European Investment Banking Industry Study – Phase 1

Appendix

17th December, 2004

Pack Contents

1. Executive Summary

2. Appendix
• Market Analysis
• Advisory, lending and underwriting
• Sales & trading
• Asset management
• Customer Demand Analysis
• Segmentation
• Customer drivers
• Competitive Landscape
• Competitor Segmentation
• Case Studies
• Trends in Regulation

-2-
Market Analysis
 arket Analysis…
Market
The Output From This First Phase Sets Out The Industry Dynamics, Phase 2 Will Analyse Client X’s
Strategic Response Options And Capabilities

Key findings and implications Phase 1 objectives

High level  European i-banking is a large market, growing through:  Key industry trends including customers,
European  Increased demand from corporate securities market, products, sales, distribution, operations,
particularly from institutional investors technology and regulatory trends (as available)
industry trends  Recent and historical developments in the
 Europe concentrating activity in London and Frankfurt
and  Increased pressure for scale and consolidation European Investment Banking industry and of
developments  Demand for loans, bond issues and refinancing self sustaining subsidiaries of foreign banks
 Volatility has been managed poorly by commercial parent banks  How the industry is handling volatility of revenue

Demand & supply  Governments are seeking to meet financing need with a lower  Investment banking services demand by client
patterns on key risk profile while supporting corporate bond markets (buy and sell side), product, principal,
 Growth in financial institutions in Europe has been led by the brokerage, advisory, asset and wealth
indicators management
institutional investor segment; however hedge funds have
different needs than the pensions  Investment banking services supply by bank,
 Corporates are evolving needs that are increasingly not met by product
banks; mid-market may represent the best opportunity  Investment banking supply winners & losers

Key competitor  Size matters – investment banking markets appear to be  List of key competitors
becoming increasingly dominated by the large players as shown  Current and future market position, strategy
segmentation
in league tables overview, size, scope, key risks and critical
analysis  Being local matters – on the continent, local banks (e.g. BNP in success factors
France) may have “home team” advantage in advisory business
 Niche players have focused on profitable products and not on
building a full service offering

Case studies  Growing a self-sustaining European subsidiary typically  Market entry to steady state case studies
demands: including background, market position, strategy
 Strong support from a parent without a credit-risk overview, size, scope and achieved results
mindset  Critical success factors
 Careful execution of target or specialist team acquisitions  Organisation design
 Most of the leading bulge bracket banks have a regional led
approach – with a European CEO in place

-4-
 arket Analysis…
Market
We Have Broken The Industry Assessment Into Three Key Segments To Conduct Sizing And
Highlight Key Trends

Market

Advisory Sales & Trading Asset Management

• Corporate finance • Brokerage • Institutional

• M&A • Equity and fixed • Alternative

income investments
• Commercial lending • Hedge funds,
• Commodities fund of funds
• Securitisation, asset • Private equity,
finance • Foreign exchange venture capital

• Equity & debt • Derivatives (OTC, • Private wealth

underwriting ETF) management

• Research supports all three areas in a non-revenue earning manner: Stock & bond buyers are primarily institutional; they see value
in quality research

• A loyal buyer base gives a bank a strong distribution channel, which it can in turn lever to bring in more advisory business: a strong
distribution channel improves a bank's ability to get stock & bond offering mandates because the bank can generate more demand &
thus a higher price for stocks/bond offerings

• This strength also affects M&A advisory, because most buyers have to tap capital markets to fund M&A activity
-5-
Market Analysis – Advisory, Lending & Underwriting
 arket Analysis… Advisory, Lending & Underwriting
Market

Advisory, Lending & Underwriting Summary

 The macro-economic trends of the recovery in this business cycle are broadly homogenous across Europe

 Advisory and underwriting revenues and profit margins are forecast to recover

 Comparing Europe to the US in more detail highlights some important differences – notably the faster
recovery of the advisory business in Europe

 High-yield is forecast to be the fastest growing area of the underwriting business going forward

 The Global M&A advisory snapshot shows increasing consolidation to the top 5 players. For European
M&A advisory the picture is the same

 Further, fee rates in both equity underwriting and M&A have remained strong

 Consolidation to top market players is also a feature of the global equity underwriting snapshot. The same
trend can be broadly seen in Europe

 Global debt underwriting snapshot shows a different picture with share of top 10 players on the decline. In
Europe, the global debt underwriting consolidation trend does not appear to hold

 Euro area bond issuance is also continuing to grow while debt underwriting pricing trends have been mixed

 Corporate lending growth trends show that the Italians are increasingly credit hungry and country analysis
shows Spain as one of the fastest growing lending areas

 Corporate lending spreads have been relatively well maintained in Germany – the creation of a single
European financial market has not noticeably led to increased
-7-
competition
 arket Analysis… Advisory, Lending & Underwriting
Market

The Macro-economic Trends Of This Business Cycle Are Broadly Homogenous Across Europe
Real GDP growth decelerated in 2001-2003 but rebounding at Investment Banking Revenues movement in Europe closely
2.2% in 2004 in Eurozone: Stable growth outlook for 2005 related to UK GDP movements
5% 80%
Spain
UK
UK to
to witness
witness
4% declining
declining trend
trend 60%
France
UK
3% 40%
Upward trend.
Decelerating
2% 20% growth in 2005

1% Germany 0%
1996 1997 1998 1999 2000 2001 2002 2003
0% -20%
1996

1997

1998

1999

2000

2001

2002

2003

2004

2005
-1% -40%

EuroZone UK Germany France Spain -60%

Source: International Monetary Fund Source: International Financial Services, London

Indices experiencing a steady improvement after a drop in

Euronext and FTSE Euro Top 100 following the same pattern
March 2003
350 110
300 100
90
250
80
200
70
150 60
100 50
40
50
30
0 Jun-01

Jun-02

Jun-03

Jun-04
Dec-00

Dec-01

Dec-02

Dec-03

Dec-04
Mar-96

Mar-97

Mar-98

Mar-99

Mar-00

Mar-01

Mar-02

Mar-03

Mar-04
Sep-96

Sep-97

Sep-98

Sep-99

Sep-00

Sep-01

Sep-02

Sep-03

Sep-04

FTSE 100 NYSE Composite XETRA DAX PF (.GDAX) Euro next FTSE Euro To p100

Source: Factiva - 8 -Source: Factiva

 arket Analysis… Advisory, Lending & Underwriting
Market

Advisory and Underwriting Revenues and Profit Margins Are Forecast To Recover
Global Revenues (2003) Global Profits (2003)
$$ billion
billion 189 $$ billion
billion
200 % 75
5.5
168 161 GR
CA
175
60 56 %
58
150 49 5.8
54 95 GR
CA
125 15
87 45 29
100
31
67
75 30 25
52
39 16
50
15 12
25 47
35 42 16 13
7
0 0
2000 2003 2006 2000 2003 2006
CF&A Equities Fixed Incom e CF&A Equities Fixed Incom e

Source: BCG Investment banding and capital markets report, March 2004 Source: BCG Investment banding and capital markets report, March 2004

Global Investment Banking Profits Margins(2003) Revenue Split (2003)

In
In %
% Regional Revenue Split
50

Debt Capital
40 Markets

30
Equity Capital
Markets
20

10
M&A

0
2000 2003 2006 0 10 20 30 40 50 60 70 80 90 100
CF&A Equities Fixed Incom e
Am ericas Europe Asia

Source: BCG Investment banding and capital markets report, March 2004
Source: BCG Investment banding and capital markets report, March 2004
-9-
 arket Analysis… Advisory, Lending & Underwriting
Market
Comparing Europe To The US In More Detail Highlights Some Important Differences – Notably The
Faster Recovery Of The Advisory Business In Europe

Source: Smith Barney

Key Product Volumes (3Q04 vs. 2Q04) Key Product Volumes (3Q04 vs. 3Q03)
C o m ple te d M &A 23%
C o m ple te d M &A 30%
Anno unc e d M &A 23%
Anno unc e d M &A 13%

Europe
Europe

Equity is s ua nc e 20%
Equity is s ua nc e -3%
Inv gra de bo nd is s ua nc e 13%
Inv gra de bo nd is s ua nc e -6%
Equity tra ding 4%
Equity tra ding -7%
High yie ld bo nd is s ua nc e -50%
High yie ld bo nd is s ua nc e -59%
Inv gra de bo nd is s ua nc e 88%
Inv gra de bo nd is s ua nc e 34%

United States
Equity tra ding 29%
United States

Equity tra ding -6%

Anno unc e d M &A 24%
Anno unc e d M &A -13%
C o m ple te d M &A 3%
C o m ple te d M &A -14%
High yie ld bo nd is s ua nc e -29%
High yie ld bo nd is s ua nc e -19%
Equity is s ua nc e -32%
Equity is s ua nc e -23%
-100% -50% 0% 50% 100%
-80% -60% -40% -20% 0% 20% 40%

Source: Smith Barney

- 10 -
 arket Analysis… Advisory, Lending & Underwriting
Market
High-yield Is Forecast To Be The Fastest Growing Area Of The Underwriting Business Going
Forward

Equity Underwriting Announced M&A Advisory

$$ bn
bn $$ bn
bn
304 US
300 2000
Europe US
Europe
RoW 1800 1711
RoW
250 238
1600 1535 1481
209 210
1400
200 193 191
183 182
173 1200 1140
160 163
152
145 144 142 1000 938
150
R 4%
130 132
% 832 CAG
108 108 33 800
770 742
GR
100
96
88 CA 618
85 84
74 600 564 524 504
76 69 71 464 459 443 474
455 476
62 64 409
53 407 383
47 400 324
50 42 37 297
243 272 231 243 236 241
200 104 130 132
50
0 0
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004E 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004E

Source: Morgan Stanley, Smith Barney Source: Morgan Stanley, Smith Barney

High Yield Underwriting Investment Grade Underwriting

$$ bn
bn
$$ bn
bn 3000 Global
Global Europe
157 158 Europe 2652
160 156 2529
148 2457
2500
140
2137
2052
1992
120 2000
107

100 1614 CAGR 1%

88 1500
1313 1356
1238
%

80 79 1190 1155
99

69 1062
GR

58 1000 889
CA

56 934
60
737
44 44 703
40 32 500
22 21
20 11 14

0
0 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004E
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004E

Source: Morgan Stanley, Smith Barney Source: Morgan Stanley, Smith Barney

- 11 -
 arket Analysis… Advisory, Lending & Underwriting
Market

Global M&A Advisory Snapshot Shows Increasing Consolidation To The Top 5 Players
Announced M&As (YTD Sep 30 ‘04) Global Consolidation – Top 3 as a percentage of Top 10
Goldman
Goldman Sachs
Sachs (100% = $1,076 bn) 100%
JP
JP Morgan
Morgan 90%
Merrill
Merrill Lynch
Lynch 80%
Daiwa
Daiwa SecSMBC
SecSMBC
RoW, 203.0 70%
Citigroup
Citigroup
JP
JP Morgan
Morgan 60%
Goldman
Goldman Sachs
Sachs 50%
US, 529.7 Citigroup
Citigroup 40%
Lehman
Lehman 30%
Morgan
Morgan Stanley
Stanley Europe, Merrill
Merrill Lynch
Lynch 20%
Goldman
Goldman Sachs
Sachs 343.3 10%
Rothschild
Rothschild 0%

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004
Merrill
Merrill Lynch
Lynch
BNP
BNP Paribas
Paribas SA
SA

Source: Thomson Financial Securities Data. Note: Deal totals include double counting of deals. All Source: Thomson Financial Securities Data. Note: Deal totals include double counting of deals. All
transactions over $100 MM are included. transactions over $100 MM are included.

Global Rankings (YTD Sep 30, 04) US Rankings (YTD Sep 30, 04)
Rank Investment Bank Proceeds ($ mn) # of Issues Rank Investment Bank Proceeds ($ mn) # of Issues

1 Goldman Sachs 347,942 174 1 JP Morgan 151,165 68

2 JP Morgan 283,223 164 2 Goldman Sachs 148,220 96

3 Merrill Lynch 272,810 99 3 Citigroup 137,668 70

4 Morgan Stanley 242,210 145 4 Lehman Brothers 132,106 63

5 Citigroup 238,899 155 5 Merrill Lynch 117,520 47

6 Lehman Brothers 167,643 94 6 Lazard 81,136 23

7 UBS 125,348 92 7 CSFB 77,647 64

8 Lazard 122,602 67 8 Morgan Stanley 73,851 74

9 Rothschild 112,029 67 9 UBS 71,738 37

10 CSFB 110,179 108 10 Deutsche Bank 62,187 37

Industry Totals 1,075,971 1,510 Industry Totals 529,704 640

Source: Thomson Financial Securities Data. Note: Deal totals include double counting of deals. All Source: Thomson Financial Securities Data. Note: Deal totals include double counting of deals. All
transactions over $100 MM are included. transactions over $100 MM are included.
- 12 -
 arket Analysis… Advisory, Lending & Underwriting
Market

Europe: M&A Advisory The Picture Is The Same

Announced M&As (2003) Announced M&As (YTD Aug 31 ’04)

(100% = 87 bn) (100% = 99.5 bn)

N e t h e rla n d s ,
N o rwa y, 5 % F ra n c e , 9 %
S wit z e rla n d , 6%
10 % F ra n c e , 5 %
S wit z e rla n d ,
8%
S p a in , 2 2 %
O t h e r, 2 2 % S p a in , 9 %
O t h e r, 2 6 %

UK, 4 7 %
UK, 3 1%

Source: Thomson Financial Securities Data Source: Thomson Financial Securities Data

European Rankings by Proceeds Top 3 market share as percentage of Top 10 on the rise
Rank Investment Bank Proceeds ($ bn) Market Share # of Issues

1 Morgan Stanley 16,616 10.9 65

100%
2 Goldman Sachs 16,291 10.7 64 90%
3 UBS 14,597 9.6 101 80%
70%
4 Merrill Lynch 13,143 8.7 54
60%
5 Deutsche Bank 11,197 7.4 72 50%
6 Citigroup 10,963 7.2 74 40%

7 JP Morgan 9,117 6.0 48

30%
20%
8 ABN AMRO 6,955 4.6 71
10%
9 CSFB 4,782 3.2 38 0%
1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004
10 Lehman Brothers 4,567 3.0 20

Industry Totals 151,967 844

Source: Thomson Financial Securities Data Source: Thomson Financial Securities Data
- 13 -
 arket Analysis… Advisory, Lending & Underwriting
Market

Further, Fee Rates In Both Equity Underwriting And M&A Have Remained Strong

Equity Underwriting Fees (Gross Spread %)

• Equity fee rates across small deals

have declined from the boom years
• Equity and advisory Fee rates on
larger deals have remained strong
• This indicates strong pricing power for
Advisory Fees (bps)
large I-Banks
• Differentiating factor in these markets
is skill not pricing

Source: Prudential, GRC Analysis

- 14 -
 arket Analysis… Advisory, Lending & Underwriting
Market
Consolidation To Top Market Players Is Also A Feature Of The Global Equity Underwriting
Snapshot….
Equity Underwriting Proceeds (YTD Sep 30 ‘04) Equity Underwriting by Product (YTD Aug 30 ‘04)

Nomura
Nomura (100% = $341.4 bn)
Daiwa
Daiwa SMBC
SMBC Other, 4%
Accelerated
Citigroup
Citigroup
Rights, 13% Bookbuildin
UBS
UBS RoW, 58.98 g, 27%
Merrill
Merrill Lynch
Lynch
Morgan
Morgan Stanley
Stanley
US, 130.40
Goldman
Goldman Sachs
Sachs
Privatisation,
Citigroup
Citigroup 13%
Merrill
Merrill Lynch
Lynch
Morgan
Morgan Stanley
Stanley JP
JP Morgan
Morgan
Goldman
Goldman Sachs
Sachs Europe,
UBS 151.97 Bought Deal/
UBS
Block Trade, IPOs, 29%
Merrill
Merrill Lynch
Lynch
14%
Deutsche
Deutsche Bank
Bank

Source: Thomson Financial Securities Data Source: Thomson Financial Securities Data

Equity Underwriting Proceeds (2003) Top 10 Market share stability after significant rise in 2001

Nomura
Nomura (100% = $368.4 bn) 85%
CIBC
CIBC World
World
Citigroup 80%
Citigroup
Daiwa
Daiwa Se
Se SMBC
SMBC
RoW, 64.00 75%
RBC
RBC Capital
Capital
Goldman
Goldman Sachs
Sachs 70%
Citigroup
Citigroup
US, 162.59
Morgan
65%
Morgan Stanley
Stanley
JP
JP Morgan
Morgan 60%
Goldman
Goldman Sachs
Sachs Merrill
Merrill Lynch
Lynch
Europe, 55%
UBS
UBS
141.90
Morgan
Morgan Stanley
Stanley 50%
1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004
JP
JP Morgan
Morgan
Deutsche
Deutsche Bank
Bank

Source: Thomson Financial Securities Data Source: Thomson Financial Securities Data

- 15 -
 arket Analysis… Advisory, Lending & Underwriting
Market

…The Same Trend Can Be Broadly Seen In Europe

Equity Issuance (2003) Equity Issuance (YTD Aug 31 ’04)

(100% = $141.9 bn) (100% = $127.3 bn)

B e lg iu m , 1% It a ly, 5 % B e lg iu m , 6 % It a ly, 8 %

O t h e r, 2 3 %

O t h e r, 2 1%
F ra n c e , 13 %

F ra n c e , 3 5 %

UK, 11% G e rm a n y, 19 %

G e rm a n y, 2 3 %
S p a in , 2 %
UK, 2 2 %
S p a in , 11%

Source: Thomson Financial Securities Data Source: Thomson Financial Securities Data

European Rankings by Proceeds Top 10 market share on the decline in 2004

Rank Investment Bank Proceeds ($ mn) Market Share # of Issues

1 Morgan Stanley 16,616 10.9 65 75%

Top
Top 10
10
2 Goldman Sachs 16,291 10.7 64 6 5%

3 UBS 14,597 9.6 101 55%

4 Merrill Lynch 13,143 8.7 54 4 5%

5 Deutsche Bank 11,197 7.4 72 3 5%

6 Citigroup 10,963 7.2 74

75%
7 JP Morgan 9,117 6.0 48 Top
65% Top 55
8 ABN AMRO 6,955 4.6 71 55%

9 CSFB 4,782 3.2 38 45%

10 3.0 20 35%
Lehman Brothers 4,567
1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004
YTD
Industry Totals 151,967 844
Source: Thomson Financial Securities Data Source: Thomson Financial Securities Data. Note: 2004 data YTD as on Sep 30, 04

- 16 -
 arket Analysis… Advisory, Lending & Underwriting
Market
Global Debt Underwriting Snapshot Shows A Different Picture With Share Of Top 10 Players On The
Decline
Bond Issuance (YTD Sep 30 ‘04) Bond Underwriting by Product (YTD Aug 30 ‘04)
(100% = $3,238 bn) Global
Global Investment Global
Investment Global High
High Yield
Yield Top
Top Convertibles
Grade
Grade Top
Top 1010 10
10 Warrants, 1%
, 1%
(94%
(94% ofof total
total bond
bond (6%
(6% of of total
total bond
bond All Floating
issuance)
issuance) issuance)
issuance) Rate Notes,
RoW, 249 JP
JP Morgan
Morgan Citigroup
Citigroup 21%
Citigroup
Citigroup CSFB
CSFB
Merrill
Merrill Lynch
Lynch Deutsche
Deutsche Bank
Bank
Morgan
Morgan Stanley
Stanley Banc
Banc Am
Am
Deutsche
Deutsche Bank
Bank JP
JP Morgan
Morgan
Europe, US, 1,755
CSFB
CSFB Morgan
Morgan Stanley
Stanley
1,234
Lehman
Lehman UBS
UBS
Goldman
Goldman Sachs
Sachs Goldman
Goldman Sachs
Sachs
Barclays
Barclays Lehman
Lehman
UBS
UBS Merrill
Merrill Lynch
Lynch
All Fixed
Rate, 77%

Source: Boston Consulting Group Source: Thomson Financial Securities Data

Bond Issuance (2003) Market De-Consolidation

(100% = $4,034 bn)

95%
Global
Global Investment
Investment Global
Global High
High Yield
Yield Top
Top
Grade 85%
Grade Top
Top 1010 10
10
(97%
(97% ofof total
total bond
bond (3%
(3% of
of total
total bond
bond 75%
issuance)
issuance) issuance)
issuance)
RoW, 347 65%
Citigroup
Citigroup CSFB
CSFB 55% Investment
Investment Grade
Grade
Merrill
Merrill Lynch
Lynch Citigroup
Citigroup 45%
Morgan
Morgan Stanley
Stanley Deutsche
Deutsche Bank
Bank 35%
Europe, JP
JP Morgan
Morgan JP
JP Morgan
Morgan
US, 2,322 Deutsche
Deutsche Bank
Bank Goldman
Goldman Sachs
Sachs
1,365 95%
Lehman
Lehman Banc
Banc Am.
Am. 85%
CSFB
CSFB Lehman
Lehman 75%

Goldman UBS High

High Yield
Yield
Goldman Sachs
Sachs UBS 65%

UBS
UBS Morgan
Morgan Stanley
Stanley 55%

Barclays
Barclays Capital
Capital Bear
Bear Stearns
Stearns
45%
35%
1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004
Source: Boston Consulting Group Source: Thomson Financial Securities Data. Note 2004 YTD data as on Sep 30, 04

- 17 -
 arket Analysis… Advisory, Lending & Underwriting
Market

In Europe, The Global Debt Underwriting Consolidation Trend Does Not Appear To Hold
Bond Issuance (2003) Bond Issuance (YTD Aug 31 ’04)

O t h e rs , 10 %
O t h e rs , 10 %

F ra n c e , 13 % F ra n c e , 13 %
G e rm a n y, 2 9 %
G e rm a n y, 3 2 %

UK, 17 %
UK, 15 %
It a ly, 11% It a ly, 13 %

S wit z e rla n d , N e t h e rla n d s , S wit z e rla n d , N e t h e rla n d s ,

4% 7% 4% 6%
S p a in , 8 % S p a in , 8 %

Source: Thomson Financial Securities Data Source: Thomson Financial Securities Data

European Investment-Grade Rankings (YTD Aug 30, 04) Europe market consolidation in Investment Grade Debt
Rank Investment Bank Proceeds ($ mn) Market Share # of Issues 80%

60%
1 Deutsche Bank AG 66,158 7.3 266
Top
Top 10
10
2 Citigroup 62,474 6.9 224 40%

3 Barclays Capital 58,751 6.5 225 20%

4 CSFB 55,510 6.1 215 0%

5 JP Morgan 49,816 5.5 182

6 Morgan Stanley 45,449 5.0 200 80%

60%
Top
Top 55
7 ABN AMRO 44,203 4.9 155

8 BNP Paribas SA 43,713 4.8 184 40%

20%
9 HSBC Holdings PLC 43,008 4.8 149
0%
10 UBS 38,494 4.3 171
1999

2000

2001

2002

2003

2004
Industry Totals 904,286 2,289
Source: Thomson Financial Securities Data Source: Thomson Financial Securities Data. Note: 2004 data as on Aug 30, 04
- 18 -
 arket Analysis… Advisory, Lending & Underwriting
Market

Euro Area Bond Issuance Is Also Continuing To Grow

Euro Area Bond Market European ABS Market Trends

Total New Issuance  Rising interest rates and Basel II reforms would lead to an
1880
increase in the demand for high-quality asset backed
securities in Europe
149.5
1380  The Eurozone ABS market although significantly smaller
234.1
117.9 than the US market is growing at a higher annual rate. In
196.7 fact the annual growth rate of high-quality ABS was the
397.8
880 279.5
highest among all the bond segments in the Eurozone.
 Further growth in securitization expected in Europe partially
as a result of German True Sale Initiative, designed to
380 780.4
700.1 provide a securitization framework for 13 of Germany’s
largest banks.
-120 2002 2003
 Banks especially in Germany are facing bottom-line
Source: State Street Global Advisors, European Commission
Central Governm ent ABS pressure for the past few years.
Pfandbriefe/Covered Bonds Corporates
Financials
Supranationals
Local Governm ent
Others
 However this has not had a significant impact on the bond
issuance trends as increasingly the bonds issued are being
are being rated independent of the issuing bank.

