0. Competitive Strategies in Global Wholesale Financial Markets
Annual Washington Conference of the Institute of International Bankers
March 5, 2007

1. TODAY’S DISCUSSION Competing in wholesale financial services
NY/US competitiveness as a market

2. TODAY’S DISCUSSION Competing in wholesale financial services
Strong starting point
Opportunities going forward
How are players positioned?
NY/US competitiveness as a market

3. STRONG STARTING POINT
The growth and optimism of 2004 and 2005 has continued through
Banks have been firing on all cylinders
Advisory and underwriting at record highs
Equity markets experiencing strong growth
Rising asset prices make making money easy
Ever-growing demand for structured credit
Plentiful capital flowing into alternatives
Favorable macroeconomic conditions across the globe

4. BANKS HAVE PRODUCED EXTRAORDINARY RESULTS
11.5
BANKS HAVE PRODUCED EXTRAORDINARY RESULTS
Top 10 corporate and investment banks
Revenues,
2005, $b
Revenue CAGR,
04-1H06, %
ROE,
2005, %
Profit CAGR, %
23.9
15.7
8.8
24.0
21.8
39.4
48.6
21.8*
19.8
27.1
59.3
18.0
15.7
28.8
38.7
24.2
14.6
21.1
12.3
18.0
14.1
60.5
18.0
27.6*
13.9
29.2
32.2
16.0*
12.7
27.4
35.7
21.6*
12.2
31.1
73.7
16.2
11.5
13.9
8.9
16.8*
10-year growth rate
* ROE for entire organization; does not report ROE for CIB division
Source: McKinsey Global CIB 50, company filings

5. UNDERLYING IT ALL, FINANCIAL STOCK GROWTH
5.2
UNDERLYING IT ALL, FINANCIAL STOCK GROWTH
CAGRs ( ), Percent
Private debt
Non-Japan Asia UK
Eurozone
U.S.
Equities
Non-Japan Asia UK
Eurozone
U.S.
Source: McKinsey Global lnstitute

6. 15
EUROPE NOW ALMOST AS LARGE IN REVENUES AS AMERICAS, ASIA WITH FURTHER POTENTIAL
2005 Capital Markets revenue
Estimated revenue growth*
%, 2004–2005
EMEA
Non-Japan Asia Pacific
Japan
Americas
Penetration (revenues/GDP) bp, 2005
* Average of range is shown
Source: McKinsey Global Capital Markets Revenue Pool, Global Insight (World Market Monitor, ), team estimates

7. LARGE GLOBALS DOMINATE THE AMERICAS, OTHER REGIONS ARE MORE BALANCED24
LARGE GLOBALS DOMINATE THE AMERICAS, OTHER REGIONS ARE MORE BALANCED
Global players
Aspiring globals and Major regionals
Capital markets revenues, %, 2005, global figures
National champions
Exchanges
Non-Japan Asia Pacific
$ 20 billion
Americas
100% = $92 billion
EMEA
$ 85 billion
Japan
$ 16 billion 25 29 44 30 40 33 49 9 18 24 63 3 24 3 3 3
Source: McKinsey Global Capital Markets Revenue Pool

8. BOTH AMERICAS AND EMEA WITH PRODUCT STRONGHOLDS4
BOTH AMERICAS AND EMEA WITH PRODUCT STRONGHOLDS
Fixed income
Total capital market revenues, USD billions, 2005, Global figures
Equities
Americas revenues
Institutional Cash Equity 15
Securitization
Securitization
Flow Credit
Flow Credit 10 FX
STIR/MM
Flow Derivatives
Exotic Rates
Equity Derivatives
Flow Derivatives
Benchmark Bonds FX 5
Commodities
Commodities
Equity Derivatives
STIR/MM
Convertibles
Convertibles
Exotic Credit
Exotic Credit
Exotic Rates
Brokerage Execution 2 4 6 8 10 12 14 16
EMEA revenues
Source: McKinsey Global Capital Markets Revenue Pool

9. 60
IN PARTICULAR, EUROPE CAPTURES MOST OF THE FLOW AND STRUCTURED DERIVATIVES REVENUE
2005 Revenues
$ Billions, percent
100% =
$26
$26
APAC 8% 6%
Japan 8 9 25
Americas 32 60
Europe 52
Flow derivatives
Structured derivatives
Source: McKinsey Global Capital Markets Survey

10. WHERE THE WHOLESALE BANKING MARKET IS HEADED
Market developments
Implications for players
Increasing scale of capital markets
Trading and risk management increasingly important
Excess capacity and capital in the industry at large
Margins compressed and capital commitment required to compete for accounts
Technological advancements continue
Marginal costs fall to zero, making scale critical
Relentless regulatory push for greater transparency
Increased scrutiny of dealer risk monitoring of client exposures and conflicts when acting as principal
Revenue increasingly concentrated in a smaller number of mega deals and fewer clients
Disciplined and focused client service a must
Broader product suites needed to create sustainable returns and buffer against down cycles
Pressure to hire top talent particularly in structured product areas
Players that cannot leverage scale or scope forced to compete on skill, driving specialization
Strategies diverge with losers caught in the middle

11. KEY INITIATIVES FOR 2007 Where to compete
Penetrate key client segments
1. Focus on providing coordinated service to increasingly demanding hedge fund and financial sponsor client segment
2. Should you compete for the middle market?
Build out or expand product offerings
3. Lead the innovation in new risk management products
4. Build out structured product capabilities across asset classes
Explore new geographies
5. Pursue effective and efficient geographic expansion – localization will be increasingly important
6. China and India: Still the next big thing; Great Crescent?
How to compete
7. Provide distinctive client service through a targeted and disciplined approach
Serve clients better
Build the best infrastructure
8. Use cutting edge front-office technology as a competitive weapon
9. Design the next-generation operating model
10. Win the war for talent
Deploy capital wisely
11. Deploy capital for key clients while monitoring returns
12. Invest in state-of-the-art risk management to ride the uncertainty

