information on KPMG, please go to our Web site at www.us.kpmg.com.

    F I N A N C I A L S E R V I C E S

    T H E S T A T E O F T H E B A N K I N G I N D U S T R Y

    B a n k i n g a n d I n v e s t m e n t B a n k i n g & S e c u r i t i e s

    2003 KPMG LLP, the U.S. member firm of KPMG International, a Swiss nonoperating association.

    All rights reserved.

    BearingPoint, Inc., formerly KPMG Consulting Inc., is an independent consulting firm and is not affiliated with KPMG International

    or any KPMG member firm.

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    2003 KPMG LLP, the U.S. member firm of KPMG International, a Swiss nonoperating association.

    All rights reserved.

    BearingPoint, Inc., formerly KPMG Consulting Inc., is an independent consulting firm and is not affiliated with KPMG International

    or any KPMG member firm.

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    T A B L E O F C O N T E N T S

    Q uar ter l y U pdates

    General Highlights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

    Earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

    Taxation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

    Regulation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

    Legislation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

    Accounting Standards and Developments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

    Market Forces

    Broker/Dealers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

    Consolidation and Convergence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

    International Focus and Globalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22

    e-Business and Technology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23

    Risk Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24

    KPMGs Ban k i n g I n s i d er

    Analysis and Commentary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26

    2003 KPMG LLP, the U.S. member firm of KPMG International, a Swiss nonoperating association.All rights reserved.

    BearingPoint, Inc., formerly KPMG Consulting Inc., is an independent consulting firm and is not affiliated with KPMG International

    or any KPMG member firm.

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    2003 KPMG LLP, the U.S. member firm of KPMG International, a Swiss nonoperating association.

    All rights reserved.

    BearingPoint, Inc., formerly KPMG Consulting Inc., is an independent consulting firm and is not affiliated with KPMG Internationalor any KPMG member firm.

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    Q U A R T E R L Y U P D A T E S

    G e n e r a l H i g h l i g h t s

    On May 8, 2003, the Public Company Accounting

    Oversight Board announced that Thomas Ray is joining

    the Boards staff as Deputy Chief Auditor who will work

    closely with Chief Auditor Douglas R. Carmichael. Mr.

    Ray, a partner in KPMG LLPs Department of

    Professional Practice Assurance, has been the

    chairman of the International Auditing Standards

    Subcommittee of the AICPA, a member of the AICPA

    Internal Control Reporting Task Force, and a member of

    the International Auditing and Assurance Standards

    Board Quality Control Task Force. (PCAOB press

    release, May 8, 2003)

    On June 2, 2003, NASD announced that it has agreed to

    principle terms to sell the American Stock Exchange to

    GTCR Golder Rauner LLC, a Chicago based private

    equity firm for approximately $110 million, subject to

    completion of definitive sale documents and various

    approvals. In line with NASDs key goals to exit

    ownership of exchanges and focus on its core mission as

    a regulator to promote market integrity and protect

    investors, NASD began the process by spinning off

    Nasdaq in 2000. (NASD press release, June 2, 2003)

    The final report and recommendations of the

    NYSE/NASD IPO Advisory Committee was issued on

    May 29, 2003 and proposes 20 steps to enhance public

    confidence in the integrity of the IPO process. The

    Committee, formed in October 2002 by the New York

    Stock Exchange and NASD at the request of the SEC,

    included corporate, financial and academic leaders.

    Recommendations of the Committee are intended to

    complement the numerous recent legislative and

    regulatory initiatives, including the Global Settlement

    among regulators and major investment banks. Overall:

    The IPO process must promote transparency in

    pricing and avoid aftermarket distortions.

    Abusive allocation practices must be eliminated.

    The flow of, and access to, information regarding

    IPOs must be improved.

    (NASD/NYSE press release, May 29, 2003)

    On June 5, the NYSEs board of directors adopted initial

    recommendations of its Special Committee on

    Governance of the NYSE that would annually disclose

    director and senior executive compensation, prohibit

    NYSE officers from serving on the boards of listed

    companies, and provide that the NYSEs compensation

    committee consist only of non-securities industry

    directors. These were among ten initial steps to be put

    into effect immediately to ensure that the NYSEs

    governance structure and practices best serve the 85million people who invest, directly or indirectly, through

    the NYSE. (NYSE press release, June 5, 2003)

    New Tillinghast-Towers Perrin research indicates that

    there is going to be a considerable increase in the sale of

    financial services products through the workplace,

    particularly in the areas of critical illness, health

    insurance, and banking products such as personal loans,

    credit cards and mortgages. Reasons behind the expected

    growth include the relatively low customer acquisition

    costs; the increasing interest in flexible benefit schemesof employers as they look to reduce their costs while

    adding choice; the need to educate consumers on

    financial issues as the Government seeks ways in which

    to reduce the retirement savings gap; and the potential

    change from occupational pension schemes to individual

    plans. (Tillinghast press release, June 2, 2003)

    Weiss Ratings, Inc. noted that in 2002 the banking

    industry set a new record for profits, earning $105.3

    billion, outpacing its previous record of $87.5 billion in

    2001. With interest rates at near record lows, the surgein consumer demand for loans more than offset the

    decline in commercial lending. Banks saw more

    profitable net interest margins, higher values for bond

    holdings and increased consumer demand for mortgages,

    home equity and credit card loans and other consumer

    borrowing. There was a 9.7 percent increase in both

    home mortgage lending and consumer loans and a 39.1

    2003 KPMG LLP, the U.S. member firm of KPMG International, a Swiss nonoperating association.

    All rights reserved.

    BearingPoint, Inc., formerly KPMG Consulting Inc., is an independent consulting firm and is not affiliated with KPMG Internationalor any KPMG member firm.