- 19 -
 arket Analysis… Advisory, Lending & Underwriting
Market

Debt Underwriting Pricing Trends Have Been Mixed

Debt Underwriting Fees (Gross Spread %)

• Debt volumes have remained stable, in an otherwise volatile environment

• Pricing trends indicate that competitive pricing may not be the only differentiator in this market

Source: Morgan Stanley, Prudential, Deloitte

- 20 -
 arket Analysis… Advisory, Lending & Underwriting
Market
Corporate Lending In Europe: Growth Trends Show That The Italians Are Increasingly Credit
Hungry

Corporate lending in 2003 Growth forecasts for Corporate Lending (%)

Corporate Lending (2003) Country 2003 2004F 2005F 2006F
1400 1,252
1200 Spain 12.8 11.0 9.0 9.0
1000
799 UK 7.7 9.0 7.0 5.0
EUR Billion

732
800
596
600 Portugal 5.3 7.0 9.0 11.0
402
340
400 Italy 7.4 6.1 5.5 5.6
200 90
Netherlands 8.6 5.7 6.1 6.1
0
Germany

Portugal
UK

France
Italy

Netherlands
Spain
France -2.9 3.0 5.0 6.0

Germany -2.7 1.0 2.0 3.0

Source: Central Banks, ABN Amro Source: Central Banks, ABN Amro

Corporate lending spreads UK leads globally in cross-border lending and borrowing

1999 Corporate Lending Indexed to 100

France 220
300 Spain

Portugal
Germany UK
170 Italy
200 UK
Netherlands

France

120
100
Germany

0 70
1Q03 2Q03 3Q03 4Q03 1Q04 2Q04 3Q04 4Q04E 1Q05E 2Q05E 1999 2000 2001 2002 2003 2004F 2005F 2006F

Source: PwC, Note: data as of Feb 2003 Source: Central Banks, ABN Amro
- 21 -
 arket Analysis… Advisory, Lending & Underwriting
Market

Corporate Lending: Country Analysis Shows Spain As One Of The Fastest Growing Lending Areas
Spain France
Corporate Lending grow th (1998-2006F) Corporate Lending grow th (1998-2006F)
520 60% 41%
477 700
500
438 40%
50%
402 600
400 365 39%
331 40%
EUR Billion

500

EUR Billion
302 38%
300 258 400
228 30% 559 592 37%
523 530 517 532
300 507
200 36%
20% 433 460
200 35%
100 10%
100 34%
28 56 72 60 79 81 85 88
0 0% 0 30 33%
1998 1999 2000 2001 2002 2003 2004F 2005F 2006F 1998 1999 2000 2001 2002 2003 2004F 2005F 2006F
Lending to Financial Cos. Lending to Non-financial Cos.
Corporate Loans Corporate Loans/GDP
Corporate loans/GDP
Source: State Street Global Advisors, European Commission

United Kingdom Germany

Corporate Lending grow th (1998-2006F)
70% Corporate Lending grow th (1999-2006F)
700
64%
60% 1,400 1,296 1,287 1,290 1,329
600 1,268 1,252 1,265
1,209
50% 62%
1,200
500
GBP Billion

431 452
40% 1,000 60%
EUR Billion
400 403
369
343
312 336 30% 800
300 265 58%
247
20% 600
200
56%
149 212 227 239 10% 400
100 163 163 181 195
132 54%
200
0 0%
1998 1999 2000 2001 2002 2003 2004F 2005F 2006F 0 52%
Lending to Financial Cos. Lending to Non-financial Cos. 1999 2000 2001 2002 2003 2004F 2005F 2006F
Corporate loans/GDP Corporate Lending Corporate loans/GDP

Source: PwC, Note: data as of Feb 2003 - 22 -

 arket Analysis… Advisory, Lending & Underwriting
Market
Corporate Lending Spreads Have Been Relatively Well Maintained In Germany – The Creation Of A
Single European Financial Market Has Not Noticeably Led To Increased Competition

Belgium France

Germany Sweden

Source: PwC, Note: data as of Feb 2003 - 23 -

Market Analysis – Sales & Trading
 arket Analysis… Sales & Trading
Market

Sales & Trading Summary

 The foreign exchange market is dominated by activity in London. UK activity also leads the global OTC derivatives market

 Exchange traded derivatives are seeing a significant upturn in volume. Euronext provides the focus in Europe for exchange
traded derivatives

 Europe bond markets: trading trends across major exchanges shows different patterns emerging in Europe

 Equity markets trading trends across major exchanges indicate that London suffered the largest decrease to 2003. Domestic
company trading has been a more stable business

 The sales & trading industry has witnessed significant change and innovation throughout its 210+ year past

 The emerging market structure is blurring lines between sell-side competitors and is prompting players to compete
aggressively on quality of trade execution, and increasingly on independent and more complex value-add services

 Integration of fixed income and equity research functions has become a more pronounced theme

 There are a number of factors driving change in the prime brokerage business – related to the overall marketplace,
customer needs, operating requirements and technology. Demand for prime brokerage services is driven by growth in hedge
funds

 Although the prime brokerage market is dominated by the top three firms, there is room for others to gain share. New
entrants need to choose their spots carefully. Prime brokerage clients are demanding a broad range of services, from ‘core’
to ‘value add’, driven by increasingly sophisticated investment styles and transactions

 Among prime brokers, some services are bundled while others are not. Some are targeting specific layers of the fund-
broker relationship with tailored offerings. Many prime brokers have a slightly different approach than their peers – each
strategy and operating model has inherent strengths and challenges

- 25 -
 arket Analysis… Sales & Trading
Market

The Foreign Exchange Market Is Dominated By Activity In London

Global Foreign Exchange Market Turnover Distribution of reported foreign exchange turnover
Daily averages in April, in billions of US dollars D a ily a v e ra g e s in A p ril, in b illio n s o f US d o lla rs a n d p e rc e n t a g e s
S we d e n , 3 1 ( 10 0 % = 2 ,4 0 9 b illio n )
1880 107 D e n m a rk , 4 1 R o W, 2 5 2

64 N e t h e rla n d s , 4 9
1380 30
944 C a na da , 5 4 Un it e d Kin g d o m
50 783 , 753
F ra n c e , 6 4
754
880 45 514 S wit z e rla n d , 7 9
137 208
62 332
A u s t ra lia , 8 1
209 91 151
380 59
30 621
606 H o n g Ko n g , 10 2
404 465 445
349

G e rm a n y , 118
-120 1989 1992 1995 1998 2001 2004
S in g a p o re , 12 5 Un it e d S t a t e s ,
Spot transactions Outright forw ards
J a p a n , 19 9 461
Foreign exchange sw aps Estim ated gaps in reporting

Source: Bank of International Settlements. Notes: 1. FX – Foreign Exchange, IR – Interest Rate Source: Bank of International Settlements
2. Adjusted for local and cross-border double-counting 3. Interest rate contracts are single currency. Note: Adjusted for local and cross-border double-counting. Coverage is 90-100% in most countries

Sharp increase in the turnover after the 2001 global slump Currency distribution of reported foreign exchange turnover
Indexed to 1992 % S h a re o f d a ily a v e ra g e t u rn o v e r

300 O t h e rs , 13 .2 %
UK
250 H o n g Ko n g , 10 2
Netherlands
S wis s F ra n c ,
Germany 3 .1%
200 France P o u n d S t e rlin g ,
8 .5 %
Denmark
150 US D o lla r,
Sweden 4 4 .4 %
Switzerland
100 J a p Ye n , 10 .2 %

50

0
1992 1995 1998 2001 2004 E u ro , 18 .6 %
Source: Bank of International Settlements Source: Bank of International Settlements
- 26 - Note: Includes both buy and sell sides of currency exchange.
 arket Analysis… Sales & Trading
Market

UK Activity Also Leads The Global OTC Derivatives Market

Global OTC derivatives market turnover by instrument Distribution of OTC derivatives market turnover
Daily averages in April, in billions of US dollars 700

1380
1,220 600

500

400
880
690
300

410 200
380 Decline
Decline
100
180
0

Switzerland
Netherlands
Japan
Germany

Belgium
France

Others
Italy
UK

US
-120 1995 1998 2001 2004
1995 1998 2001 2004
FX Currency sw aps FX Options IR FRAs
IR Sw aps IR Options Gaps in reporting

Source: Bank of International Settlements. Notes: 1. FX – Foreign Exchange, IR – Interest Rate Source: Bank of International Settlements
2. Adjusted for local and cross-border double-counting 3. Interest rate contracts are single currency.

OTC Market share in 2004 Total International derivatives markets

D a ily a v e ra g e s in A p ril, in b illio n s o f US d o lla rs a n d p e rc e n t a g e s
( 10 0 % = $ 1,5 0 8 b illio n )
$ billion, notional amounts outstanding
Sw itzerland Others 200000 at year end
Netherlands 175000

Belgium 150000
Japan 125000
Italy 100000
Germ any UK
75000

50000

France 25000

0
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
(1)
US
Over- the- counter Exchange-traded

Source: Bank of International Settlements - 27 Source:

- Bank of International Settlements
 arket Analysis… Sales & Trading
Market

UK Activity Also Leads The Global OTC Derivatives Market

Concentration of OTC derivatives markets in UK (in % share
Risk instruments in International OTC markets
of average daily turnover in April 04)
%
% of
of notional
notional amounts
amounts %
% of
of gross
gross market
market value
value
100 100 6
11
18
20.5 30 15
80 30.6 15
12.4 80
38.1 31.8 18.6 15
60
60 18

40 76.1 72
66.7 61.9 40 74 79
57.5
52.5 67
20 52
20
0
June 98 June 01 Dec 03 June 98 June 01 Dec 03
0
Interest rates Currency Equity-linked Commodities 1995 1998 2001 2004
Credit-linked Other
Source: Bank of England
Largest 10 firms Next largest 10 firms Other firms
Source: Bank of International Settlements

Risk instruments in International OTC markets: World Vs UK Counterparties in OTC derivatives markets World Vs UK (in
(in % share of average daily turnover in April 04) % share of average daily turnover in April 04)
World UK
WORLD
WORLD UK
UK 100
100 7.5 9 5 4
11 9 8 11 6 5
3 2
5 4 4 16
10 9 14
80 8 17 80 29
13 36
6
21 43
31 34 16 26 60
60 27

40 40 79
58 63.5 59
56
46 47 45 48 48
20 20

0 0
1998 2001 2004 1998 2001 2004
2001 2004 2004 2001
Euro US dollar £ sterling Yen Other Reporting dealers Other fin. institutions Non-financial customers
Source: Bank of England, Bank of International Settlements
Source: Bank of International Settlements
- 28 -
 arket Analysis… Sales & Trading
Market

Exchange Traded Derivatives Are Seeing A Significant Upturn In Volume

Largest International exchanges International exchange-traded turnover by region

$ trillion, annual value of
350 Value of turnover in $ trillions
CBOT turnover
900
73.8
300 800
CME
250 700
60.8
358.3
600
200 54.4 44.1
225.8
500
187.8
150 400 236.6
54.9 60.3
Eurex 53.1
100 300
133.9 129
121.5 442
200 351.5
406.6
50 295.2
Euronext liffe 100 200.9 175.4 194.9
0 0
1999 2000 2001 2002 2003 1998 1999 2000 2001 2002 2003 2004*
CME Euronext liffe CBOT Eurex N.America Europe Other regions

*First six months of 2004

Source: Bank of International Settlements Source: Bank for international settlements

Turnover of London-based derivatives exchanges Exchange-traded derivatives turnover based on location

Annual number of contracts traded in
800 millions
73 3,500
59

700 59 54
3,000 2,913

600
2,500 2002
500
2,167
2003
2,000 1,947
400 697 695
1,845

619 617
300 1,500
57
48
200 48
47
53 66 1,015
62 1,000
35 801
209
100 25 157 136
174 150 118 131 598
17 111 507
13 79 500
34 39 358 357
14 15 15 16 15 19 23 26 26 30 33 27 278 291
0 7 9 11 187 201
178
236

Netherlands
78 79
1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

61 72 53 62
Germany

Australia
Sweden
France

Others
Korea

Japan
Brazil
0
US

UK
IPE Euronext liffe LME OM London

Source: Bank of England - 29 -

 arket Analysis… Sales & Trading
Market

Euronext Provides The Focus In Europe For Exchange Traded Derivatives

Largest Financial Derivatives Exchanges By Value Of Turnover
400 $ trillion
350
333.5 Total turnover
300
291.2 283.4 2001 - $ 594.1 trillion
250 2002 - $ 874.1 trillion
200 2001
142.7
150
100
86.4
72.5
2002
43.2 42.4
50 23.2 20.9 21.4 13.9 14.2 17.9 17.3
5.5 6.2 9.8 7.5 7.2 3.1 5.5
0
Euronext Liffe(UK)

CBOT (USA)

Tokyo Stock
Eurex(Germany)

Exchange (Korea)

Exchange(Australia)
CME(USA)

CBOE (USA)
Singapore Exchange

Montreal Exchange

Others
Exchange
Sydney Futures
Korea Stock

(Singapore)
Source: Bank of International Settlements

Largest Derivatives Exchanges By Number Of Contracts Traded (In Millions)

1600 2899.9

1100 1015 2000

2003
695 640
600
454
284 244
180 177 174
114 113 109 87 86 80 73 72 66
100 45 26

IPE
CME

CBOE

TCM
MMD
CBOT

SFE
LME
Sao PauloSE

NYME
International SE

Philadelphia SE

EDX London
Stockholmsborsen
BMF
Korea SE

American SE

Pacific Exchange
Eurex

Euronext.liffe

Shanghai
-400

Korea Germany USA Brazil Mexico Brazil USA Japan USA China UK Sweden UK Australia UK
Source: FOW tradedata
- 30 -
 arket Analysis… Sales & Trading
Market
Europe – Bond Markets: Trading Trends Across Major Exchanges Shows Different Patterns
Emerging In Europe
London Stock Exchange – Bond Trading Stockholm Stock Exchange – Bond Trading
US$
US$ billion
billion 2175.8
2175.8 US$
US$ billion
billion
1245
1245
2500
1675.9 58.7
1675.9 997.3
997.3 0.03
2000 1546.1
1546.1 1200
33.4 660.9
660.9 0.03
65.7 589.7
1500
800
0.01
642.5
1000 2,097.1
1,463.5 1,625.1 435.0
400
655.3
500
354.8
226.0
0 16.9 17.3 20.0 0
2001 2002 2003
2001 2002 2003
Public sector Domestic Private Sector Foreign
Public sector Domestic Private Sector Foreign

Source: World Federation of Exchanges Source: World Federation of Exchanges

Copenhagen Exchange – Bond Trading Deutsche Börse Exchange – Bond Trading

US$
US$ billion
billion US$
US$ billion
billion
1052.3
1052.3
1200 1200

752.9
752.9
665.9
665.9
338.9
800 800 514.6
514.6
412.6
412.6 459.5
459.5
279.5
286.5 21.0
37.6
400 26.3
711.8 400
472.5 454.0 367.6
378.5 344.5

0 0 39.6 41.8 54.3

2001 2002 2003 2001 2002 2003
Public sector Domestic Private Sector Foreign Public sector Domestic Private Sector Foreign

Source: World Federation of Exchanges Source: World Federation of Exchanges

- 31 -
 arket Analysis… Sales & Trading
Market
Equity Markets: Trading Trends Across Major Exchanges Indicate That London Suffered The
Largest Decrease To 2003. Domestic Company Trading Has Been A More Stable Business

London Stock Exchange – Equity Trading Euronext – Equity Trading

US$
US$ billion
billion US$
US$ billion
billion
6000 3000
4250.1
4250.1 2092.5
2092.5
4001.3
4001.3
5000 3609.7
3609.7 1974.1
1974.1 1936.5
1936.5
20.2
15.6 22.4
14.6 14.3
4000 3.4 2000 14.1
17.7 11.1
2,656.1
3000 2,104.6 1,463.0

2000 1000 2,056.0 1,941.8 1,911.2

1000 1,844.0 1,881.1 2,143.3

0 0
2001 2002 2003 2001 2002 2003

Domestic Companies Foreign Companies Investment Funds Domestic Companies Foreign Companies Investment Funds

Source: World Federation of Exchanges Source: World Federation of Exchanges

Deutsche Börse – Equity Trading Spanish Exchanges – Equity Trading

US$ US$
US$ billion
billion
US$ billion
billion
1423.3
1423.3 1299.3
1299.3
1212.3 1000 820.6
820.6
1212.3
1400 134.9
634.4
634.4 0.2
98.4
1200 101.9 800 633.9
633.9 112.3
1000 0.0 0.1
600 34.3 58.0
800
1,288.5 1,200.9
600 1,110.4 400
708.2
599.7 576.5
400
200
200

0 0
2001 2002 2003 2001 2002 2003

Domestic Companies Foreign Companies Domestic Companies Foreign Companies Investment Funds

Source: World Federation of Exchanges Source: World Federation of Exchanges

- 32 -
 arket Analysis… Sales & Trading
Market

Recent Divisional Revenue Analysis For Equity And Fixed Income By BCG

Global Fixed Income Division Revenue Equity Division Revenue

100 95

$ billion
87 Regional Revenue Split
16
80
19
8
Program
54 9
60 20
Global Equity
12 17
6 Finance
40 6 5
20
13 Equity derivatives
18
4
20 9
11 5
10 Cash
2 9
5
3 5 6
0
2000 2003 2006
0 10 20 30 40 50 60 70 80 90 100
Other MBA/ABS Credit Derivatives Am ericas Europe Asia
Credit Markets Commodities Foreign Exchange
Interest rates Interest rate derivatives

Source: BCG Investment banding and capital markets report, March 2004

- 33 -
 arket Analysis… Sales & Trading
Market
The Sales & Trading Industry Has Witnessed Significant Change And Innovation Throughout Its
210+ Year Past

The current period of intense and interrelated regulatory, technology, economic, and competitive
pressures is unique in the industry’s history:

 Up through the mid-90s, the basic structure of the relationship between Buy-Side and Sell-Side
players remained relatively unchanged, largely due to the lack of alternatives to traditional Broker /
Dealers

 In the mid 1990s, an unprecedented set of technology driven alternatives began to challenge the
traditional broker-dealer model, offering Institutional clients radical new advances in direct access
technologies, speed of execution, anonymity, program trades, and even value-add related services.

 In reaction to market pressures, traditional Sell-Side players, new entrants, and increasingly third
party service providers are rethinking their approach to the market and overall value proposition –
i.e., how they attack the market, service clients, and how they have aligned their operating model to
face off against changing buy-side needs

 Similar to the Consumer Business industry over the last 5-7 years, the Securities business is
becoming “Wal*Marted”. Wal*Mart has succeeded by acting as an aggregator of products and
services with tremendous client mindshare and industrial-strength distribution networks to move
products at best price. Similarly, leaders in the Financial Services sector are gaining competitive
edge by leveraging distribution capabilities to execute trades at best price and gain market
intelligence by maintaining direct access to a broad array of retail and institutional order flow.