12. HOW ARE PLAYERS POSITIONED TO WIN?
Industrial legacy
Product-focused
Banking legacy
Regional powerhouse
Universal
Ideas and principal
Broker-dealer legacy
Efficient execution
Source: McKinsey Global CIB Revenue Survey

13. TODAY’S DISCUSSION Competing in wholesale financial services
NY/US competitiveness as a market

14. FINANCIAL SECTOR COMPETITIVENESS BECAME AN URGENT PRIORITY FOR KEY POLICY MAKERS IN 2006
“Unless we improve our corporate climate, we risk allowing New York to lose its pre-eminence in the global financial services sector. This would be devastating for both our City and nation.”
Mayor Michael R. Bloomberg and U.S. Senator Charles E. Schumer
November 1, 2006, Wall Street Journal
“U.S. capital markets are the lifeblood of our economy.”
Treasury Secretary Henry M. Paulson
November 20, 2006, New York Economic Club
“America’s capital markets are the deepest, the broadest and the most efficient in the world. Yet excessive litigation and over-regulation threaten to make the financial markets less attractive to investors, especially in the face of rising competition from abroad. To keep America’s economic leadership, America must be the best place in the world to invest capital and do business.”
President George W. Bush, January, 2007, Federal Hall, New York

15. 153
CEOs BELIEVE LONDON’S NEAR-TERM FUTURE PROSPECTS ARE FAR BETTER THAN NEW YORK’S
Ranking by response, percent
Do you believe this city will become more
or less attractive over the next 3 years? 9 54
Much more attractive
More attractive 15
About the same 44 38 8
Less attractive 41
Much less attractive
New York City
London
Source: McKinsey Financial Services CEO Survey
Source: Dealogic; year-to-date data compiled as of 11/02/2006.

16. NEW YORK EXCELS IN TALENT BUT UNDERPERFORMS IN LEGAL AND REGULATORY
Importance*
High
Performance gap, rating scale
Medium
Low
Deep and Liquid Markets
High Quality Transportation Infrastructure
Availability of Professional Workers
High Quality of Life (Arts, Culture, Education)
Low All-In Cost to Raise Capital
Effective and Efficient National Security
Availability and Affordability of Technical and Administrative Personnel
Reasonable Compensation Levels to Attract Quality Professional Workers
Close Geographic Proximity to Other Markets Customers and Suppliers
Government and Regulators are Responsive to Business Needs
Reasonable Commercial Real Estate Costs
Favorable Corporate Tax Regime
Openness of Immigration Policy for Students and Skilled Workers
Fair and Predictable Legal Environment
Workday Overlaps with Foreign Markets Suppliers
Attractive Regulatory Environment
Openness of Market to Foreign Companies
Low Health Care Costs
* High importance factors were rated between on a 7-point scale; medium between ; low were less than 5.0
Source: McKinsey Financial Services Senior Executive Survey

17. ENHANCING THE COMPETITIVENESS OF U.S. FINANCIAL MARKETS
Competitive U.S. financial markets, especially global financial hubs like New York, are critically important for sustained U.S. economic growth
External factors and internal factors that we can control are damaging the competitiveness of U.S. financial markets
Bloomberg-Schumer Report recommendations focused on ensuring U.S. and New York global financial services leadership

18. ENHANCING THE COMPETITIVENESS OF U.S. FINANCIAL MARKETS
Competitive U.S. financial markets, especially global financial hubs like New York, are critically important for sustained U.S. economic growth
External factors and internal factors that we can control are damaging the competitiveness of U.S. financial markets
External factors naturally shifting benefit international markets
U.S. winning the war for talent for now, but losing on legal and regulatory environment
As a result, U.S. losing critical contested markets, with stark future absent change
Bloomberg-Schumer Report recommendations to ensure U.S. and New York global financial services leadership

19. ENHANCING THE COMPETITIVENESS OF U.S. FINANCIAL MARKETS
Competitive U.S. financial markets, especially global financial hubs like New York, are critically important for sustained U.S. economic growth
External factors and internal factors that we can control are damaging the competitiveness of U.S. financial markets
Bloomberg-Schumer Report recommendations focused on ensuring U.S. and New York global financial services leadership
Critically important near-term priorities
Initiatives to enhance U.S. competitiveness
Important longer-term national priorities
Enhancing New York as a financial center

20. BLOOMBERG-SCHUMER REPORT RECOMMENDATIONS
Critically important near-term priorities
Provide clearer guidance on SOX implementation
Implement securities litigation reform
Develop a shared financial sector vision and guiding principles to set strategic direction
Initiatives to enhance U.S. competitiveness
Ease restrictions on skilled non-U.S. professional workers
Recognize IFRS now without reconciliation and promote faster convergence of international standards
Protect U.S. competitiveness under Basel II international capital accord
Important longer-term initiatives
Create independent, bipartisan National Commission on Financial Market Competitiveness
Modernize financial services charters and holding company structures
Enhancing New York as a financial center
Create a public-private joint venture focused exclusively on financial services
Source: Bloomberg-Schumer Report

21. QUESTIONS?

22. Competitive Strategies in Global Wholesale Financial Markets
Annual Washington Conference of the Institute of International Bankers
March 5, 2007