Bdx Valuation
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Investment Banking & Securities Dealing in the US
Analysis of Porters Five Forces Submitted By
Rahul Agarwal
Industry Background-
This industry comprises investment banks and firms that engage in investment banking activities. This includes corporate finance activities such as debt and equity underwriting, financial advisory services (M&As and IPOs) and corporate lending. Primary activity of the participants in the industry can be summarized as:
Underwriting, originating or maintaining markets for securities issuance
Principal and proprietary trading
Corporate finance services
Corporate strategy advisory services
Investment advice and security services
Key Statistics and Major Players
Revenue- $170.4bn
Businesses -10,833
Wages -$62.6bn
Profit -$25.9bn
Current Growth Rate -4.9%
Projected Growth rate-1.5%
Market Share
J.P. Morgan Chase & Co. 8.8%
Bank of America Corporation 7.9%
Morgan Stanley Smith Barney LLC 7.9%
The Goldman Sachs Group Inc. 7.6%
Citigroup Inc. 4.8%
Current Trends-
The Investment Banking and Securities Dealing industry generates the majority of its revenue from fees charged for financial advisory services (e.g. mergers and acquisitions), underwriting services (e.g. debt and equity underwriting) and trading activities. Most macroeconomic factors affect this highly cyclical industry, including employment rates, interest rates, income levels and consumer confidence. Because of this reliance on the general economy, revenue has experienced severe highs and lows over the five years to 2011. The industry has been on a roller coaster since it achieved record revenue highs in revenue of $214.2 billion in 2007. Regulation and consolidation have been major industry trends, land-mark legislations such as the Dodd-Frank act of 2010 have significantly changed the way investment banks carry out certain functions such as, proprietary trading therefore directly impacting the profitability of these firms immensely.
The Investment Banking and Securities Dealing industry is in the mature phase of its economic life cycle. While the industry tends to be cyclical, with revenue and profitability moving in tandem with financial and economic market cycles, it also displays longer-term trends. These trends include rising consolidation and the increasing size of industry players. Products and services in the investment banking and securities dealing industry vary considerably depending upon the financial activities individual investment banks choose to engage in. Smaller and medium sized investment banks target niche industries and smaller companies and rely more heavily on traditional investment banking activities such as underwriting and financial advisory.
Competitive Landscape-
The current economic crisis has changed the competitive landscape of the industry, deteriorating economic conditions have ushered rapid consolidation in the industry. Most significant players such as Bear Stearns and Lehman Brothers are no longer around, since existing players have bought up their operations. Rapid consolidation has lead to massive restructuring and lay-off aimed at pruning the excess capacity that existed in the industry. The industry concentration is medium with larger players historically controlling 40% of the market share. It is projected that the top five players would continue to dominate the market in the future. Cost structures across the industry vary considerably based on the financial activities banks choose to engage in. Small and mid-size investment banks have slightly higher