- 34 -
 arket Analysis… Sales & Trading
Market

The Emerging Market Structure Is Blurring Lines Between Sell-side Competitors,...

Emerging Market Structure – Securities Industry

Corporations going direct to market
(e.g., Google On-line IPO)
Direct To Issuer
Buy-side
Buy-side Corporation
Corporation
B/D
Direct To Aggregator Electronic
Electronic Trading
Trading Global /
VPN
3rd
3rd Party
Party Value-Add Services Platform
Platform Hub
B/D Emerging
Markets
Information
Information Peer- To-Peer B/D
Provider
Provider

Broker
Broker //
Buy-side
Buy-side
- Growing Sophistication of
Program Trading, Prime Dealer
Dealer
Brokerage, Structured Trades Type of Interaction
Dire
ct-T Traditional
o-M
Direct-To-Market

arke Emerging (Mid 90’s

t
Direct Market Onwards)

Access

Custody
Custody //
ECN
ECN // ATS
ATS Exchange
Exchange Depository
Depository
Value-Add Services

Disintermediation
Disintermediation of
of Trade
Trade Methods
Methods Growing
Growing Sophistication
Sophistication of
of Buy-Side
Buy-Side Needs
Needs Global
Global Market
Market Access
Access

•• Dramatic
Dramatic Rise
Rise in
in Program
Program Trading
Trading (10%
(10% ofof NYSE
NYSE daily
daily Growing
•• Corporation
Corporation Direct
Direct To
To Market
Market •• Growing Investments
Investments In In Global
Global Footprints
Footprints (e.g.,
(e.g.,
trading
trading volume
volume inin 1989
1989 vs
vs 40%
40% inin 2003)
2003) Broker/Dealer
•• Buy-side
Buy-side Direct
Direct Access
Access To
To Issuer
Issuer Broker/Dealer Subsidiaries
Subsidiaries InIn Foreign
Foreign Markets)
Markets)
•• Growth
Growth // Sophistication
Sophistication ofof Prime
Prime Brokerage
Brokerage Services
Services Access
•• Peer-to-Peer
Peer-to-Peer Trade
Trade Execution
Execution (e.g.,
(e.g., Lava)
Lava) •• Access ToTo Global
Global Liquidity
Liquidity (e.g.,
(e.g., Instinet
Instinet Access
Access To
To 40
40
•• Increasing
Increasing Complexity
Complexity and
and Usage
Usage of of Structured
Structured Products
Products Different
Different Exchanges
Exchanges Worldwide)
Worldwide)
•• Direct
Direct Market
Market Access
Access Providers
Providers (e.g.,
(e.g., Liquidnet)
Liquidnet) (e.g.,
(e.g., Credit
Credit Derivatives
Derivatives /CDOs)
/CDOs) Use
•• Rise
Rise of
of ECNs/ATSs
ECNs/ATSs (e.g.,
(e.g., Instinet)
Instinet) •• Use OfOf Virtual
Virtual Private
Private Networks
Networks ForFor Cross-border
Cross-border Trading
Trading
•• Growth
Growth ofof In-house
In-house // 3rd
3rd Party
Party Research
Research Of
Of Securities
Securities With
With Broker
Broker Dealers
Dealers In In Emerging
Emerging Markets
Markets
•• Multi-Dealer
Multi-Dealer Platforms
Platforms (e.g.,
(e.g., TradeWeb)
TradeWeb)
•• Outsourcing
Outsourcing of of Down-Stream
Down-Stream operations
operations (e.g.,
(e.g., Clearing
Clearing &
& (e.g.,
(e.g., Marco
Marco Polo
Polo And
And Bondasia)
Bondasia)
Settlement)
Settlement)

Source: Meridien Research, TowerGroup Research, Forrester, Deloitte Analysis

- 35 -
 arket Analysis… Sales & Trading
Market
… And Is Prompting Players To Compete Aggressively On Quality Of Trade Execution, And
Increasingly On Independent And More Complex Value-Add Services

Changing Value Proposition in The Securities Market

Best
Best
Trade Breadth
Breadth of
of Direct
Direct
Trade Global
Global Exec./
Exec./ Anonymity
Anonymity Trading
Trading Market
Market
Cost
Cost Liquidity
Liquidity Price
Price Styles
Styles 11 Access
Access
Discovery
Discovery

Buy-Side
Demand

Traditional
Broker / Dealers c c
Multi-Dealer
Platform2 c c N/A N/A

Fluctuation
Fluctuation In
In Sell-Side
Sell-Side Value
Value Proposition
Proposition Trade
ECNs/ATSs
(e.g., Instinet) c c
Execution
Value-Add Services  Through the early 90’s, quality
Peer-2-Peer 3
(e.g., Liquidnet) c N/A c N/A N/A
of value-add services Direct Access
differentiated broker/ dealers
Providers 4
(e.g., Lava)
c c c c
from the “pack”

Time  Combination of regulatory Independent

Independent Complex
Complex Capital/
Capital/
Transaction
Transaction Prime
Prime
Research/
Research/ Advice
Advice Processing/
Processing/
pressures, capital concerns, Analytics
Analytics
Trades
Trades Financing
Financing66 Custody
Custody
Brokerage
Brokerage

and emerging competitors has

shifted primary focus back to Buy-Side Demand
Trade Execution trade execution
Value-Add Traditional
Services
Broker / Dealers cc cc cc cc cc
Multi-Dealer
Platform2
N/A N/A c N/A

ECNs/ATSs
(e.g., Instinet) N/A
Peer-2-Peer 3
(e.g., Liquidnet) N/A N/A N/A N/A N/A N/A
Third Party
Providers 5 cc N/A N/A cc
1
Alternative styles of executing trades (e.g., block trading, program trading)
2
Multi-Dealer Platform refers to the broker/dealer sponsored platform for fixed income trading
3
Peer-2-Peer networks allows buy-side to connect directly to another buy-side firm’s order books
4
Direct Access Providers represent technology vendors who provide a direct connection to market participants, including exchanges and ECNs Sell-Side Capability
5
Third Party Providers include Prime Brokerage service providers, Custodians, Research and Information providers c = High = Medium = Low
6
Capital/Financing inclusive of Security Lending service offering
Source: Meridien Research, TowerGroup Research, Forrester, Deloitte Analysis

- 36 -
 arket Analysis… Sales & Trading
Market

Competitors Continue To Focus On Efficiency, Responding To Recent Pressures By Targeting Growth

Opportunities, Offering Clients Choice And Investing In Connectivity
Sell-Side Response To Emerging Market Shifts
Broker/Dealer ECN/ATS Other Key Players
•• Expanding
Expanding product
product breadth
breadth and
and liquidity
liquidity •• Competing
Competing in
in high-growth
high-growth segments
segments
•• Targeting
Targeting new
new market
market sectors
sectors (e.g.,
(e.g., UBS,
UBS, •• Mergers
Mergers with
with other
other ECN/ATSs
ECN/ATSs •• Direct
Direct Access
Access Providers
Providers expanding
expanding
Goldman
Goldman Sachs
Sachs investments
investments in in energy
energy (e.g.,
(e.g., Instinet/Island
Instinet/Island pursuit
pursuit of
of beyond
beyond US US equities
equities (e.g.,
(e.g., Lava)
Lava) and
and
Business
Business Model
Model /commodity
/commodity sectors)
sectors) OTC
OTC // ETF
ETF markets)
markets) –– 29%
29% of of extending
extending Hedge
Hedge Fund
Fund capabilities
capabilities
(geographical
(geographical expansion,
expansion, •• “Investment-less”
“Investment-less” geographic
geographic expansion
expansion -- NASDAQ
NASDAQ volumevolume (e.g.,
(e.g., ITG
ITG acquisition
acquisition of
of Hoening)
Hoening)
expansion
expansion into
into new
new client
client investments
investments in
in virtual
virtual private
private network
network hubs
hubs •• Expanding
Expanding product
product breadth
breadth (e.g.,
(e.g., •• Expanding
Expanding global
global footprint
footprint
segments)
segments) allowing
allowing global
global access
access to to local
local broker-dealers
broker-dealers Instinet
Instinet FX
FX Cross;
Cross; ADRs)
ADRs) •• Exchanges
Exchanges forming
forming alliances
alliances to
to
(e.g.,
(e.g., Marco
Marco Polo
Polo Network,
Network, BondAsia)
BondAsia) •• Access
Access to to global
global liquidity
liquidity pools
pools achieve
achieve global
global footprint
footprint
•• Investments
Investments inin ECNs
ECNs to to compete
compete head-on
head-on (e.g.,
(e.g., Instinet
Instinet access
access toto 40+
40+ (SuperMontage
(SuperMontage Canada,
Canada, Europe,
Europe,
security
security markets)
markets) Japan)
Japan)

•• Serving
Serving most
most profitable
profitable clients
clients
•• Client
Client segmentation;
segmentation; consortiums
consortiums to to •• Attacking
Attacking specific
specific segments
segments of of the
the value
value
serve
serve top
top clients
clients with
with similar
similar •• Fortifying
Fortifying quality
quality trade
trade execution
execution with
with chain
chain
investment
investment preferences
preferences (e.g.,
(e.g., value-add
value-add services
services
Millennium) •• Direct
Direct Access
Access Providers
Providers offering
offering
Millennium) •• Launching
Launching of of crossing
crossing networks
networks toto
•• Building advanced
advanced analytic
analytic capability
capability (e.g.,
(e.g.,
Building Prime
Prime Brokerage
Brokerage capabilities
capabilities improve
improve trading
trading anonymity
anonymity // block
block VWAP,
VWAP, liquidity
liquidity finders)
finders)
to
to target
target growing
growing hedge
hedge fund
fund segment
segment trading
trading (e.g.,
(e.g., POSIT,
POSIT, Liquidnet)
Liquidnet)
Client •• Also
Also leveraging
leveraging auditing
auditing capabilities
capabilities to
to
Client Service
Service Model
Model •• Offering
Offering clients
clients “choice”
“choice” •• Alliances
Alliances with
with 3rd
3rd Parties
Parties toto offer
offer provide
provide improved
improved client
client reporting
reporting
(client
(client segmentation,
segmentation, •• Multi-dealer
Multi-dealer platforms
platforms offering
offering clearing
clearing and
and settlement
settlement // STP
STP (e.g.,
(e.g., post-trade
post-trade performance)
performance)
product
product bundling,
bundling, new
new improved
improved price
price discovery,
discovery, STP,
STP, •• After-hours
After-hours trading
trading toto reduce
reduce the
the •• 3rd
Research market 3rd Party
Party Information
Information Providers
Providers
service
service offerings)
offerings) Research market impact
impact costs
costs (e.g.,
(e.g., enhancing
•• Prime InstinetCrossing) enhancing spectrum
spectrum of of unbiased
unbiased
Prime Brokerage
Brokerage services
services tailored
tailored toto InstinetCrossing) information
information & & research
research offerings
offerings
Hedge
Hedge Fund’s
Fund’s level
level of
of needs
needs •• Filing
Filing for
for exchange
exchange status/aligning
status/aligning •• Also,
Also, partnering
partnering with
with electronic
electronic trading
trading
•• Partnering
Partnering with
with software
software vendors
vendors (e.g.,
(e.g., with
with exchanges
exchanges to to offer
offer electronic
electronic platforms
platforms toto provide
provide on-line
on-line research
research
FlexTrade
FlexTrade forfor program
program trading)
trading) trading
trading // speed
speed coupled
coupled with
with market
market (e.g.,
(e.g., MoneyLine’s
MoneyLine’s partnership
partnership with
with
•• Direct
Direct access
access toto Listed,
Listed, Options,
Options, making
making (e.g.,
(e.g., ArcaEx)
ArcaEx) MarketAxess)
MarketAxess)
Futures
Futures NASDAQ
NASDAQ markets
markets (e.g.,
(e.g., DB
DB
“Accounts”)
“Accounts”)

•• Investments
Investments inin connectivity
connectivity and
and multi-
multi-
•• Organizational
Organizational contraction
contraction ranging
ranging from
from the
the service
service platforms
platforms
Operating integrating
integrating of
of Equity,
Equity, FI
FI sales
sales teams
teams to to improve
improve •• Exchanges
Exchanges redesigning
redesigning of of trading
trading system
system andand
Operating Model
Model •• Smart
Smart Order
Order Routing
Routing to
to Alternate
Alternate
client
client coverage
coverage andand reduce
reduce costs
costs toto operating
operating model
model to
to increase
increase liquidity,
liquidity, price
price
(e.g.,
(e.g., technology/
technology/ restructuring
ECNs/
ECNs/ Best
Best Execution
Execution (e.g.,
(e.g.,
restructuring of
of research
research departments
departments transparency,
transparency, speed
speed ofof execution
execution (e.g.,
(e.g.,
connectivity,
connectivity, Instinet)
Instinet)
•• Technology
Technology aa core
core strategy
strategy to
to deliver
deliver ROI
ROI onon SuperMontage,
SuperMontage, NYSE
NYSE Liquidity
Liquidity Quote)
Quote)
organizational
organizational structure)
structure) •• Open-architecture
Open-architecture enabling
enabling
investments
investments (e.g.,
(e.g., Order
Order Routing,
Routing, OMS,
OMS, Trade
Trade
seamless
seamless integration
integration with
with clients’
clients’
Execution
Execution technologies)
technologies)
OMS
OMS

- 37 -
 arket Analysis… Sales & Trading
Market
Integration Of Fixed Income And Equity Research Functions Has Become A More Pronounced
Theme (1/2)

Revenue Synergies Cost Synergies

Key Observations: Plan encompassed a way to redeploy resources effectively in an era of overcapacity using cross-selling to increase the share of the
client; Introspection about business model came when times were hard1; Incentives were created to sell the best products to clients - via team pay
structure; Moved up in league tables as a result of integration.2

• Eliminated “Citi Swarm” – streamlined client contact points from • Streamlined coverage - having one point person to
Citigroup
Citigroup many to one aligned by industry eliminate redundancies (e.g., duplicative high-cost
Feb. ‘04 (Combined
(Combined debt
debt and
and equity
equity • Gained comprehensive client view3 - leveraged existing management, junior bankers and sales assistants) and
functions)
functions) technology to understand total client relationship realign control and responsibility
• Formed MD heavy team – having more experienced people to
face off against clients
• Established 5-year revenue targets– aggressive revenue plans
in place; not in cost reduction mode - investing in people and
infrastructure

Key Observations: Cost-cutting initiatives were the greatest source of synergies during the integration.

• Captured more revenue per customer than any other bank and • Reduced costs through rigorous job cuts, including front
Merrill
Merrill Lynch
Lynch (Combined
(Combined
Sep. ‘03 debt
debt and
and equity
equity sales
sales and
and
the Investment Bank earned more in 2003 than Goldman or office, middle office, operating centers and overhead
trading
trading resources
resources into
into Citigroup4 costs5
Global
Global Markets)
Markets) • Removed legacy systems and consolidated client
information systems6
• Consolidated the credit, margins and the risk-
management processes for all products

1
The Capital Markets Experiment, March 22, 2004, Bill Shepard
2
Shepard, ibid
3
Shepard, ibid
4
Putting the Muscle Back in the Bull, Fortune, April 5, 2004, David Rynecki
5
Rynecki, ebit
6
Rahul Merchant, CTO, Merrill
- 38 -
 arket Analysis… Sales & Trading
Market
Integration Of Fixed Income And Equity Research Functions Has Become A More Pronounced
Theme (2/2)

Revenue Synergies Cost Synergies

Key Observations: Products are becoming blurred; increase market share and share of customer; lessen unnecessary contact with customer by using
single client contact.
• Combined the units because products were becoming blurred • Focused on quality, not quantity of client touch
Lehman
Lehman Brothers
Brothers and asset classes were becoming broader points4
(Combined
(Combined management
management ofof • Intenerated debt and equity into Prime Brokerage because • Streamlined disparate systems
May ‘03
Debt,
Debt, Equity
Equity and
and Prime
Prime Hedge Funds expect single contact point
Brokerage
Brokerage • Leveraged “Bond House” reputation1 to increase M&A activity,
raising market share by 6.2% to 18.9%2
• Created total client solutions rather than bankers promoting
OWN products only to formalize cross-selling facilitated through
a unified pool for banker’s pay”3
• Move increased stock price and profits (shares rose 40% and
net income rose 74%)
• Combined synergies will reach all levels within debt and equity
groups over time, to make bank more client-centric

Key Observations: Cross-selling; comp system changes needed to promote teamwork; use CRM to enhance service; headcount, technology, and
operational reductions.
• Transitioned to cross-product coverage; now less receptive • Reduced headcount - support in front office and number
Goldman to market fluctuation, co-heads of division, aligned by of sales & trading assistants were cut in integration
Goldman Sachs
Sachs
(Combined
(Combined debt
debt and
and equity;
equity; industry, resulting in move up in European League tables • Reduced technology and operational excess by
Apr. ‘03 •
technology
technology integrated
integrated in
in ’04
’04 Planned CRM implementation to make information integrating across silos
via co-heads)
via co-heads) available to managers and enhance client service • Standardized and revamped performance measurement
• Revamped compensation plan, now tied to how well the
product group does5 6

Key Observations: Focus on industries, not products; focused on client service; reduced operating costs.

• Shifted focus to clients (e.g., 10 senior bankers shifted focus • Reduced operation costs by combining silos on one floor8
Morgan
Morgan Stanley
Stanley away from internal mgmt7)
Jul. ’02 (Combined
(Combined debt
debt and
and equity
equity • Refocused capital markets around industries rather than
functions)
functions) products

1
Lehman’s New Street Smarts, BusinessWeek, January 19, 2004, Emily Thorton 5
Shepard, ibid
2
Thorton, ebit 6
Euromoney, August 2003, Antony Currie and Peter Koh
3
Thomson Financial 7
Shepard, ibid
4
Jeff Weiss, Lehman 8
Shepard, ibid
- 39 -
 arket Analysis… Sales & Trading
Market

A Recent Deloitte Study Highlighted The Top Ten Issues For Sales & Trading Businesses

1. Fundamental  New trading technologies allows buy-side 6. Industry  Firms are shifting from away from mega-
changes alter the firms to bypass traditional broker-dealers consolidation merger consolidation to configuration,
 Firms need to be able to trade across acquiring smaller firms to complement skills
world’s securities takes a different and strategy
multiple venues to secure best price
markets shape

2. New thinking  Success requires understanding specific 7. Corporate  More stringent legislative requirements are
about customers product and service requirements for each governance emerging, e.g. from Sarbanes-Oxley
customer group  Simple compliance is not enough to satisfy
 Customer relationships are not everything –
becomes a higher
media attention
product excellence is needed priority

3. Boosting returns  Increasing use of team-based relationships 8. Protecting and  Allegations of professional misconduct (e.g.
from human to improve cross-sell enhancing analyst research independence) have
 Improved leverage of human resources tarnished the industry
capital corporate  Expected standards of behaviour are also
requires change to traditional performance
management techniques reputation changing

4. Hedge funds –  Growth in hedge funds has been explosive, 9. Basel Capital  Securities firms already have sophisticated
balancing rewards much fuelled through funds of funds; can Accord comes to systems in place to manage credit risk but
now comprise up to 25% of exchange documentation is often inadequate to meet
and risks volumes
securities firms “advanced approach” category for Basel II
 Control and competitive issues emerge

5. Off-shoring  Off-shoring can deliver both costs savings 10. Gearing up for  IAS 39 restricts the use of internal contracts
and an increased focus on core international which are common in the industry
competencies  Banks will have to find new ways to manage
 New risks emerge as functions move out
accounting
and transfer risk internally
standards

- 40 -
 arket Analysis… Sales & Trading
Market
There Are A Number Of Factors Driving Change In The Prime Brokerage Business – Related To The
Overall Marketplace, Customer Needs, Operating Requirements And Technology

Drivers Impact

 Increased
Increased number
number ofof hedge
hedge funds
funds leading
leading to
to greater
greater need
need for
for aa variety
variety of
of prime
prime brokerage
brokerage
Growth of Hedge Fund Industry products
products and
and services
services
 Many
Many newnew entrants
entrants have
have attempted
attempted to
to attract
attract new
new business
business by
by competing
competing on
on price
price leading
leading to
to
Marketplace Increased Competition significant
significant margin
margin pressure
pressure
 Commoditization
Commoditization of
of ‘core
‘core services’,
services’, lending
lending to
to increased
increased importance
importance of
of technology
technology as
as aa service
service
Commoditization of Offerings differentiator
differentiator

 Increasing
Increasing sophistication
sophistication and
and complexity
complexity of
of investment
investment strategies,
strategies, leading
leading to
to need
need for
for broader
broader
Globalization array
array of
of products
products and
and services,
services, based
based on
on aa global
global platform
platform
 Increased
Increased use
use of
of multiple
multiple brokers
brokers to
to gain
gain greater
greater access
access to
to broad
broad array
array of
of products
products and
and
Customer Use of Secondary Prime Brokers services,
services, and
and decrease
decrease counter-party
counter-party and
and exposure
exposure risk
risk
 Potential
Potential slowdown
slowdown in
in hedge
hedge fund
fund growth
growth or
or market
market saturation
saturation requires
requires anticipation
anticipation of
of future
future
Future Customer Mix client
client mix
mix and
and needs
needs –– consider
consider needs
needs of
of multiple
multiple types
types of
of fund
fund managers
managers

 Nature
Nature of
of operating
operating model
model driven
driven by
by choice
choice of
of go-to-market
go-to-market strategies
strategies –– e.g.,
e.g., narrow
narrow vs.
vs. broad/
broad/
Operating Model deep
deep service
service offering,
offering, regional
regional vs.
vs. global
global coverage,
coverage, disaggregated
disaggregated services
services
 Funding,
Funding, securities
securities lending
lending and
and risk
risk management
management and
and reporting
reporting are
are becoming
becoming aa key
key elements
elements in
in
Operations Key Offerings the
the prime
prime brokerage
brokerage service
service offering
offering
 Service
Service pricing
pricing can
can be
be used
used toto differentiate
differentiate prime
prime brokerage
brokerage offers
offers (transaction
(transaction based
based pricing
pricing
Pricing Alternatives requiring
requiring high
high granularity
granularity vs.
vs. service
service based
based fees)
fees)

 Demand
Demand for
for near
near real-time
real-time processing
processing and
and market
market transparency
transparency require
require technology
technology solutions
solutions to
to
Straight Through Processing
support
support such
such functionality
functionality

Technology Global Platforms & Capabilities  Solutions

Solutions must
must be
be multi-product,
multi-product, multi-currency
multi-currency to
to support
support global
global operations
operations

Demand for Real-Time & Web-based  Solutions

Solutions must
must be
be easily
easily accessible
accessible and
and customizable
customizable for
for all
all types
types of
of prime
prime brokerage
brokerage clients
clients
Services (i.e.,
(i.e., fund
fund managers,
managers, plan
plan sponsors)
sponsors)

- 41 -
 arket Analysis… Sales & Trading
Market

Demand For Prime Brokerage Services Is Driven By Growth In Hedge Funds

Hedge
Hedge funds
funds are
are projected
projected to
to continue
continue to
to grow,
grow, in
in The
The US
US is
is more
more mature
mature and
and holds
holds the
the largest
largest share,
share, The
The majority
majority of
of hedge
hedge funds
funds are
are smaller
smaller in
in size,
size,
terms
terms of
of number
number ofof funds
funds as
as well
well as
as assets
assets but
but fund
fund managers
managers are
are increasingly
increasingly global
global while
while the
the largest
largest own
own the
the major
major share
share of
of assets
assets

Types
Types of
of Hedge
Hedge Funds
Funds by
by Total
Total Assets
Assets Under
Under
Growth
Growth In
In Total
Total ## of
of Hedge
Hedge Funds
Funds Hedge
Hedge Fund
Fund Global
Global Distribution
Distribution (Domicile)
(Domicile) Management
Management

10,000
10,000 Asia-Pacific Total
Total == 4,100
4,100 Hedge
Hedge Funds
Funds
Europe 4%
Projections
Projections 3.500
3.500
8,000
8,000 9%
3.000
3.000

6,000
6,000 2.500
2.500
CAGR
CAGR == 19%
19% 2.000
2.000
4,000
4,000
1.500
1.500
2,000
2,000
US 1.000
1.000
87%
500
500
1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006
1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006
00
<$100
<$100 mil
mil $100
$100 –– 500
500 mil
mil >$500
>$500 mil
mil

Growth
Growth In
In Hedge
Hedge Fund
Fund Assets
Assets Hedge
Hedge Fund
Fund Assets
Assets Distribution
Distribution (Size)
(Size) Asset
Asset Ownership
Ownership Based
Based on
on Hedge
Hedge Fund
Fund Size
Size

12,000
12,000
Asia-Pacific Total
Total == $505
$505 billion
billion
10,000
3%
10,000 Europe <$100 mil
12% 19%
8,000
8,000

6,000
6,000
CAGR
CAGR == 26%
26% Projections
Projections
4,000
4,000 >$500 mil
55%
2,000
2,000 US
85%
$100 - 500 mil
26%
1992

1993

1994

1995

1996

1998

2000

2001

2002

2003

2004
1990

1991

1997

1999

2005

2006
1992

1993

1994

1995

1996

1998

2000

2001

2002

2003

2004
1990

1991

1997

1999

2005

2006

In
In addition
addition to
to hedge
hedge funds
funds and
and investment
investment managers,
managers, other
other types
types of
of clients
clients are
are now
now seeking
seeking prime
prime brokerage
brokerage services
services

 Fund
Fund Investors/Limited
Investors/Limited Partners
Partners  Evaluators/Consultants/Administrators
Evaluators/Consultants/Administrators  Regulators
Regulators
 Fund
Fund of
of Fund
Fund Managers
Managers  Auditors/Accountants/Tax
Auditors/Accountants/Tax Preparers
Preparers  High
High Net
Net Worth
Worth Individuals
Individuals (HNWI)
(HNWI)

Source:
Source: Celent
Celent Communications
Communications
- 42 -
 arket Analysis… Sales & Trading
Market
Although The Prime Brokerage Market Is Dominated By The Top Three Firms, There Is Room For
Others To Gain Share. New Entrants Need To Choose Their Spots Carefully

Global
Global investment
investment banks
banks dominate
dominate the
the market…
market… …in
…in terms
terms of
of assets
assets under
under management
management and
and number
number of
of clients
clients

Top
Top Ten
Ten Prime
Prime Brokers
Brokers by
by Assets
Assets ($
($ billions)
billions) Top
Top Ten
Ten Prime
Prime Brokers
Brokers by
by ## of
of Clients
Clients
Morgan Stanley Morgan Stanley
Bear Stearns Bear Stearns
Goldman Sachs Goldman Sachs
Merrill Lynch ING Bearings
Banc of America Banc of America
ABN AMRO Merrill Lynch
Salomon Smith Barney Salomon Smith Barney
Lehman Brothers ED&F Man International
UBS PaineWebber Credit Suisse First Boston
Deutsche Bank Lehman Brothers
0 5 10 15 20 25 30 35 00 50
50 100
100 150
150 200
200

Most
Most hedge
hedge funds
funds use
use aa handful
handful of
of prime
prime brokers,
brokers, only
only branching
branching out
out to
to gain
gain access
access to
to specialized
specialized services
services

Average
Average ## of
of Brokers
Brokers Used
Used by
by Hedge
Hedge Funds
Funds

3.47
3.47

1.94
1.94 2.13
2.13
1.26
1.26

<$100
<$100 mil
mil $100
$100 –– 500
500 mil
mil >$500
>$500 mil
mil Overall
Overall
Fund
Fund Size
Size ($
($ millions)
millions)

Source:
Source: Celent
Celent Communications;
Communications; top
top three
three firms
firms own
own more
more than
than 60%
60% of
of market
market share,
share, as
as measured
measured by
by number
number of
of clients
clients
- 43 -
 arket Analysis… Sales & Trading
Market
Prime Brokerage Clients Are Demanding A Broad Range Of Services, From ‘Core’ To ‘Value Add’,
Driven By Increasingly Sophisticated Investment Styles And Transactions

There
There are
are aa number
number services
services clients
clients seek
seek –– the
the mix
mix is
is driven
driven by
by lifecycle
lifecycle stage,
stage, investment
investment style
style and
and geographic
geographic focus
focus

Prime
Prime Brokerage
Brokerage Services
Services Spectrum
Spectrum
‘Core’
‘Core’ ‘Value
‘Value Add’
Add’

Operations Reporting Analytics Turnkey / Corporate Services

Clearing & Settlement Web-based Risk Management* Portfolio Allocation*
Custody Real Time Reporting* Risk Partnership Accounting / Tax Services*
Securities Lending* Self-service Market, Credit Pre-trade Compliance
Financing / Funding / Margin* Corporate & Derivative Actions Performance Fund Structuring
Trade Execution Derivatives Pricing Capability Administration
Research & Market Data Security & Sector
Real Estate / Start-up Services Attribution
Capital Introduction & Seed Capital*

Prime
Prime brokerage
brokerage clients
clients are
are investing
investing around
around the
the globe…
globe… …and
…and employing
employing varied
varied investment
investment styles
styles and
and strategies**
strategies**

2.7%
4.1% 0.2% Equity long / short
5.7%
Convertible arbitrage
United
United 6.4%
United
United Europe
Europe Event driven
States Kingdom
Kingdom
States 31%
31% 7.7%
25%
25% Asia
Asia Market neutral
Canada/
Canada/ Latin
Latin 93%
93% Japan
Japan
17%
17%
America
America 19%
19% 60.0% Other
16%
16% 8.6% Distressed
Africa
Africa Dedicated short
3%
3%
South
South America
America 12.5% Sectoral
4%
4% Fixed income
Emerging markets
14.1%
Macro
14.2%

** Services
Services which
which offer
offer higher
higher revenue
revenue and
and margin
margin potential
potential and/
and/ or
or are
are priorities
priorities among
among fund
fund manager
manager clients
clients
**
** Source:
Source: Global
Global Custodian
Custodian 2002
2002 Prime
Prime Brokerage
Brokerage Survey,
Survey, figures
figures indicate
indicate percentage
percentage of
of respondents
respondents who
who answered
answered in
in the
the affirmative
affirmative
- 44 -
 arket Analysis… Sales & Trading
Market
Among Prime Brokers, Some Services Are Bundled While Others Are Not. Some Are Targeting
Specific Layers Of The Fund-broker Relationship With Tailored Offerings

Prime Brokerage Component Activities & Constituents Sample Elements of Strategy

Client
Client Layer
Layer
Fund
Fund Customer
Customer Segmentation
Segmentation
Sponsor  Target funds based on fund’s trading strategy
Sponsor Target funds based on fund’s trading strategy
 Target funds based on needs related to funds lifecycle
Target funds based on needs related to funds lifecycle
Hedge
Hedge (i.e.
(i.e. start-up)
start-up) or
or size
size
Fund  Target sponsors as users of services to provide
Fund Target sponsors as users of services to provide
transparency
transparency

Portfolio
Portfolio Management
Management Layer
Layer Technology
Technology
 Offer integrated system capable of multi-product, multi-
Partnership
Partnership Portfolio
Portfolio Risk
Risk Offer integrated system capable of multi-product, multi-
Reporting
Reporting currency
currency to
to meet
meet requirements
requirements of
of increasingly
increasingly
Accounting
Accounting Allocation
Allocation Management
Management
sophisticated
sophisticated fund
fund clients
clients

Finance
Finance Layer
Layer Financing
Financing
 Aggressive use of financing rates to win new clients
Aggressive use of financing rates to win new clients
Securities
Securities Securities
Securities  Strengthen depth of lending book or array of derivatives,
Strengthen depth of lending book or array of derivatives,
Financing
Financing
Lenders
Lenders Lending
Lending etc
etc to
to target
target global
global funds
funds
 Provide financing to grow start-up funds
Provide financing to grow start-up funds

Core
Core Services
Services

Capital
Capital Research
Research && Start-up
Start-up
Introduction
Introduction Market
Market Data
Data Services
Services

Scale
Scale
Trade
Trade Clearing
Clearing &
&  Use of scale in operations to create competitive
Custody
Custody Use of scale in operations to create competitive
Execution
Execution Settlement
Settlement advantage
advantage in
in cost
cost to
to service
service

Execution
Execution Custodial
Custodial
Brokers
Brokers Bank
Bank

Investing
Investing Entity
Entity Third
Third Party
Party Participant
Participant Portfolio
Portfolio Management
Management Finance
Finance Core
Core Services
Services

- 45 -
 arket Analysis… Sales & Trading
Market
Many Prime Brokers Have A Slightly Different Approach Than Their Peers – Each Strategy And
Operating Model Has Inherent Strengths And Challenges

Deutsche Goldman Morgan

Barclays Bear Stearns CSFB Fortis Merrill Lynch UBS
Bank Sachs Stanley

Customer
Customer Full
Full Service
Service –– Financing
Financing –– Focus
Focus
Financing
Financing –– Use
Use Scale
Scale –– Capitalize
Capitalize PaineWebber
PaineWebber
Segmentation
Segmentation –– Customer
Customer Moving
Moving from
from small
small on
on financing
financing and
and
rates
rates as
as competitive
competitive Scale
Scale –– Focus
Focus on on on
on breadth
breadth ofof historically
historically focused
focused
Specializes
Specializes inin large
large Segmentation
Segmentation –– funds
funds (historical
(historical securities
securities lending
lending
Strategy accounts,
advantage
advantage to to earn
earn "blue
"blue chip"
chip" full
full Scale
Scale product
product offerings
offerings on
on small
small funds,
funds,
accounts, focus
focus onon Focus
Focus onon small
small // Pershing
Pershing base)
base) into
into new
(Prime
(Prime Banking);
Banking); no
no
client new clients;
clients; full-
full- service
service and
and scale
scale in
in Warburg
Warburg on on large
large
client service
service and
and start-up
start-up funds
funds servicing
servicing larger
larger service
clearing
clearing and
and
creative service prime
prime broker
broker operations
operations funds
funds
creative financing
financing funds
funds settlements
settlements

Assets ($ bil)
US -- 28.0
28.0 -- 1.6
1.6 -- 19.1
19.1 6.9
6.9 33.1
33.1 1.8
1.8
Europe -- -- 0.5
0.5 0.3
0.3 -- 3.2
3.2 0.9
0.9 14.2
14.2 0.2
0.2

 Securities
Securities Lending
Lending  Reporting
Reporting
 Client
Client Service
Service  Financing/Risk
Financing/Risk  Technology
Technology  Securities
Securities Lending
Lending  Client
Client Service
Service
 Client
Client Service
Service  Financing/Risk
Financing/Risk  Securities
Securities Lending
Lending
Strengths  Financing
Financing  Securities
Securities Lending
Lending  Client
Client Service
Service  Operations
Operations  Financing/Risk
Financing/Risk  Operations
Operations
 Financing
Financing  Operations
Operations  Client
Client Service
Service
 Operations
Operations  Reporting
Reporting  Securities
Securities Lending
Lending  Financing
Financing
 Operations
Operations  Technology
Technology

 Financing/Risk
Financing/Risk
 Technology
Technology  Reporting
Reporting  Client
Client Service
Service  Operations
Operations
 Client
Client Service
Service  Reporting
Reporting
Challenges  Technology
Technology Breadth
 Reporting
Reporting  Financing/Risk
Financing/Risk
 Reporting
Reporting  Client
Client Service
Service  Securities
Securities Lending
Lending

Breadth of
of Services
Services  Technology
Technology  Technology
Technology
 Financing
Financing

Avg # Prime
Brokers Used 3.3
3.3 1.5
1.5 2.4
2.4 2.6
2.6 1.0
1.0 1.6
1.6 2.5
2.5 1.5
1.5 2.1
2.1
by Clients

 69%
69% Equity
Equity L/S
L/S
Leading  50%
50% Convert.
Convert.  41%
41% Equity
Equity L/S
L/S  38%
38% Convert.
Convert.  53%
53% Convert.
Convert.  43%
43% Dedicated
Dedicated  12%
12% Market-neutral
Market-neutral  55%
55% Equity
Equity L/S
L/S
Investment  65%
65% Equity
Equity L/S
L/S  46%
46% Equity
Equity L/S
L/S
Arbitrage
Arbitrage  20%
20% Convert.
Convert. Arbitrage
Arbitrage Arbitrage
Arbitrage Short
Short  10%
10% Convert.
Convert.  32%
32% Convert.
Convert.
Strategies 46%
 14%
14% Event-driven
Event-driven  21%
21% Event-driven
Event-driven

46% Equity
Equity L/S
L/S Arbitrage
Arbitrage  28%
28% Equity
Equity L/S
L/S  44%
44% Equity
Equity L/S
L/S  14%
14% Equity
Equity L/S
L/S Arbitrage
Arbitrage Arbitrage
Arbitrage
Pursued by 46%
 11%
11% Market-neutral
Market-neutral  18%
18% Market-neutral
Market-neutral

46% Market-neutral
Market-neutral  20%
20% Event-driven
Event-driven  18%
18% Market-neutral
Market-neutral  29%
29% Event-driven
Event-driven  14%
14% Event-driven
Event-driven  10%
10% Dedicated
Dedicated  19%
19% Event-driven
Event-driven
Clients Short
Short

Serving
Serving asas
Rapidly
Rapidly becoming
becoming aa
Able
Able to
to offer
offer fund
fund ‘aggregator’
‘aggregator’ for
for client
client
Known
Known forfor strength
strength Well
Well regarded
regarded fund
fund secondary
secondary prime
prime
Known
Known for
for flexibility
flexibility US-centric
US-centric focus;
focus; Recently
Recently merged
merged administrations
administrations data
data across
across multiple
multiple
in
in financing
financing and
and administration
administration due
due to
to poor
poor Used
Used as
as secondary
secondary
of
of approach
approach andand lack
lack major
major strength
strength is
is with
with DLJ/Pershing;
DLJ/Pershing; services
services (Caymans);
(Caymans); primes;
primes; scale
scale leads
leads
Noteworthy or
lending,
lending, particularly
particularly offering;
offering; lack
lack of
of technology,
technology, prime
prime broker
broker by
by
or proprietary
proprietary trading
trading stock
stock loan
loan high
high level
level of
of derivatives
strong
strong commitment
commitment to
to leverage
leverage in
in
issues department automation derivatives and
and proprietary
proprietary trading
trading to
commoditization
commoditization ofof larger
larger clients
clients
issues department automation synthetics issues to business
business from
from financing
operations;
operations; weak
weak in in
synthetics issues management financing and
and derivatives
management lending derivatives and
and
lending synthetics
synthetics

* Sources: "Prime Brokerage: One Service to Bind Them All" by Celent Communications (February 2002), 2002 Prime Brokerage Survey, Global Custodian, and Deloitte Consulting Analysis
- 46 -
Market Analysis – Asset Management
 arket Analysis… Asset Management
Market

Asset Management Summary

 Europe, when considered as one unified market comprised of almost a third of the reported mutual funds assets or $4.6
trillion

 The current economic climate coupled with evolving client expectations and slow industry growth is having an impact on
investment managers

 Net Assets of European investment funds have resumed growth trends, particularly in France and Luxembourg. White-
labelling is also becoming more prevalent

 White-labelling and outsourcing in the funds management business appears to be increasing

 Mutual Funds country analysis in Europe shows all regions returning to growth, albeit at different rates

 UK Fund management industry is dominated by the insurance companies

 Global Hedge fund industry is dominated by private clients, family offices and endowments

 Almost 70% Of European single-manager hedge funds are managed from London; 5% from the US

 Hedge Funds remain a small fraction of institutional asset allocation

 Prime Brokerage and offshore assets are important features of the hedge fund story

 The International private banking market can be segmented into four distinct client groups, differentiated by assets under
management

 HNW/ Private wealth management market place is growing globally and is a growing phenomenon across Europe

 European asset managers are positioning themselves for future profitability by retrenching and exiting non-core markets

- 48 -
 arket Analysis… Asset Management
Market
Europe, When Considered As One Unified Market Comprised Of Almost A Third Of The Reported
Mutual Funds Assets Or $4.6 Trillion

Leading Markets Worldwide by Total Mutual Fund Assets in 2003

Worldw ide Total Net Assets of Mutual Funds in 2003 (Total = $15,000 billion)

1,200 1,148 1,104

$7,414 billion 1,051
1,000

800 Europe Asia Pacific

Americas
$ billion

600 518
479
397
338 360 349
400 295
276 255 256
172
200 99 91 121
88 76
32 9 30 10 34
3 2 1
0
Mexico

Italy
Brazil

Argentina

Switzerland

South Africa
India
Chile

Spain

Japan
Germany
France

Ireland

Austria

Taiwan
Canada

Australia

Korea, Rep. of
Hong Kong
Luxembourg

Belgium

New Zealand

Philippines
United States

Costa Rica

United Kingdom

Rest of World
Rest of Europe
Source: Investment Company Institute, Deloitte Analysis

- 49 -
 arket Analysis… Asset Management
Market
The Current Economic Climate Coupled With Evolving Client Expectations And Slow Industry
Growth Is Having An Impact On Investment Managers

Forces of Change Industry Trends

Clients Average (%)

Clients are
are more
more demanding
demanding and
and show
show less
less loyalty
loyalty
60 58.0
•• Clients
Clients looking
looking for
for less
less volatility,
volatility, improved
improved performance,
performance, and
and in
in general
general 1-Year Asset Growth
Revenue Growth
more
more conservative
conservative investment
investment styles
styles 50
42.2 Operating Profit Growth
•• Growth
Growth of
of hedge
hedge funds,
funds, alternative
alternative investments
investments and
and defensive
defensive 40

investment
investment vehicles
vehicles continues
continues 30
29.0 29.5
27.6 25.8 26.5
22.6
•• Expectation
Expectation of
of personalized
personalized treatment
treatment across
across multiple
multiple channels
channels 20
18.4 19.6 20.0
13.8

10
3.4 3.6
 Marketplace
Marketplace is
is suffering
suffering from
from excess
excess capacity
capacity 0
1997 1998 1999 2000 2001 2002E
•• Slowing
Slowing revenue
revenue growth
growth resulting
resulting in
in need
need for
for short-term
short-term initiatives
initiatives (e.g.,
(e.g., -10
-4.7 -4.7

cross-selling,
cross-selling, product
product bundling)
bundling) -11.2
-20
•• Industry
Industry consolidation
consolidation continues
continues
-30
-31.3
-40
 Infrastructure
Infrastructure mandates
mandates are
are shifting
shifting Source: Competitive Challenges, 2002
•• Current
Current technology
technology initiatives
initiatives focused
focused on
on eliminating
eliminating fixed
fixed costs
costs
•• Outsourcing
Outsourcing trend
trend continues
continues
•• Postponing
Postponing STP
STP to
to save
save costs
costs threatens
threatens build
build of
of sustainable
sustainable
infrastructures
infrastructures

 Regulatory
Regulatory environment
environment is
is becoming
becoming more
more intense
intense
•• Firms
Firms forced
forced to
to closely
closely monitor:
monitor:
•• Individual
Individual country
country compliance
compliance needs
needs
•• Meeting
Meeting portfolio
portfolio mandates
mandates
•• Personal
Personal trading
trading
•• Alternative
Alternative investment
investment vehicles
vehicles coming
coming under
under increased
increased scrutiny
scrutiny
•• Limits
Limits and
and role
role of
of investment
investment managers
managers in
in corporate
corporate governance
governance
•• Proper
Proper roles
roles and
and disclosures
disclosures especially
especially during
during the
the sales
sales cycle
cycle
•• New
New requirements
requirements to
to monitor
monitor electronic
electronic communications
communications

- 50 -
 arket Analysis… Asset Management
Market
Net Assets Of European Investment Funds Have Resumed Growth Trends, Particularly In France
And Luxembourg. White-labelling Is Also Becoming More Prevalent

Net assets of European investment funds/ Euro bn 2003 Largest Administrators of 3 rdrd Party Funds Schemes
6,000
5,158
5,000 4,818
4,558 4,607
4,281
4,158
4,000

3,040
3,000

4,058
3,770
2,392

3,601
3,547

3,327
3,196
2,000 1,838
1,540
1,418
2,349
1,816

1,000
1,425
1,196
1,127

0
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
Q2
Non-UCITS UCITS

European investment funds by type/ Euro bn

1,800
1,600
1,400 Equity

1,200
Bond (*)
1,000
800 Money Market(*)

600
400
Balanced
200
0
1997 1998 1999 2000 2001 2002 2003 2004 Q2
(*) A reclassification of some bond funds into money market funds explains the discontinuity in the trend in 2004 Q2.

Source: FEFSI
UCITS: Undertaking for collective investment of transferable securities

- 51 -
 arket Analysis… Asset Management
Market

White-labelling and Outsourcing In The Funds Management Business Appears To Be Increasing

Deal Description

 State Street Global Advisors won one of the biggest European outsourcing deals in January
State Street Global
Advisors And 2004, when it was mandated to run £20bn of funds for Abbey.
 Abbey wanted to streamline its offering of more than 400 funds, many of which were
Abbey (UK bank)
inherited from bolt-on acquisitions and duplicated each other.

 The $1.9 billion International Value Fund has been restructured such that 25% to 30% of the
Vanguard Group &
fund's assets are managed by New York's Sanford C. Bernstein & Co. LLC, a subsidiary of
Sanford C.
Alliance.
Bernstein & Co.
 Vanguard is already one of the biggest users of sub advisers in the industry with external
managers overseeing about $250 billion of its $730 billion in assets.

 Allianz Dresdner Asset Management (ADAM) has expanded its relationship with State Street
Allianz Dresdner to provide investment operations services for $100 billion in insurance assets under
Asset Management management.
And State Street  State Street now provides a range of investor services for ADAM worldwide for assets
totaling $580 billion, including $400 billion for PIMCO.

Union Planters  Union Planters Corporation, has entered into an agreement to outsource all of the financial
Corporation and institution's wealth management operations. UPC is a bank holding company with $33 billion
SunGard Wealth in assets.
Management
Services

- 52 -
 arket Analysis… Asset Management
Market
Mutual Funds Country Analysis In Europe Shows All Regions Returning To Growth, Albeit At
Different Rates

UK France
Mutual Funds grow th (1999-2006F) Mutual Funds grow th (1999-2006F)
35% 1200 70%
500 1,031
30% 60%
1000 973 1,083
909
400 859 50%
25% 830

EURO Billion
321 800 740 40%
£ Billion

292 20%
300 254 261 265
236 241 600 569 30%
195 15%
200 20%
400
10%
10%
100 200
5% 0%

0 0% 0 -10%
1999 2000 2001 2002 2003 2004F 2005F 2006F 1999 2000 2001 2002 2003 2004F 2005F 2006F

Mutual funds Mutual funds/GDP Mutual funds Mutual funds/GDP

Source: ING Sector report on Retail Banking, July 2004 Source: ING Sector report on Retail Banking, July 2004

Spain Germany
Mutual Funds grow th (1998-2006F)
50% Mutual Funds grow th (1999-2006F) 596
600 552 35%
500
502
500 30%
40%
424 418 436
400
EURO Billion

392

EURO Billion
382 25%
400
30%
300 256 20%
237 300
204 206 220
183 198 15%
178 171 20%
200 200
10%
100 10% 100 5%

0 0% 0 0%
1998 1999 2000 2001 2002 2003 2004F 2005F 2006F 1999 2000 2001 2002 2003 2004F 2005F 2006F

Mutual funds Mutual funds/GDP

Mutual funds Mutual funds/GDP

Source: ING Sector report on Retail Banking, July 2004 Source: ING Sector report on Retail Banking, July 2004
- 53 -
 arket Analysis… Asset Management
Market

UK Fund Management Industry Is Dominated By The Insurance Companies

Growth of Funds Under Management in UK Leading Fund Managers in the UK
£ billion Rank Company Total Funds Under Management Value
3,500
1 Barclays Global Investors 746
UK private client 2 Aviva 334
3,000 funds
3 AMVESCAP1 333

2,500 4 HSBC Group 306

5 Prudential 250
2,000 Overseas funds 6 Legal & General Group 187
7 Schroders 140
1,500 8 Standard Life 117
9 Lloyds TSB Group 112
UK institutional
1,000 10 HBOS 101
funds
11 Eureko (F&C)2 97
500
12 Friends Provident 96
13 Royal & SunAlliance 60
0
14 Hermes Pension Management 60
1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003
15 Abbey National 43
Source: International Financial Services, London Source: Investment Management Association, Note: 1UK/US, 2 UK/Netherlands

UK Institutional Funds Share of Funds in UK (Oct 2004)

% Share of UK Funds (100% = GBP 1.3 tr)

£ billion cumulative total, 2003 prices Pension Fund Other
2,500 Managers 6%
6%
Unit trusts
2,000
Investment trusts
Fund Managers Insurance
12% Companies
1,500
Pension funds
39%

1,000

Insurance
500 companies
Retail Banks
18% Investment
0
Banks
1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003
19%

Source: International Financial Services, London Source: International Financial Services, London
- 54 -
 arket Analysis… Asset Management
Market

UK Fund Management Industry – Facts and profitability

Fund Management Industry Profitability Overview

% of Funds under Revenue/FUM
management (FUM)
Costs/FUM  The UK fund management Industry grew by 6% in 2003 to GBP 2,800tr,
30
Profit/FUM driven by improving stock markets and new investments.
24 24.3 24.6  Institutional funds account for major share of 90% (see previous slide)
25 23.7
followed by Overseas Funds and Private Clients. Institutional funds were up
20
19.9
18.7 18.7
6% in 2003 and have grown by almost 400% over 1990 level.
17  More than half of the UK Institutional funds are invested in equity. Thus
15 institutional investors account for a higher percentage of shares at 53% than
in most economies.
10  More than 90% of the overseas funds are from institutional clients.
6.7
5.6 5.9 Overseas funds showed a strong growth almost doubling in the past eight
4.1
5 years.
 Private client funds account for 10% of the total funds (2003). The
0
percentage of private client funds invested in UK equity is 15%, low in
2000 2001 2002 2003
comparison to some other countries, partially offset by the absolute value of
the share holdings. In terms of the value of these funds UK is ranked
Fund Management Margins
second after Switzerland in Europe.
Margin as a % of revenue  The market is concentrated with top five fund managers accounting for 60%
35 of the assets managed by the top 30 managers. Barclays Global is the
largest registered UK fund manager followed by Aviva and Amvescap (see
previous slide).
30
 The industry employs more than 40,000 people (excluding retail
stockbrokers). The employment situation stabilized in 2003 after declining in
25 2001 and 2002 and is expected to improve in 2004.
 Funds managed in UK are larger than France and Germany combined,
partially hidden due the large quantum of overseas funds which distort the
20
fund management rankings.

15
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

- 55 -
 arket Analysis… Asset Management
Market

Global Hedge Fund Industry Is Dominated By Private Clients, Family Offices And Endowments

Global Hedge Fund Assets UK’s Share of European Based Hedge Funds
Hedge Fund Assets ($ bn)
1000 9000
900 8000 200
775
800 180
650 7000
700 600 160
6000 61
£ Billion

600 520 140

$ bn assets
480
500 5000 120
400 300 315 4000 100
260
300 80
180 190 205 3000 23
200 60 119
60 80 110
100 2000 40
61
0 1000 20
0
2002 2003
Other Europe UK
Assets Number of Hedge Funds

Source: Van Hedge Fund Advisors International Inc., Morgan Stanley Source: International Financial Services, London

Global Sources of Hedge Fund Assets Hedge Fund Returns

(100% = 890 bn)
35 30.8
30
25
17.6
20

Annual Returns
In s t it u t io n a l/ 15 10.3
8.4
O t h e r, 2 5 % 10 6.1
4.1
5 0.2
0
-5 2001 2002 2003
-10
E n d o wm e n t s , -15
H N W/ UH N W,
10 % -20
65% -17.8
-25 -21.1

Van Global Hedge Fund Index

MSCI World Equity
Lehman Brothers Aggregate Bond Index

Source: Morgan Stanley Source: International Financial Services, London

- 56 -
 arket Analysis… Asset Management
Market
Almost 70% Of European Single-manager Hedge Funds Are Managed From London; 5% From The
US
Fund Location Top 20 European Hedge funds grew 63% CAGR in H1 04
Rank Name Assets CAGR
N e t h e rla n d s(,10 0 % = 5 6 3 s in g le m a n a g e r f u n d s )
5 Jan 03 Jan 04 Jun 04 Jun 04/ Jun 04/
US A , 2 9
It a ly, 5 O t h e rs , 9 Jan 03 Jan 04
S p a in , 6 Why
Why UK?
UK?
G e rm a n y, 8
World
World financial
financial centre
centre 1 Vega 1.8 8.2 11.6 83% 309%
Ire la n d , 12 Favorable
Favorable regulatory
regulatory environment
environment --
full
full weight
weight of of the
the regulatory
regulatory regime
regime
F in la n d , 12 2 GLG 3.8 7.6 11.1 92% 155%
not
not applied
applied when
when the the manager
manager only only
S we d e n , 18 delivers
delivers products
products and and services
services to to non-
non-
retail
retail investors.
investors.
S wit z e rla n d , 3 Man-AHL 5.5 8.1 10.3 54% 91%
Favourable
Favourable personal
personal tax tax laws
laws ofof non-
non-
36 UK
UK domiciled
domiciled hedgehedge fund
fund managers
managers11
Fiscal rules allow UK-based hedge
Fiscal rules allow UK-based hedge
fund
4 Bluecrest 1.8 3.1 5.5 155% 162%
fund managers
managers to to manage
manage fundsfunds
domiciled
domiciled in in offshore
offshore zero-tax
zero-tax
F ra n c e , 3 9
UK, 3 9 4
jurisdictions
jurisdictions without
without bringing
bringing them
them into
into 5 KBC 1.2 3.6 5.2 89% 223%
the
the UK
UK taxtax net.
net.
Location
Location in in aa strategic
strategic timezone,
timezone,
travel
travel and
and communications
communications hub hub for
for 6 Brevan Howard na 4.6 5.1 22% na
Europe,
Europe, access
access to to manpower
manpower with with
strong
strong financial
financial skills
skills
7 Gartmore 2.4 3.5 4.7 69% 97%

8 Marshall Wace 1.8 3.4 4.3 53% 124%

Source: EuroHedge, Feb 2003. See Note 1 below 9 Sloane Robinson 1.6 3 4.2 80% 138%

Equity Long-Short Represents About 40% of 10 CQS 1.2 2.8 3.8 71% 167%
European Industry 11 Aspect Capital 1.1 3 3.7 47% 177%
O t h e r, 3 %

M a na g e d
12 Brummer 2.5 3.1 3.5 26% 54%
E u ro p e a n
F u t u re s , 10 % E q u it y, 2 5 % 13 Egerton 2.4 2.9 3.2 21% 48%

14 Cheyne 1.1 2.2 3 73% 144%

F ixe d In c o m e ,
14 % 15 Lansdowne 2 2.1 2.7 57% 50%

16 Rubicon 2.4 2.6 2.7 8% 25%

G lo b a l E q u it y, 17 Dexia 1.3 2.2 2.6 36% 100%

13 %
M a c ro , 11% 18 Ferox 1 2.2 2.5 27% 131%

19 London 1 1.9 2.4 53% 125%

A rb it ra g e , Diversified
Source: Morgan Stanley 24%
Note1:
Note1: These
These fund
fund managers
managers cancan live
live in
in the
the UK
UK but
but will
will not
not be
be required
required to
to pay
pay tax
tax on
on Source: Morgan Stanley
any
any income
income or
or gains
gains which
which arise
arise outside
outside thethe UK
UK and
and which
which are
are not
not remitted
remitted toto the
the UK.
UK. - 57 -
 arket Analysis… Asset Management
Market

Hedge Funds Remain A Small Fraction Of Institutional Asset Allocation

Global Asset Allocation
2002 24% 50% 15% 11%
Japan
Japan
2003 28% 48% 15% 1% 9%

2002 8% 67% 2% 5% 19%

Germany
Germany
2003 7% 70% 2% 7% 14%

Continental 2002 13% 60% 8% 8% 12%

Continental
Europe
Europe 2003 14% 60% 9% 8% 9%

2002 38% 27% 25% 7% 3%

UK
UK 2003 36% 28% 27% 7% 2%

2002 27% 34% 24% 10% 6%

Canada
Canada
2003 27% 30% 26% 9% 8%

2002 47% 28% 11% 8% 7%

US
US
2003 47% 27% 11% 8% 7%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Domestic Equities Fixed Income International Equities Alternative Investments

Source: Greenwich Associates, State of the Industry presentation, SIA Hedge Fund Conference, Nov, 04

Significant Disparities In Allocation To Alternative Investments

Private Equity Hedge Funds Real Estate

Number of Investors Allocation of Investors Number of Investors Allocation of Investors Number of Investors Allocation of Investors
United States 392 5.1% 227 5.9% 422 5.7%
Corporate DB Plans 166 5.5% 73 3.9% 185 4.0%
Public DB Plans 87 5.0% 23 2.0% 125 6.3%
Endowments and Foundations 139 11.0% 131 15.5% 112 6.8%
Canada 40 4.9% 30 3.2% 99 6.7%
United Kingdom 69 2.5% 34 4.5% 308 7.6%
ContinentalEurope 81 2.5% 89 2.5% 161 8.9%
Germany- All Investors 46 2.3% 27 1.9% 125 7.1%
Japan 13 1.8% 120 8.1% 28 2.0%
Source: Greenwich Associates, State of the Industry presentation, SIA Hedge Fund Conference, Nov, 04
- 58 -
 arket Analysis… Asset Management
Market

Prime Brokerage and Offshore Assets Are Important Features Of the Hedge Fund Story
European Hedge Fund Prime Brokers Average number of Prime Brokers used by hedge Funds
Globally (end-2001)
Market Share by assets of Clients
5.0
4.5
M o rg a n

# of Prime Brokers used

O t h e r, 3 1% 4.0
S t a n le y, 3 0 % 3.47
3.5
3.0
2.5 2.13
1.94
2.0
1.5 1.26

J P M o rg a n , 1.0
4% G o ld m a n 0.5
UB S , 5 % S a c h s , 16 %
0.0
D e uts c he <$100 mn $100-500 mn >$500 mn Overall
CS FB , 8%
B a nk, 8 %

Source: International Financial Services, London Source: International Financial Services, London

Prime Brokerage Services Offshore Assets by Destination (%)

Ireland Other
% o f h e d g e f u n d s u s in g e a c h s e rv ic e in 2 0 0 3

P o rt f o lio Bahamas 3% 4%
a c c o u n t in g / re p o rt in g
4%
C a p it a l in t ro d u c t in o Bermuda
P a ym e n t / c o lle c t io n
10%
o f d iv id e n d s

S e c u rit ie s le n d in g

C us to dy
Cayman
54%
F in a n c in g **
British Virgin
S e t t le m e n t & c le a rin g Islands
25%
0 10 20 30 40 50 60 70 80 90 10 0

Source: International Financial Services, London Source: International Financial Services, London

- 59 -
 arket Analysis… Asset Management
Market
The International Private Banking Market Can Be Segmented Into Four Distinct Client Groups,
Differentiated By Assets Under Management

High Net-Worth – High Net-Worth – Ultra High Net

Mass Affluent
Tier 1 Tier 2 Worth
Typical
Typical AUM
AUM << $1MM
$1MM Typical
Typical AUM
AUM $1MM
$1MM -- $5MM
$5MM Typical
Typical AUM
AUM $5MM
$5MM -- $25MM
$25MM Typical
Typical AUM
AUM >> $25MM
$25MM
Market
Market Size
Size Market
Market Size
Size Market
Market Size
Size Market
Market Size
Size
 $15
$15 trillion
trillion in
in assets
assets  $30
$30 trillion
trillion in
in assets
assets for
for both
both  $30
$30 trillion
trillion in
in assets
assets for
for both
both  $14
$14 trillion
trillion in
in assets
assets
 Estimates
Estimates suggest
suggest that
that AUM
AUM will
will High
High Net-Worth
Net-Worth Tier Tier 11 and
and Tier
Tier High
High Net-Worth
Net-Worth Tier Tier 11 and
and Tier
Tier
reach
reach $25
$25 trillion
trillion by
by end
end of
of 2005
2005 22 segments
segments 22 segments
segments
Client
Client Segments
Segments Segment Segment
Segment Leaders Segment
Segment Leaders
Segment Leaders
Leaders Leaders Leaders Segment
Segment Leaders
Leaders
 Deutsche  Citigroup
Citigroup (Asia
(Asia &
& Latin  Citigroup
Citigroup (Asia
(Asia &
& Latin  JPMorgan
Deutsche Bank
Bank (Europe)
(Europe) Latin Latin JPMorgan (Latin
(Latin America)
America)
 CSFB
CSFB (Europe)
(Europe) America)
America) America)
America)  UBS
UBS (Europe)
(Europe)
 Citigroup  HSBC
HSBC (Asia)
(Asia)
Citigroup (Asia
(Asia &
& Latin
Latin America)
America)

Client
Client Preferences
Preferences Self-manage
Self-manage wealth
wealth and
and personal
personal finance
finance Highly
Highly dependent
dependent on
on advice
advice and
and assistance
assistance to
to manage
manage wealth
wealth and
and personal
personal finance
finance

Client
Client Loyalty
Loyalty Low
Low Medium
Medium High
High

Investment
Investment Goals
Goals Accumulation
Accumulation with
with some
some preservation
preservation Accumulation
Accumulation and
and preservation
preservation Preservation
Preservation

Self-directed
Self-directed Self-directed
Self-directed with
with some
some validation
validation
Investment
Investment Style
Style Delegation
Delegation
Some
Some validation
validation Some
Some delegation
delegation

Risk
Risk Tolerance
Tolerance High
High to
to medium
medium Medium
Medium to
to low
low Low
Low

Product
Product Complexity
Complexity Less
Less complex
complex Increasing
Increasing complexity
complexity Complex
Complex

Pricing
Pricing Extremely
Extremely price
price sensitive
sensitive Some
Some price
price sensitivity
sensitivity Less
Less price
price sensitive
sensitive

Technology
Technology High
High Medium
Medium Low
Low
Adaptability
Adaptability

Sources:
Sources: Deloitte
Deloitte Consulting
Consulting Analysis,
Analysis, World
World Wealth
Wealth Report
Report 2001,
2001, Private
Private Banking
Banking ---
--- Full
Full Steam
Steam Ahead?
Ahead? and
and Wealth
Wealth Management
Management Market:
Market: Capturing
Capturing the
the Hearts
Hearts and
and Wallets
Wallets of
of the
the Mass
Mass Affluent
Affluent

- 60 -
 arket Analysis… Asset Management
Market

HNW/ Private Wealth Management Market Place Is Growing Globally

HNWI Population, by Region, 2000-2003 (in millions) HNWI Wealth Distribution, by Region, 2001-2003 (US$ trillion)
35
9.0
30
8.0
7.0 25 3.7
3.5 3.6
6.0 2
1.8 1.9 6.5
20
5.0 6.3 6.9

4.0 2.5 15
2.2 2.2
3.0 8.5
7.6 7.4
10
2.0
2.4 2.5 2.6
1.0 5
8.2 8.4 8.7
0.0
2001 2002 2003 0
2001 2002 2003

Europe North America Asia Pacific Middle East Africa Europe North America Asia Pacific
Latin America Middle East Africa

Source: Cap Gemini April 2004; Cap Gemini World Wealth Report Economic Review 2003 Source: Cap Gemini, April 2004; Cap Gemini World Wealth Report Economic Review 2003, 2004

European Asset holdings of Wealthy customers 2002/ £bn Wealth Forecast – HNWI Financial wealth by Region/ US$tr
$40.7
$40.7

$40.7
$40.7 Annual
Annual Growth
Growth
2000 Offshore
Offshore Centres
Centres Rate
Rate
1700
1660
1577
(Assets
(Assets in
in $billion)
$billion) Worldwide
Worldwide 7.0
7.0
4.7
1494 $28.8
$28.8
1500 Africa
Africa 4.6
4.6
$26.7
$26.7
1245 $26.0
$26.0 9.3
1079
Middle
Middle East
East 2.8
2.8
3.7
1000 900
850 3.5 3.6 Latin
Latin America
America 5.2
5.2
6.5
5.3 5.9 14 Asia-Pacific
Asia-Pacific 7.4
7.4
500 500
500 415 450
8.5 At
At 7.0%
7.0% Growth
Growth
North
North America
America
7.6 7.4
10.7
10.7
11 Europe
Europe 4.1
4.1
0 8.2 8.4 8.7
Luxembourg
Netherlands

UK offshore

Singapore/
Caribbean

Miami/New
Germany

Switzerland
France

Spain
Italy
UK

York

HK

2001 2002 2003 2008E

Europe North America Asia Pacific Latin America Middle East Africa

Source: BCG and Financial Times Source: Cap Gemini May 2004; Merrill Lynch Global Equity Research
Note: Wealthy customers are customers with more than £175,000 net investible assets - 61 -
 arket Analysis… Asset Management
Market

HNWI/ Private Wealth Management Is A Growing Phenomenon Across Europe

Key Trends: Wealth Management in Europe Key Trends: Wealth Management in Italy
 In terms of European liquid wealth, the 3M+ liquid asset  A 34% of the total number of Italian Mass Affluent individuals,
band was the largest among the HNW sub-segments in the 50K-75K liquid wealth band, represented the largest
2003, accounting for EUR805bnAlthough the 3M+ band is asset band in 2003,
the least populous HNW sub-segment, it represents the
 Italian liquid wealth in the 750K-1.5M band grew by a mere
largest proportion of HNW liquid wealth in Spain.
3% in absolute terms reaching EUR82bn in 2003, the slowest
 In combination, Belgium and the Netherlands as a region, growth over the five-year period..
accounted for 356,900 individuals, equating to one-tenth of
the HNW population in Europe.
 Over the 2003-2008 period, Germany is forecast to be the
slowest growing HNW market in Europe, allowing the UK to
overtake in terms of volume of liquid wealth.
Source: Datamonitor Source: Datamonitor

The UK’s wealth market (size of households under

Key Trends: Wealth Management in UK
management,2002)
 There were 747,700 HNW individuals in the UK in 2003, with
Number of households Assets under Management (£
billions) a large proportion of these individuals falling at the lower end
of the wealth Private Client hedge funds are beginning to
£ 100m+ 400 131 decelerate after a spectacular run, but institutional demand
remains robust. The institutional clients are directly
£10m- £100m 2600 83
approaching the multi-strategy hedge fund firms.
£5m- £10m 7500 62  The total value of onshore liquid assets held by HNW

£3m- £5m 31000 103

individuals in the UK in 2003 amounted to GBP436.6bn..
 UK accounts for 20% of the wealthy customers in Europe.
£1m- £3m 309000 483

£175,000- £1m 1,533,000 615

Source: Datamonitor
Source: BCG and Financial Times

- 62 -
 arket Analysis… Asset Management
Market
European Asset Managers Are Positioning Themselves For Future Profitability By Retrenching And
Exiting Non-core Markets

European Asset Management Trends Restructuring in Europe

 Since 2001, revenues have been falling in line with a  European asset manager M&A activity increased by
shift away from higher margin products (e.g. equities) 50% to 72 deals in 2003 compared with the previous
and decreasing asset values. This trend is only now year
reversing  Acquisitions in wealth management, hedge fund of
 Profitable firms have either been fixed income funds and institutional penetration are targeting
specialists, highly diversified and flexible brand-led asset development of key areas including:
managers or high performing funds in “hot” sectors/  Better servicing of specific segments
management styles (e.g. small caps in 2003)
 Broadening customer bases
 Persistent low interest rate environment will push
investors towards absolute return products, such as  Widening distribution
private equity, hedge funds or funds of funds  Expanding reach
European Assets Under Management/ Euros Trillion
 Diversifying revenues
 Selectively disposing of non-core businesses &
operations
 Non-European players with product excellence have a
chance to win core mandates by winning then proving
excellence in specialised mandates
 Independent asset managers will need to focus on
winning distribution through private banks, brokers and
advisors, as retail market will be dominated by big brand
names

Source: Deloitte analysis, Freeman & Co

- 63 -
 arket Analysis… Asset Management
Market

European Asset Management Is An Important Market

Europe accounts for 12-15% of the market, but is a source of almost half of the global assets
 Europe accounts for 12% to 15% of the Global hedge fund assets. However, almost half of the hedge funds are sourced
from Europe mostly from offshore private banks and family offices, with the main market being Swiss offshore private
banks. Most of the “sourced” assets are invested in the US funds
 Private Client hedge funds are beginning to decelerate after a spectacular run, but institutional demand remains robust.
The institutional clients are directly approaching the multi-strategy hedge fund firms.
 Single-manager hedge funds managed from France, Switzerland and Sweden are steadily increasing.

Defensive asset allocation continues but gradual improvement expected

 European Asset Allocation continues to be defensive

 Most of the European Markets except UK and Sweden have reduced their equity market penetration. UK leads globally
among large markets, with equity fund holdings comprising 75.5% of the entire mutual fund asset base. Germany has
almost half at 39.4% followed by France and Spain.
 The customers are shifting back to Equity mutual funds after 3 years of preference for low-risk products. Nordic region
is most buoyant in this shift-back, followed by the UK. Spain and France are witnessing moderate shifting whereas
Germany and Italy continue to be stagnant.

Mutual Funds are local in their value offerings

 Mutual Funds are country specific and not “European” in their coverage
 This leads to differences in the products, as they are customized to local tax policies, products, infrastructure and
customer demographics
 In spite of significant lobbying, the evolution of a single fund range for entire Europe seems distant
 Thus, the economies of asset management are determined by the interplay of local factors rather than those on a
European scale.

- 64 -
 arket Analysis… Asset Management
Market

A Recent Deloitte Study Identified The Top Ten Issues For Asset Managers

1. New  Investors moving from strategies that 6. Sharpening  Focus on core business is being enhanced
requirements from matched benchmarks to seeking absolute strategy by selected acquisitions and divestitures
returns to meet funding gaps  Many are targeting the more affluent investor
institutional  Need to offer alternative investments and groups
investors proven risk-adjusted returns  Outsourcing is increasingly common

2. Alternatives to  Hedge funds and exchange traded funds are 7. Managing new  Enhanced corporate governance standards,
mutual funds becoming more popular with individuals regulatory EU taxation directives, tougher listing
 Asset management firms need to broaden requirements, hedge fund regulation and
attract investors requirements anti-money laundering responsibilities all add
their offerings
to the cost of compliance

3. Maintaining and  Allegations of misconduct have tainted the 8. Rising  Europe is leading the way in increased effort
rebuilding investor Industry (e.g. market timing, soft shareholder by funds to influence board and management
commissions) decisions
trust  Firms need to become ready for greater
activism
scrutiny

4. Investors seek  Role of dominant distributors has been called 9. Outsourcing  For domestic vendors, partners have
objective advice into question typically been custodial banks
 New advice models are likely to gain share  Off-shoring may soon represent 15% of
financial services headcount

5. Road to  International expansion has been slower and 10. Managing  Increasing the number of partners also
globalisation more challenging than expected extended increases operational and reputational risks
 Global opportunities remain to be exploited – this is now attracting increased regulatory
becomes steeper enterprise risk attention

- 65 -
Customer Demand Analysis
ustomer Demand Analysis…

Market-based Financing Of Budget Deficits Has Been A Major Factor Behind The Growth Of The
Global Sovereign Bond Market In The 1980s And 1990s

Long term European Government financing trends Government financing objectives

 Along with an improved infrastructure - including advanced clearing and  Surveys among debt managers show that the strategic policy objectives
settlement systems and modernisation of the regulatory framework - as of debt managers can be summarised as follows:
well as deregulation, the flow of government bonds helped to establish  1. ensuring the government's financing needs;
more liquid benchmark issues.  2. minimising borrowing costs;
 Liquid government bond markets also facilitate issuance by private  3. keeping the various risks at an acceptable level; and
sector borrowers. The larger corporate borrowers have stepped-up  4. supporting domestic capital markets.
issuance of bonds and shorter dated paper such as commercial paper
 OECD countries have developed their fixed-income government  Debt managers pay increasingly attention to the various risks associated
securities markets pressed by the necessity of financing fiscal deficits
with government debt management
 Liquid public debt markets proved to be key for the development of  The increased use of more sophisticated risk management systems and
corporate debt markets
financial derivatives support this policy trend.
 Liquidity plays an increasingly important role in government debt
 Source: OECD statistical yearbook on Central Government Debt, 2003, management.
Bank of International Settlements  Electronic systems may reduce in the future the importance of primary
dealers (for example, by allowing institutional investors direct access to
auctions)

Amount Outstanding International Debt Securities - Government Issuers/ $bn

200
Austria
150 Belgium
Denmark
Finland
100 France
Germany
Ireland
50 Italy
Luxembourg
Norway
0 Portugal
Spain
Sweden
Switzerland
1994-09

1995-09

1996-09

1997-09

1998-09

1999-09

2000-09

2001-09

2002-09

2003-09
1993-09

United Kingdom

- 67 -
ustomer Demand Analysis…

For Governments, Attention Is Focused On Best Practices In Primary And Secondary Markets,
Structure Of Debt Portfolios, Benchmarks, Growing Importance Of Electronic Trading Systems

Long term European Government financing trends Composition of government debt as % GDP
 By the late 1990s, longer-term instruments accounted for
the larger part of government debt as debt managers
sought to minimise re-financing risk as well as interest risk.
 Although most of the instruments are fixed (nominal), during
the last few years an increasing number of governments are
issuing index-linked bonds
 The emergence of a pan-European public debt market
raises the possibility that an alternative, international safe-
haven would become available
 Particularly in Sweden and the United Kingdom, indexed
debt is issued to assist with overall debt management
objectives of raising, managing and retiring debt at the
lowest possible price and risk

Use of Electronic Markets & Derivatives on Increase

2002 OECD Average composition of government debt
 Auctions are the most commonly used issue method.
However, after the introduction of the Euro a number of EU
countries (in particular the smaller ones) have introduced
syndication as a supplement to auctions.
 Electronic book-building typically supports syndication.
However, experiences thus far indicate that the contacts
between the sales team and the investors remain very
important
 Another important development is the impact of electronic
systems on secondary markets. The advance of electronic
trading systems is reshaping fixed income markets

Source:
Source: Strategic
Strategic Trends
Trends and
and Policies
Policies Shaping
Shaping Government
Government Securities
Securities Markets
Markets ,, Bloomestein,
Bloomestein, 2004
2004 - 68 -
ustomer Demand Analysis…

Growth Of Institutional Investors Has Been A Key Feature Of Growth In European Financial Markets
Supported By A Shift Away From Deposits And Directly Held Securities To Institutional Investment

Institutional Investor Trends in Europe Relative Size of Institutional Sector Assets as %GDP
 Institutional investor growth in Europe is an established trend, while
pension fund growth in Europe is strong but unevenly distributed
 Institutionalisation and EMU are combining to revolutionise EU financial
markets, moving structure and behaviour towards Anglo Saxon
paradigm
 Regulatory problems for EU pension fund investments remain
unresolved – pension reform options are not yet widely grasped despite
coming difficulties of social security pensions
 Advantages of institutional investors include:
 Ease of diversification as well as the liquidity of claims
 Improved corporate control
 Benefits from deregulation
 Ability to take advantage of technological developments
 Enhanced asset-manager competition
 On the demand side, demographic aspects and growing wealth

Amounts outstanding of International Debt issued by

FTSE European Banks Sector Index
European Financial institutions/ $bn
2000 Austria 1300
1800 Belgium
Denmark
1200
1600
Finland 1100
1400 France
1200
Germany 1000
Ireland
1000 Italy 900
800 Liechtenstein
Luxembourg 800
600 Netherlands 700
400 Norway
Portugal 600
200 Spain

20-Feb-01

24-Dec-01

10-Jul-02
20-Jan-00

05-Sep-01

21-Jan-03
10-Nov-00

29-May-01

16-Feb-04
10-Nov-03

01-Dec-04
15-Oct-02

21-May-04
15-Oct-99

07-Aug-00

04-Apr-02

26-Aug-04
05-Aug-03
28-Apr-00

30-Apr-03
Sweden 500
0
Switzerland
United Kingdom
1988-12

1990-09

1992-06

1994-03

1995-12

1997-09

1999-06

2001-03

2002-12
1987-03

Source: BIS, Quarterly Report Sept 2004

- 69 -
ustomer Demand Analysis…

Growth In The Corporate Sector Has Driven Banking Revenue. The UK And The Financial Services
Sector Continue To Represent The Significant Revenue Opportunities In Europe
Number of companies listed on major European
Exchange capitalisation as %GDP
Exchanges
200%
180%
160%
140% 8,000 Wiener Börse
120% Swiss Exchange
7,000
Stockholmsbörsen
100%
6,000 Oslo
80%
Malta
60% 5,000 Luxembourg
40%
4,000 London
20% Irish
0% 3,000 Helsinki

2,000 Euronext
Deutsche Börse
ta
i

o
sh

m
on
nk

1,000
s

st

**

g
n
Bu na

sl

aw

se
Copenhagen
al
Eu rse
en

oc )
ur
ge

W e
ol
Ir i
pe

St ME
si

O
nd
xt

g
lia

ör
kh
bo

s
h

el
ha

an
ne
Bö
da

ar
Lo
At

rB
Ita

(B
H

Budapest
m
en

ch
ro

0
e

xe

ne
a

Ex
ch
op

e
rs

Lu

ie
ng Borsa Italiana
ts
Bo

End End End End End End End End End End End End End End

W
eu

ha

is
Sw
Athens
D

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003
Ex
h
is
an

Global Investment Banking Sources of Revenue by

Sp

Market Capitalisation (Index 1990 = 100)

Industry
700.0

100%
600.0
Other (and multi-industry)
500.0 80%
Borsa Italiana
Copenhagen Technology, media and
400.0 telecom
Deutsche Börse 60%
London Healthcare
300.0
Luxembourg 40%
Oslo Energy
200.0
Spanish Exchanges (BME)
Stockholmsbörsen 20%
100.0 Consumer
Swiss Exchange
Wiener Börse 0%
0.0 Financial
En 91

En 92

En 93

En 94

En 95

En 96

En 97

En 98

En 99

En 000

En 01

En 02

03
En 90
19

19

19

19

19

19

19

19

19

20

20

20
19

2
d

d
d

2001

2003
1993

1995
En

1999
1997
Source: BIS, Freeman & Co, Deloitte analysis
- 70 -
 Given Relative Size Of Trade And FDI Between Europe and Japan, Having Execution Depth In Japan
May Not Offer Significant Advantage Compared To Those With Access To US Markets

2003 Trade Flows

Germany France Italy UK Switzerland US Japan

Percentage of Total Imports from EU25 55.2% 66.1% 57.6% 52.5% 78.1% 19.3% 12.9%
Percentage of Total Exports to EU25 54.4% 61.4% 53.8% 58.8% 59.1% 20.7% 14.7%

2002 Net Direct Investment/ Euro millions

EU25 Germany France Italy UK Switzerland US Japan

EU25 315,206 30,276 39,806 15,595 n/a n/a n/a n/a
Germany n/a n/a 5,792 521 447 203 - 4,922 612
Spain n/a 741 2,023 872 - 1,431 310 232 92
France n/a 9,969 n/a 1,338 2,823 756 2,245 4,255
Italy n/a 1,500 709 n/a 501 713 2,401 316
UK n/a 14,008 12,070 2,284 n/a - 55 19,957 2,178
Switzerland n/a - 1,212 1,670 293 - 1,563 n/a 8,115 165
Asia n/a 2,713 2,841 107 - 10 345 30,059 8,773
China ex HK n/a 1,181 375 14 628 - 19 967 2,770
Hong Kong n/a 362 - 80 4 410 - 139 2,152 238
Japan -1,748 75 2,329 57 - 3,874 - 298 4,740 n/a
NAFTA n/a - 939 18,182 1,196 20,791 3,045 17,471 9,435

Source: Eurostat - 71 -
ustomer Demand Analysis…

Growth In The Corporate Debt Markets Has Been Consistently More Stable Across Europe Than The
Equity Business

Amounts Outstanding International debt securities - Announced International Equity Issues by Nationality/
Corporate Issuers/ $bn $bn

300 Austria
25
Belgium Austria
Denmark Belgium
Finland Fr 20
Denmark
250 France Finland
Germany France
Germany
UK
Ireland
Italy Ireland
200 Liechtenstein 15 Italy
Liechtenstein
Luxembourg
Netherlands UK Luxembourg
Netherlands
150 Norway
Norway
Portugal
Spain 10 Portugal
Spain
Sweden
100 Switzerland
Ger
Sweden
Switzerland
United Kingdom United Kingdom
5
50

0 0 Fr

1990-Q1

1991-Q2

1992-Q3

1993-Q4

1995-Q1

1996-Q2

2003-Q4
1997-Q3

1998-Q4

2000-Q1

2001-Q2

2002-Q3
2003-09
2000-09

2001-09

2002-09
1999-09
1997-09

1998-09
1994-09

1995-09

1996-09
1993-09

Structure of Corporate Liabilities as % Balance Sheet

Source: BIS, Quarterly Report Sept 2004; Davis, 2003 - 72 -

ustomer Demand Analysis…

Support For Large To Mid-sized National Firms – Those Typically Below The Radar Screen Of The
Bulge Bracket Investment Banks – May Be A Key Opportunity For Future Growth

Corporate financing trends in Europe Sources of Finance by Firm Size

 Traditional challenges to servicing smaller clients include:
 Cost of monitoring loan does not scale to loan size
 Collateral is often limited or highly concentrated
 Both public and management information are scarce
 Default risks tend to be higher than larger multi-
nationals

 Changes to approach required to support mid-caps:

 Longer-term finance – particularly debt – to support
investment in real estate and inventories
 Collateral related to future income rather than existing
assets
 Willingness to take on some part of macro-economic
risk
 Provision of finance through the business cycle to Source: CEPS, 2003
meet liquidity challenges EU venture capital investment, % GDP 2002
0.7
 Trends show that larger firms have benefited from pan-
European pool of capital 0.6

0.5

 Competition in current mid-market lending appears to be 0.4

dominated by local firms who have a perceived information

advantage. An EC2002 study commented on lack of margin 0.3

decline in this market for the EU15 0.2

0.1

 In the absence of government supported lending, trade

credit and leasing are typical alternatives
0
Germany Spain Italy Netherlands France UK

- 73 -
ustomer Demand Analysis…
- -

Defining The Portfolio Of Emerging Client Preferences And Needs Is The First Step In Rethinking - “ ”)

Banks’ Approach To The Market

- -

Emerging Client Preferences & Needs

Sample Key Drivers of Shifts In Client Kn Thee Cli
ow Th
Know entt
Clien “Skin
“Skin in
in the
the Game”
Game” Gl
Glob
obal
al Co
Cove
vera
rage
ge
Needs Provid
Pro based
vice bas
service
videe ser ed on
on Demonstrate
Demonstrate on-going
on-going Ex
Exhib
hibitit ab
abilit
ilityy to
to cucusto
stomi
mize
ze
kno wle
wle dge
dge of
of clie
clie nt’s
nt’s commitment
commitment to to provide
provide se
servi
rvicece dedeliv
livery
ery to
kno to me
meet et
 Explosive growth in hedge funds segment requiring risk tole
y, risk rance,
toleran ce, glo
globa l
stra tegy,
strateg financing
financing // capital
capital cli
bal clien entt ne
need eds,
s,
providers to offer broader scope of value-add services to Relationship needs,
tory nee ds, pro
provid
viding
reg ulatory
regula introduction,
introduction, take
take ing tim
timely ely,, loc
locali
alize
zedd
compete (e.g., from back-office support to trade execution, Relationship sop tication
histica
sophis Span
tion.. Sp an significant
significant lead
lead se
servi
rvice
cess inin ananyy papartrt of
of the
securities lending, capital introduction and start-up the
acr oss all
across needs
all nee ds underwriting
underwriting position,
position, etc
etc wo
worldrld
services)
Global
Global Growth
Growth in
in Assets
Assets // ## of
of Hedge
Hedge Funds
Funds
Dollars
Dollars in
in Billions
Billions Im
Imppaart Strong
Strong Financials
Financials // ive,
etititiv e,
rtia
ialility
ty mppet
Coom
C
cinngg
ci
$1,200
PPro
rovi
vide Balance
Balance Sheet
Sheet en t
t P
P ri
ri
Total Number

10,000
de cl clea sp ar
ar en
earr se rannsp
$1,000
$800
of
of ac
sepa
para
ratio
tionn TTra
8,000
activ
tiviti
ities g
eatin
ting
$600 es ththat
at en
ensu
su re Maintain
Maintain liquidity
liquidity // AAA
AAA de m
vide mar arke t-bea
ket-b
6,000 $400 “f“fai
air”
r” cl
clie
ient
nt trtrea
ress P rovi
Pro bu nd
nd ledd
le
eatm
tmen
entt an rating
rating to
to transact
transact large
large larg
forr la rgee // bu
andd es fo
ices
$200
pric
4,000
va
valu
luee fo pr ee
2,000
$0
Trust forr fe
fees
es pa
paid
id trades
trades and
and help
help meet
meet pr od
prod uc
uc ts
ts .
. E
E ns
ns ur
ur
Trust alll
forr al
2006E

ng fo
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002

-
financing
financing needs
needs nt re
rent
pare repo rting
porti
nspa
trans
tra
deal
de s
als
 On buy-side, investment managers and insurers are facing
heightened performance pressures, boosting demand for
innovative ideas, best pricing and efficient execution
Insigh
Ins Resea
tfull Re
ightfu rch //
search Innovative
Innovative Solutions
Solutions
Specialist
 The downturn in the market is driving Pension Funds’ Specialist
aly tics
Analytics
An Create
Create new,
new, innovative
innovative Capabilities
appetite for products beyond domestic equities and bonds. Capabilities
Now shifting towards private equity products, international Pro dynam
vide dyn
Provide amicic structured
structured solutions
solutions Provide
Provide leading
leading edge
edge
equities, REITs, and alternative investments, including kno wle
knowle dge
dge and
and adv
adv ice of
ice of uniquely
uniquely tailored
tailored to
to meet
meet capabilities
capabilities and/or
and/or
hedge funds. client
clie sector
nt sec industry
tor // indu stry client’s
client’s needs
needs (i.e.,
(i.e., contacts
Expertise contacts in
in specialized
specialized
ket. Ens
market.
and mar
and Ensureure products,
products, technology)
technology)
 Within banking sector, credit debacles are driving Expertise van ce to
to client
clie nt
products,
products, services,
services, or
or
rele
relevan ce resources
resources
increased demand for sophisticated risk management
solutions and an increased focus on a provider’s
willingness to provide liquidity
ation
erat
Oper al Ef
ional iency
ficien
Effic cy B
Bes
estt E
Exe
xecu
cutio Anndd
ibuutitioonn A
 Sovereigns trying to take advantage of eurozone Op tionn Dis
D trib
istr
free,
or-fre Pr
Prococes cceess ss
investment community and increased availability of liquid Provid
Pro error-
videe err e, esss tra
trade
de inin co
costst-- Acc
A
uti on of
on of ef
effic
ficie
ient deep
derivatives are soliciting broader, cross-border support ac curat
accu e ex
rate ex ec
ec uti nt mman anne
nerr (e
(e.g.g.,., andd de
oadd an
broa
de br
vide
ep
from the I-Banks nimize fails;
ize fai ls; EC
ECN/ N/ AT rovi
Pro
P nt
Efficiency trade
tra minim
dess –– mi ATS, S, di
dire
rect
ct cess to
to re
rele
leva
va nt
e, tim ely
ely ex
exch
chanange acce
ac ss
ts as
Efficiency vid
provide
pro e ac
ac cu
cu rat
rat e, tim ge).). Ex
Exec
ecututee la
larg
rgee andd m
ts an mar kets
arke as
ort ing tra
trade
dess wiwith prod
pr ucts
oduc
reporting
rep thououtt m
movovin
ingg eded
need
ne ed
m
mararkekett

- 74 -
ustomer Demand Analysis…

Each Organisation Needs To Respond To Trends In The Size, Types And Preferences Of Clients

Emerging Client Preferences By Type And Size

Small
Small Size
Size Large
Large Size
Size ILLUSTRATIVE
11 Hedge Funds Asset Managers
“Skin
“Skin in
in the
the Game”
Game” 22 Best
Best Execution
Execution
Specialist
Specialist Capabilities
Capabilities Competitive/
Competitive/ Transparent
Transparent
Under
Under each
each method,
method, itit is
is necessary
necessary to
to understand
understand the
the lifetime
lifetime Pricing
Pricing
Insightful
Insightful Research
Research // Analytics
value
value of
of aa client
client (e.g.,
(e.g., client
client profitability,
profitability, size
size of
of wallet).
wallet). While
While Analytics
Strong
Strong Financials
Financials
more
more complex,
complex, aa hybrid
hybrid approach
approach will
will yield
yield superior
superior insights
insights Operational
Operational Efficiency
Efficiency
Innovative
Innovative Solutions
Solutions
Impartiality
Impartiality
Insightful
Insightful Research
Research //
33 Analytics
LL M
M H
H
Analytics LL M
M H
H
Sampling of Tiering Methods Sophisticated investors who want to be treated similar to Poor performance prompting buy-side’s growing use of
another dealer. Value product expertise, willingness to finance, alternative investments and FX to boost returns – strong need
11  Creates
Creates deep
deep understanding
understanding of
of sector
sector trends
trends  Industry
Industry sector
sector quant analytics, real-time info, and ability to price accurately. for strategic, portfolio-level advice, strong analytics, reporting,
and
and implicit
implicit understanding
understanding of
of client
client needs
needs  Global,
Global, regional,
regional, Bigger players demanding impartiality. best pricing and low-cost execution
 May
May require
require clear
clear definition
definition of
of client
client within
within each
each niche
niche
Type sector
sector to
to be
be useful
useful (e.g.,
(e.g., long-short,
long-short, global
global
Type of
of Client
Client Insurers Pension Funds
macro,
macro, even-driven
even-driven hedge
hedge funds)
funds)
 Does
Does not
not measure
measure performance
performance based
based onon Competitive/
Competitive/ Transparent
Transparent
meeting
meeting behavioral
behavioral needs
needs Innovative
Innovative Solutions
Solutions
Pricing
Pricing
Specialist
Specialist Capabilities
Capabilities Best
Best Execution
Execution
Level of Complexity

22  Assumes
Assumes measure
measure of
of client
client size
size drives
drives client
client  Absolute
Absolute size
size Competitive/
Competitive/ Transparent
Transparent Strong
Strong Financials
Financials
needs
needs and
and profitability
profitability (e.g.,
(e.g., AUM)
AUM) Pricing
Pricing
 Provides  Revenues Global
Global Coverage
Coverage
Provides gauge
gauge toto prioritize
prioritize Revenues Know
Know The
The Client
Client
 Requires
Requires evaluating
evaluating size
size within
within sectors
sectors –– i.e.,
i.e., by
by Insightful
Size
Size of
of Client
Client Insightful Research/
Research/
type
type of
of client
client Best
Best Execution
Execution LL M H
Analytics
Analytics LL M H
M H M H
 Does
Does not
not measure
measure buying
buying preferences
preferences byby size
size Level of sophistication varies. Largest holders of credit risk – Declining asset sizes have led to increased demand for
or
or type
type of
of client
client growing use of credit derivatives to offset annuity business/ international and alternative investments (to diversify), and greater
increase revenues. Expect banks to know their needs, provide pressure to reduce costs / obtain best prices. Smaller funds rely
innovative solutions / cost efficient service. heavily on external research.
33  Segmentation
Segmentation based
based on
on client’s
client’s preferred
preferred  Product
Product needs
needs
buying
buying behavior
behavior (single
(single // multi)
multi)
Client
Client
 Requires
Requires client
client feedback
feedback toto understand
understand  Loyalty
Loyalty (price-
(price- Sovereigns Banks
Preferences preferences,
preferences, as as well
well as
as an
an understanding
understanding of of driven
driven vs
vs
Preferences //
historic
historic buying
buying patterns
patterns // “white
“white space”
space” consultative)
consultative) Balance
Balance Sheet
Sheet
Behavior
Behavior  May Global
Global Coverage
Coverage
May blur
blur focus
focus onon macro
macro industry
industry sector
sector trends
trends // Skin
Skin In
In The
The Game
Game
needs
needs Know
Know The
The Client
Client
Specialist
Specialist Capabilities
Capabilities
Competitive/
Competitive/ Transparent
Transparent
Pricing
Pricing Execution
Execution
Innovative
Innovative Solutions
Solutions Global
Global Coverage
Coverage
Execution
Execution
LL M
M H
H LL M
M H
H

Advent of a large euro market has required improved Credit debacles / improved loan portfolio mgmt driving need for risk
information flow / active marketing . Players demanding global management products (credit derivatives / securitization). Banks
coverage deep client knowledge, competitive pricing and ability requiring balance sheet, high-end capabilities, efficient execution,
to move order “silently”. and global access.

- 75 -
ustomer Demand Analysis…
Peers Are Sensing The Mismatch And Adjusting Their ‘Go-to-market’ Strategies To Take Advantage
Of Market Shifts And Clients’ Emerging Needs

 Emphasis
Emphasis on on “elephant”
“elephant” clients
clients  Trades
Trades onon reputation
reputation for for flawless
flawless  Combine
Combine debt
debt products,
products,  Aggressive
Aggressive sales
sales tactics
tactics –– use
use  Emphasize
Emphasize range range of of products
products and
and
 Sterling
Sterling reputation,
reputation, leading
leading execution
execution derivatives
derivatives and
and risk
risk management
management top
top traders
traders and
and salespeople
salespeople to to services
services as as well
well as as global
global model
model ––
Market
Market advisory
advisory capacity
capacity and
and extensive
extensive  Testing
Testing alternative
alternative strategies
strategies to to services
services “crowd
“crowd the
the door”
door” from
from competitors
competitors “not
“not aa first
first call,
call, but
but aa must
must call”
call”
Strategy network
network create
create solid
solid client
client loyalty capitalize
capitalize on
on today’s
today’s market
market ––  Developing
Developing advisory
advisory capabilities  Bal.
Bal. sheet
sheet to
to win
win business  Succeeded
Succeeded in in acquiring
acquiring Salomon
Salomon
Strategy loyalty capabilities business
What
What are
are  Rank
Rank 2nd
2nd for
for advisory
advisory services/
services/ attempting
attempting to to break
break down
down silos
silos  Willingness
Willingness to
to take
take client
client risks
risks on
on  Ranked
Ranked toptop in
in risk
risk mgt
mgt and
and Smith
Smith Barney
Barney and and retaining
retaining talent
talent
M&A
M&A andand Market
Market leader
leader inin prime
prime  Market
Market leader
leader in in prime
prime brokerage
brokerage its
its balance
balance sheet
sheet underwriting;
underwriting; strong
strong in
in trading
trading  Ranked
Ranked top top for
for fixed
fixed income
income
you
you known
known
brokerage
brokerage debt,
debt, derivatives,
derivatives, currencies
currencies underwriting
underwriting in in last
last five
five years
years
for?
for?

 Targets
Targets clients
clients with
with largest
largest wallet  Segment  Client
Client are
are grouped
grouped in in four
four tiers  Segments
Segments clients
clients based
based onon size  Tier
Tier clients
clients byby total
total share
share of
of wallet
wallet Segment clients
clients (platinum,
(platinum, gold,
gold, tiers size wallet
size
size // highest
highest revenue
revenue generators
generators silver
silver bronze)
bronze) based
based on on size
size of
of first
first by
by sector
sector and
and then
then byby size
size of
of and
and complexity
complexity of
of wallet
wallet (i.e.,
(i.e., across
across Citibank
Citibank (use(use prior
prior year
year as
as
Client
Client Tiering
Tiering  Focused
Focused on on long-term
long-term value
value of
of wallet
wallet in
in the
the overall
overall industry
industry wallet
wallet (potential
(potential to
to buy
buy products,
products, Global,
Global, Middle
Middle Market,
Market, Regional)
Regional) proxy
proxy for
for future
future spend)
spend)
How
How dodo you
you client
client  Clients
Clients are
are then
then segmented
segmented by by size of current and potential
size of current and potential  Strong
Strong focus
focus on
on cross-selling
cross-selling to to  Measure
Measure ability
ability to
to cross-sell
cross-sell within
within
target
target clients?
clients? industry
industry business,
business, depth
depth ofof relationship)
relationship) the
the middle-market
middle-market client
client base
base the
the cash
cash andand derivatives
derivatives group
group

 Rely
Rely on
on “partner”
“partner” culture/a
culture/a more
more  Sr.
Sr. Banking
Banking // industry
industry group
group  RM
RM isis main
main contact
contact person
person to to  Primary
Primary approach
approach to to cross-sell
cross-sell  SSB
SSB operates
operates well
well across
across
passive
passive consensus-oriented
consensus-oriented model
model designed
designed to to target
target total
total client
client (separate
(separate from
from the
the product
product both
both I-bank
I-bank and and Commercial
Commercial bank bank functions;
functions; strong
strong in
in cross-selling
cross-selling
approach,
approach, toto limit
limit friction
friction and
and share
share ofof client’s
client’s I-banking
I-banking spend
spend specialist).
specialist). Barclays
Barclays capitalizes
capitalizes services
services to to large
large client
client  Use
Use ofof balance
balance sheet
sheet and
and local
local
promote
promote cross-selling
cross-selling  Use
Use product-based
product-based algorithm
algorithm asas on
on RM’s
RM’s relationship
relationship toto cross-sell
cross-sell relationships
relationships presence
presence to to win
win deals
deals and
and support
support
Cross-Sell
Cross-Sell across
 Primary
Primary cross-sell
cross-sell strategy
strategy isis to
to basis
basis for
for pricing
pricing across product
product groups
groups toto the
the client
client  Leverage
Leverage balance
balance sheet,
sheet, offering
offering cross-sell.
cross-sell.
Strategy
Strategy capitalize 
capitalize on
on I-banking
I-banking  Friction
Friction between
between product
product areas
areas Cross-sell
Cross-sell risk
risk management
management competitive
competitive loansloans to
to develop
develop sales
sales  Of
Of the
the universal
universal banks,
banks, leading
leading in
in
How
How do
do you
you relationships
relationships into
into private
private client
client continue advisory
advisory services
services toto support
support debt
debt leads
leads inin other
other parts
parts ofof the
the bank
bank terms
terms ofof cross-selling
cross-selling into
into higher
continue to to hamper
hamper cross-sales
cross-sales higher
extend
extend client
client group
group (e.g.,
(e.g., Senior
Senior bankers
bankers are are primarily
primarily and
and derivative
derivative products
products margins,
margins, advisory
advisory services
services
relationships?
relationships? Corporate
Corporate Finance
Finance leads)
leads)

 Relationship
Relationship 1st,
1st, product
product 2nd2nd ––  Recently
Recently combined
combined coverage
coverage of of  RM,
RM, focused
focused on on building
building  Top
Top tier
tier serviced
serviced byby advisory
advisory and
and  SSB
SSB organized
organized by by industry
industry then
then
Separate
Separate RM RM division
division draws
draws on
on debt,
debt, equity
equity and
and leveraged
leveraged finance
finance relationships
relationships andand versed
versed in in corporate
corporate banker;
banker; supported
supported by by by
by product
product andand geography
geography (legacy
(legacy
product
product specialists.
specialists. –– corporate
corporate finance
finance & & capital
capital multiple
multiple products
products withwith solutions-
solutions- client
client service
service team
team of
of Citibank)
Citibank)
 Builds
Builds relationship
relationship // advisory
advisory markets
markets RMs
RMs areare two
two primary
primary oriented
oriented view
view  Middle
Middle tier
tier assigned
assigned corporate
corporate  RMs
RMs from
from Commercial
Commercial and and I-Bank
I-Bank
capability
capability at
at CXO
CXO andand Board
Board level
level points
points of
of contact
contact  Strong
Strong increases
increases in in ratio
ratio of
of RM
RM to
to and
and investment
investment bankers
bankers or
or just
just aa –– continued
continued friction
friction between
between twotwo
Coverage
Coverage  RM’s  Platinum
Platinum clients
clients –– covered
covered by client
client from
from top
top to
to lower
lower tiers corporate
corporate banker groups
RM’s incented
incented on on total
total revenue
revenue by tiers banker groups
Model
Model generated
generated by by client,
client, encouraging
encouraging senior
senior bankers,
bankers, primarily
primarily Corp
Corp Fin
Fin  Developed
Developed “Corporate
“Corporate Finance
Finance  Lowest
Lowest tier
tier has
has standardized
standardized  Has
Has ability
ability to
to balance
balance cash
cash and
and
How
How dodo you
you business
business with
with large
large clients
clients (80%).
(80%). Sr.
Sr. Bankers
Bankers supported
supported by by Advisory”
Advisory” to to proactively
proactively manage
manage product
product sales
sales approach
approach derivatives
derivatives business
business -- SSB
SSB
face
face off
off with
with  Combining
Combining coverage
coverage of of debt
debt and
and industry
industry teams
teams client
client CFO
CFO andand treasurer
treasurer level
level  Product
Product silos
silos lessen
lessen integration/
integration/ merging
merging corporate
corporate derivatives
derivatives into
into
 Gold,
Gold, Silver
Silver and
and Bronze
Bronze clients relationship equity
equity capital
capital markets,
markets, work
work with
clients?
clients? equity
equity in
in Japan
Japan –– rumors
rumors were
were clients relationship teaming
teaming with
considering
considering forfor US
US market
market covered
covered byby an
an industry
industry lead
lead convertibles
convertibles team team toto pitch
pitch deals
deals

- 76 -
Competitive Landscape
ompetitive Landscape…

Revenue Trends of US vs. European Brokers Shows Faster Recovery Of Advisory Fees In Europe

Advisory Revenue Growth

Financial Advisory Underwriting Total
400 400 400

350 350 350

300 300 300

250 250 250

200 200 200

150 150 150

100 100 100

50 50 50

0 0 0
3Q02 4Q02 1Q03 2Q03 3Q03 4Q03 1Q04 2Q04 3Q02 4Q02 1Q03 2Q03 3Q03 4Q03 1Q04 2Q04 3Q02 4Q02 1Q03 2Q03 3Q03 4Q03 1Q04 2Q04
US Sector Total European Sector Total US Sector Total European Sector Total US Sector Total European Sector Total

Source: ABN Amro Source: ABN Amro Source: ABN Amro

Capital Markets Revenue Growth

Equities Other Total Capital Markets
400 400 400

350 350 350

300 300 300

250 250 250

200 200 200

150 150 150

100 100 100

50 50 50

0 0 0
1Q03 2Q03 3Q03 4Q03 1Q04 2Q04 1Q03 2Q03 3Q03 4Q03 1Q04 2Q04 1Q03 2Q03 3Q03 4Q03 1Q04 2Q04
US Sector Total European Sector Total US Sector Total European Sector Total US Sector Total European Sector Total

Source: ABN Amro Source: ABN Amro Source: ABN Amro

Notes:
Notes: Data
Data presented
presented in
in Investment
Investment Banking
Banking segment
segment revenue
revenue growth
growth based
based on
on universe
universe size
size of
of four
four US
US based
based Investment
Investment Banks
Banks and
and two
two Europe
Europe based
based Investment
Investment Banks
Banks
Data
Data presented
presented in
in Capital
Capital Markets
Markets segment
segment revenue
revenue growth
growth is
is based
based on
on the
the universe
universe size
size of
of eight
eight US
US based
based Investment
Investment Banks
Banks and
and three
three Europe
Europe based
based Investment
Investment Banks.
Banks.
The
The graphs
graphs above
above areare only
only aa partial
partial indicator
indicator of
of the
the US
US –– Europe
Europe profitability
profitability variations
variations as
as they
they segment
segment brokers
brokers by
by their
their base
base country/
country/ region
region and
and not
not geographical
geographical distribution
distribution of
of revenues
revenues
- 78 -
ompetitive Landscape…

Comparing Profitability Of US vs. European Brokers* In Investment Banking And Capital Markets
Indicates Better Recovery in Europe

Margins
Pre-tax margins
50%

40%

30%

20%

10%

0%
3Q02 4Q02 1Q03 2Q03 3Q03 4Q03 1Q04 2Q04
US Sector Average European Sector Average

ROE
Pre-tax RoE
50%

40%

30%

20%

10%

0%
3Q02 4Q02 1Q03 2Q03 3Q03 4Q03 1Q04 2Q04
Source: ABN Amro US Sector Average European Sector Average

Notes:
Notes:
 Data
Data presented
presented in
in Corporate
Corporate and
and Investment
Investment Banking
Banking above
above is
is derived
derived from
from the
the following
following universe:
universe:
 US
US Brokers:
Brokers: Based
Based onon Corp
Corp and
and Investment
Investment Banking
Banking financials
financials of
of Bear
Bear Stearns,
Stearns, Citigroup,
Citigroup, Goldman
Goldman Sachs,
Sachs, JP
JP Morgan
Morgan Chase,
Chase, Merrill
Merrill Lynch
Lynch and
and Morgan
Morgan Stanley
Stanley
 European
European Brokers:
Brokers: Based
Based on on Corp
Corp and
and Investment
Investment Banking
Banking financials
financials ofof BNP
BNP Paribas,
Paribas, CSFB,
CSFB, Deutsche
Deutsche Bank,
Bank, Société
Société Générale
Générale and
and UBS
UBS
 The
The graphs
graphs above
above are
are only
only aa partial
partial indicator
indicator of
of the
the US
US –– Europe
Europe profitability
profitability variations
variations as
as they
they segment
segment brokers
brokers by
by their
their base
base country/
country/ region
region and
and not
not geographical
geographical distribution
distribution of
of revenues
revenues

- 79 -
ompetitive Landscape…

Revenue and Profit Margin Trends Show Revenues and Profit Margins Have Broadly Dropped Q3/04
Vs Q2/04
Trading Revenues: 2003 Versus 2002 Trading Revenues: Q3/04 Vs. Q2/04

Source: Boston Consulting Group Source: Boston Consulting Group

Corporate Finance and Advisory revenue: 2003 Versus 2002 Corporate Finance and Advisory revenue: Q3/04 Vs. Q2/04

Source: Boston Consulting Group Source: Boston Consulting Group

- 80 -
ompetitive Landscape…

Expense And Compensation Trends – US Vs. European Brokers And Asset Management By Home Country
Brokers’ Asset Management revenue trend (3Q02 = 100) Expense growth (3Q02 = 100)

300 300

250 250

200 200

150 150

100 100

50 50

0 0
3Q02 4Q02 1Q03 2Q03 3Q03 4Q03 1Q04 2Q04 3Q02 4Q02 1Q03 2Q03 3Q03 4Q03 1Q04 2Q04

Source: ABN Amro US Sector European Sector Source: ABN Amro US Sector European Sector

Cost-Income Ratio Headcount (3Q02 = 100)

100% 300
90%
80% 250
70%
200
60%
50% 150
40%
30% 100
20%
50
10%
0% 0
3Q02 4Q02 1Q03 2Q03 3Q03 4Q03 1Q04 2Q04 3Q02 4Q02 1Q03 2Q03 3Q03 4Q03 1Q04 2Q04

Source: ABN Amro US Sector European Sector US Sector Total European Sector Total
Source: ABN Amro
Note:
Note: The
The graphs
graphs above
above are
are only
only aa partial
partial indicator
indicator of
of the
the US
US –– Europe
Europe profitability
profitability variations
variations as
as they
they segment
segment brokers
brokers by
by their
their base
base country/
country/ region
region and
and not
not geographical
geographical distribution
distribution of
of revenues
revenues

- 81 -
ompetitive Landscape…

Winners & Losers – Relative European Market Share Positions Show Strong Performers Doing
Consistently Well
European M&A: 2003 vs. 2002 European Bonds Underwriting: 2003 vs. 2003

Source: Boston Consulting Group Source: Boston Consulting Group

European Equity Capital Markets: 2003 vs. 2003 European Equity Capital Markets: Q3/04 Vs. Q2/04

Source: Boston Consulting Group Source: Boston Consulting Group

- 82 -
ompetitive Landscape…

European M&A Is Dominated By The Big 5 Investment Banks Lead By Goldman Sachs
European M&A European M&A Concentration

European M&A Market Coverage by Value European M&A Industry Concentration

30% 100% 2003
% of European Deals Advised

2003
25% 2002 2001

% Value of Market Leader

2001 75% 2002
20%

15% • The highest ranked European M&A bank

50%
(Goldman Sachs) has increased it’s lead
10% over competitors in 2003

5% 25% • Gap between top three ranked banks

over other competitors has been
0% increasing since 2001
0%
y
rd

il
n

Bank
ma n

d
UBS
roup

dner
t anle
Mer r
orga

schil

CSF
Laza

1 2 3 4 5 6 7 8 9 10
Gol d

Citig

Dres
an S

t che
JP M

Rot h
Industry Ranking
Deus
Mor g

Source: Thompson Financial, Deloitte Analysis Source: Thompson Financial, Deloitte Analysis

- 83 -
ompetitive Landscape…

UK M&A Is Increasingly Dominated By The Big 5 Investment Banks While Deutsche Bank Has A
Clear Lead In Germany

UK M&A Market Coverage by Value UK M&A Industry Concentration

30% 100%

2003
25% 2003
2002
2002
% of European Deals Advised

75%
20%

% Value of Market Leader

15%

50%
10%
The top 2 ranked M&A banks in the
UK have increased their lead over
5%
other competitors
25%

0%
y

r g an

rd

d
ill

up
an

che

UBS

B
tanle

schil
0%
M er r

CSF
Laza

ro
m

Deuts
o
Gold

Citig

1 2 3 4 5 6 7 8 9 10
an S

JP M

Roth
Source: Thompson Financial, Deloitte Analysis Industry Ranking
Source: Thompson Financial, Deloitte Analysis
M or g

Germany M&A Market Coverage by Value Germany M&A Industry Concentration

40% 100%

2002
35% 2003
2003
2002
30% 75%
% of European Deals Advised

25%
% Value of Market Leader
20%
50%
15%
• Deutsche Bank has a significant gap
10% over other competitors
25%
5% • Top 5 competitors have increased
their gap over other competitors in
0% 2003
0%
1 2 3 4 5 6 7 8 9 10
rd

an
d

an
ill
an

er
che

up
n er
UBS

BNP
B
JP
schil

M er r

CSF
Laza

k
M or g

L eh m
m

ro
Drue
d
Deuts

Source: Thompson Financial, Deloitte Analysis Industry Ranking

Source: Thompson Financial, Deloitte Analysis
Gold

Citig
Dres
Roth

- 84 -
ompetitive Landscape…

Local Identity Appears To Be Some Advantage In The M&A Industry In France And Italy

France M&A Market Coverage by Value France M&A Industry Concentration

France M&A Market Coverage by Value France M&A Industry Concentration

50.00% 100%
2003
% of European Deals Advised

45.00% 2003

% Value of Market Leader

40.00% 2002
2003 75%
35.00%
30.00%
25.00% 50%
20.00%
15.00%
• Industry concentration trends has
10.00% 25%
not changed significantly amongst
5.00%
the top 5 ranked banks
0.00%
0%

y
rd

il l

nnais
ma n

d
BNP

roup

B
en

t anle
orga
schil

Mer r

CSF
Laza

1 2 3 4 5 6 7 8 9 10
SocG
Gold

Citig

it Lyo
an S
JPM
Rot h

Source: Thompson Financial, Deloitte Analysis Industry Ranking

Source: Thompson Financial, Deloitte Analysis

Mor g

Cred
Italy M&A Market Coverage by Value Italy M&A Industry Concentration

Italy M&A Market Coverage by Value Italy M&A Industry Concentration

70.00% 100%
2003
% of European Deals Advised

60.00% 2003

% Value of Market Leader

2002
2002 75%
50.00%

40.00%
50%
30.00%

20.00%
25%
10.00%

0.00% 0%
rd

il l
an
n

MC C

an
ca
ma n

d
BNP

1 2 3 4 5 6 7 8 9 10
roup

B
orga

schil

Mer r
CSF
Laza

Mor g
ioban

Lehm

Industry Ranking
Gold

Citig
JP M

Rot h
Med

Source: Thompson Financial, Deloitte Analysis

Source: Thompson Financial, Deloitte
Analysis - 85 -
ompetitive Landscape…

Top 10 Banks Make Up Over 75% Of 2003 EMEA Common Stock Issues And Over 85% Of Ipos With
The Big 5 Accounting For Over 50% Market Share
2003 Market Share Common Stock Market Share Trends

2003 EMEA Common Stock Issue 2001 - 2003 Change in EMEA Common Stock Market Share

Goldman, 14% 8%
6%
Other, 23% 6%
6%

3%
4% 3%
Citigroup, 11% 2% 2%
2%
Lehman, 3% 0%
0%
ABN Rothchild,

Morgan

Lehman
Goldman

Deutsche

Rothchild

Other
Merrill

UBS
Citigroup

JP

CSFB
3%

ABN
-2%
UBS, 5% Morgan, 11%
-3%
-4%
CSFB, 5%
-5%
Deutsche, 9% -6%
JP Morgan, 7%
Merrill, 8%
-7% -7%
-8%

Source: Thompson Financial Source: Thompson Financial

IPO Market Size IPO Market Trends

2003 EMEA IPO Issues
2001 - 2003 Change in EMEA IPO Market Share
Other, 15%
Goldman, 20%
20% 15% 13% 12%
11%
UBS, 2% 10% 5%
2% 3% 3%
Unicredito, 3% 1% 1%
0%
San Paolo - IMI ,

Collins Stewart Tullet

Cazenove

Unicredito Italiano
Credit Lyonnais
JP Morgan

San Paolo-IMI

Deutsche

UBS Warburg

Other
Merrill
-2% -2%

HSBC

HVB

Citigroup
CSFB
Goldman
3% -4%
-10% -8%
Deutsche, 3%
Collins Stewart -20%
HVB, 5% Tullet, 13%
-30%

-40%
HSBC, 11%
-50% -49%
Merrill, 13%

JP Morgan, 12% -60%

Source: Thompson Financial

Source: Thompson Financial - 86 -

ompetitive Landscape…

The Euro Debt Issue Market Is Significantly More Fragmented Than Equities With The Big 5 Losing
Share
2003 Euromarket Debt Debt Market Share Trends

2003 Euromarket Debt Issues 2001 - 2003 Change inEuromarket Debt Market Share
Deutsche, 8%
5.0%
Citigroup, 7%
4.0%

Barclays, 6% 3.0%
Other, 44% JP Morgan,
6% 2.0%

HSBC, 5% 1.0%
4.4% 1.8% 0.4% 0.1%
Morgan, 5% 0.0%
-0.1% -0.2% -0.2% -0.5% -0.8% -1.4% -1.5% -2.2%
CSFB, 5% -1.0%

Morgan

Morgan
Barclays
Deutsche
Other

Merrill
ABN
HSBC

BNP

UBS
Citigroup

CSFB
UBS, 4% BNP, 5%

JP
-2.0%
ABN, 4% Merrill, 5%

-3.0% Source: Thompson Financial

Source: Thompson Financial

Euro Denominated Debt Issues Euro Denominated Debt Market Share Trends

2003 Euro Denominated Debt Issues 2001 - 2003 Change in Euro Denominated Debt Market Share
Deutsche,
8% 4.0%

Citigroup, 7% 3.0%

2.0%
Other, 40% ABN, 6%
1.0%
Morgan, 5%
3.4% 2.0% 1.0% 0.0% 0.0% 0.0%
0.0%
-1.0% -1.0% -1.0% -2.0% -2.1%
BNP, 5%
-1.0%

Morgan

Morgan
Barclays

Deutsche
Other

Merrill
ABN
BNP

Citigroup
SG

DrKW

JP
JP, 5%
-2.0%
DrKW, 5%
Merrill, 4% -3.0%
Barclays, 5%
HSBC, 4% SG, 5% Source: Thompson Financial

Source: Thompson Financial

- 87 -
ompetitive Landscape…

Once Again, Domestic Banks Lead Equity And Debt Issues In Germany And France
German Bond Issues German Equity Issues

German Long Term Bond Issues Deutsche Bank, German Equity and Equity Related Issues
12%
35% 1/1/2004 - 30/9/2004
1/1/2004 - 30/9/2004
30%
Citigroup, 7%
25%
Other, 40% 20%
Dresdner, 6%
15%

10%
Barclays Capital,
6% 5%

0%
Morgan Stanley,

Morgan

Morgan
Stanley
Deutsche

Goldman
Dresdner

Other
AMRO
UBS
Citigroup

SocGen
CSFB

ABN
5%

Bank

JP
JP Morgan, 5%
Goldman, 4%
HVB, 4% CSFB, 5%
ABN AMRO, 5%
Source: Thompson Financial Source: Thompson Financial

French Bond Issues French Equity Issues

French Long Term Bond Issues Citigroup,

12% French Equity and Equity Related Issues

25% 1/01/2004 - 30/6/2004

Other, 27%
1/01/2003 - 30/6/2003
JP Morgan,
11% 20%

15%

10%
Barclays Cap, SocGen, 11%
3% 5%
HSBC, 4%
0%
CICC, 4%
Morgan

Calyon

JP Morgan
Stanley

ABN AMRO
Goldman
Paribas

Other
UBS
Citigroup
SocGen

CSFB
Rothschild
BNP
BNP Paribas,
Deutshe Bank,
10%
5% Calyon, 5% CSFB, 6%
Source: Thompson Financial
Source: Thompson Financial
- 88 -
ompetitive Landscape…

Local Identity Appears To Be Some Advantage In France, Germany And Italy But Not In The UK

UK – M&A Rank Value France – M&A Rank Value

Rank 2003 2002 2001 Rank 2003 2002 2001
1 Morgan Stanley Deutsche 1 Goldman Rothschild
2 Goldman Morgan Stanley 2 BNP Credit Lyonnais
3 Merrill Citigroup 3 SocGen BNP
4 JP Morgan UBS 4 Lazard Goldman
5 Lazard Merrill 5 Rothschild CSFB
6 Deutsche Rothschild 6 Merrill Morgan Stanley
7 Citigroup Goldman 7 Citigroup Lazard
8 UBS JP Morgan 8 Credit JPMorgan
9 Rothschild CSFB 9 JPMorgan Citigroup
10 CSFB Lazard 10 Morgan Stanley
Merrill

Germany – M&A Rank Value Italy – M&A Rank Value

Rank 2003 2002 2001
1 Deutsche Deutsche Rank 2003 2002 2001
2 Goldman CSFB 1 Lazard Rothschild
3 Rothschild Morgan 2 Goldman Mediobanca
4 Lazard Merrill 3 JPMorgan Morgan Stanley
5 JP JP 4 Citigroup Citigroup
5 MCC Lehman
6 Morgan Goldman
6 Mediobanca Goldman
7 UBS UBS
7 Lehman CSFB
8 Dresdner BNP
8 BNP Merrill
9 Merrill Lehman
9 CSFB Lazard
10 Drueker Citigroup
10 Morgan Stanley JPMorgan

- 89 -
ompetitive Landscape…

Provision Of White-labelling Services Is Becoming An Increasing Opportunity For Smaller Players

To Buy In Products And Extend Their Offerings

Summary of Offering Examples

 Flagship
Flagship product
product is is CitiFX
CitiFX White
White Label,
Label, aa modular
modular F/X F/X trading
trading system
system that
that offers
offers over
over 2,000
2,000 currency
currency pairs
pairs and
and boasts
boasts CitiFX White Label
Citigroup over
over 100
100 clients
clients
 Offers
Offers web-enabled
web-enabled treasury
treasury outsourcing
outsourcing through
through Citibank
Citibank Agency
Agency Treasury
Treasury Services
Services
 Also
Also offers
offers white
white label
label futures
futures product,
product, Aurora,
Aurora, through
through existing
existing sales
sales channels
channels
 Provides
Provides insourcing
insourcing of of custodial
custodial services
services for
for clients
clients in
in Europe
Europe
 Offers
Offers outsourced trade services operations via its Strategic Processing
outsourced trade services operations via its Strategic Processing Alliance
Alliance Strategic Processing Alliance
 Operations
Operations centre
centre in
in Guangzhou
Guangzhou process process trade
trade finance
finance onon behalf
behalf of
of regional
regional banks
banks
Bank of America  Ninth-largest
Ninth-largest processor
processor of of non-market-making
non-market-making bank bank F/X
F/X volume,
volume, atat 2.97%
2.97%
 Manages
Manages processes
processes forfor banks
banks in in Asia,
Asia, U.S.,
U.S., Europe
Europe andand the
the Middle
Middle East
East including
including Huntington
Huntington Bancshares
Bancshares andand
Bumiputra-Commerce
Bumiputra-Commerce Bank Bank
 Offers
Offers full
full suite
suite of
of F/X
F/X products
products to to client
client banks,
banks, with
with primary
primary differentiators
differentiators asas its
its ability
ability to
to operate
operate as
as aa deployed
deployed or
or an
an Unbranded F/X
in-house
in-house solution,
solution, and
and its
its ability
ability to
to outsource
outsource thethe pricing
pricing of
of F/X
F/X transactions;
transactions; service
service managed
managed byby Reuters
Reuters Hexagon
HSBC  Offers
Offers global
global custodial
custodial services
services
 Offers
Offers white
white label
label trade
trade finance
finance services
services through
through Hexagon,
Hexagon, an an online
online platform
platform

 Offers
Offers white
white label
label securities
securities processing,
processing, financial
financial accounting
accounting andand middle
middle office
office operations
operations to
to fund
fund companies
companies onon aa TradeCard
JPMorganChase complete
complete oror component
component basis
basis JP Morgan Treasury Services
 Introduced
Introduced treasury
treasury outsourcing
outsourcing in
in August
August 2002,
2002, via
via TradeCard,
TradeCard, with
with key
key differentiator
differentiator being
being aa paperless
paperless trade
trade ICE CAPS
settlement
settlement service
service for
for small
small transactions
transactions (up
(up to
to $100,000)
$100,000)
 White
White labeled
labeled structured
structured notes
notes fund,
fund, composed
composed of of aa series
series of
of high
high grade
grade bonds
bonds (i.e.
(i.e. ICE
ICE CAPS)
CAPS)
 Offers
Offers insourcing
insourcing ofof equities
equities execution,
execution, settlement,
settlement, andand clearing
clearing
 Established
Established Euro
Euro Securities
Securities Partnership
Partnership with
with BNP
BNP Paribas
Paribas in
in 2002,
2002, to
to provide
provide insourced
insourced custody
custody administration
administration for
for Euro Securities Partnership
Crédit Agricole small-
small- and
and medium-sized
medium-sized European
European banks.
banks.
 Plan
Plan to
to market
market initially
initially to
to French
French banks
banks and
and then
then open
open system
system across
across Europe
Europe within
within 5-10
5-10 years
years

 Purchased
Purchased Pershing,
Pershing, aa provider
provider of
of clearing
clearing outsourcing
outsourcing services,
services, from
from CSFB
CSFB inin May
May 2003,
2003, with
with over
over 850
850 clients
clients Pershing Managed Account
Bank of New York worldwide
worldwide Services
 One
One of
of three
three largest
largest providers
providers of
of custody
custody services
services across
across the
the world
world
 Manages
Manages $4.2B
$4.2B inin assets
assets though
though trade
trade finance
finance outsourcing
outsourcing agreements,
agreements, including
including clients
clients such
such as
as CIBC
CIBC and
and RBC
RBC
 Insources
Insources ING’s
ING’s international
international cash
cash equities
equities clearance
clearance and
and settlement
settlement operations
operations
 Bundle
Bundle aa wide
wide range
range of
of white
white label
label solutions
solutions under
under its
its unified
unified “Bank
“Bank for
for Banks”
Banks” label
label Bank for Banks
UBS  Tailor
Tailor made
made solutions
solutions include
include F/X,
F/X, trade
trade services,
services, treasury
treasury management,
management, securities
securities trading,
trading, transaction
transaction processing,
processing, KeyLink
cash
cash management,
management, custody,
custody, risk
risk management
management and and private
private banking
banking KeyTrader

 Offers
Offers MLX,
MLX, Merrill’s
Merrill’s e-commerce
e-commerce portal,
portal, to
to client
client banks
banks with
with features
features including
including securities
securities clearance,
clearance, settlement,
settlement, MLX
Merrill Lynch custody,
custody, stock
stock loan,
loan, swaps,
swaps, Contracts
Contracts for
for Differences
Differences (CFDs),
(CFDs), fixed
fixed income
income financing,
financing, fixed
fixed income
income prime
prime brokerage
brokerage
and
and equity
equity prime
prime brokerage
brokerage
 Outsources
Outsources its
its Canadian
Canadian fund
fund accounting
accounting and
and daily
daily pricing
pricing services
services toto State
State Street
Street

Source: The Banker, Top 1,000 World Banks 2003, Company Annual Reports, Company Websites, Deloitte Analysis
- 90 -
ompetitive Landscape…

Case Studies
ompetitive Landscape…

Summary

Summary of
Management and Client
Key Lessons European
Coverage Model
Business
•• Strategy
Strategy has
has been
been toto acquire
acquire local
local secondary
secondary markets
markets platforms
platforms as
as aa launch
launch pad
pad for
for  Reporting
Reporting matrix
matrix includes
includes global
global  No.
No. Employees:
Employees: c5,700
c5,700
local/regional
local/regional business,
business, followed
followed by
by heavy
heavy recruitment
recruitment to to build
build up
up critical
critical mass
mass for
for industry
industry and
and business
business lines
lines and
and  2003
2003 Revenues:
Revenues: $3,295m
$3,295m
primary
primary markets
markets (buy
(buy side)
side) regional/country
regional/country reporting
reporting levels
levels 1999
1999 –– 2003
2003 CAGR:
CAGR: -5.8%
-5.8%
Merrill •• Key
Key success
success factors
factors are
are research,
research, trading
trading execution,
execution, distribution,
distribution, and
and banking
banking  Client
Client coverage
coverage predominantly
predominantly led
led by
by
relationships,
relationships, specifically
specifically in
in equity
equity products
products global
global industry
industry teams.
teams. Began
Began country
country
Lynch •• Support
Support from
from parent
parent have
have been
been early
early capital
capital injection
injection to
to boost
boost growth
growth and
and transfer
transfer of
of coverage
coverage teams
teams inin the
the 1997
1997 but
but later
later
key
key personnel
personnel from
from the
the U.S.
U.S. dropped
dropped due
due to
to costs.
costs. High
High use
use of
of
high
high profile
profile advisers
advisers oror executives
executives

•• Heavy
Heavy reliance
reliance on
on transfers
transfers of
of experienced
experienced bankers
bankers from
from the
the U.S.
U.S. to
to spearhead
spearhead •• Dual
Dual management
management reporting
reporting at
at the
the  No.
No. Employees:
Employees: N/A
N/A
European
European businesses
businesses country/regional
country/regional level
level and
and global
global  2003
2003 Revenues:
Revenues: $4,127m
$4,127m
business
business unit
unit level
level  1999
1999 –– 2003
2003 CAGR:
CAGR: +1.8%
+1.8%
•• Merged
Merged with
with Dean
Dean Witter
Witter providing
providing distribution
distribution breadth
breadth and
and stronger
stronger balance
balance sheet
sheet
 Operating
Operating Margin:
Margin: 22%
Morgan •• Key
Key strengths
strengths inin M&A
M&A andand equities
equities build
build on
on global
global relationships
relationships with
with large
large
•• Recently
Recently consolidated
consolidated client
client

22%
coverage
coverage model
model into
into aa single
single global
global Total
Total Assets:
Assets: $305,356m
$305,356m
Stanley multinationals
multinationals and
and experienced
experienced teams.
teams. Focused
Focused not
not only
only on
on industry
industry ideas/expertise
ideas/expertise group.
group. Client
Client coverage
coverage will
will involve
involve
but
but also
also on
on strategic
strategic insights
insights for
for clients
clients an
an account
account manager
manager withwith strategic
strategic
•• Operations
Operations are heavily concentrated in
are heavily concentrated in M&A
M&A and
and equities
equities and
and as
as aa result
result was
was greatly
greatly insights
insights and
and aa product
product professional
professional
affected
affected in
in the
the 2000-2002
2000-2002 downturn
downturn in in the
the market
market with
with execution
execution expertise
expertise
•• Purchased
Purchased and
and integrated
integrated secondary
secondary market
market platforms
platforms in
in the
the late
late 80s
80s and
and early
early 90s
90s  Reporting
Reporting matrix
matrix includes
includes global
global  No.
No. Employees:
Employees: N/A
N/A
followed
followed by
by heavy
heavy recruiting
recruiting to
to build
build industry
industry expertise
expertise industry
industry reporting
reporting lines
lines and
and regional
regional  2003
2003 Revenues:
Revenues: $4,229
$4,229
business
business unit
unit reporting
reporting levels
levels  2000
2000 –– 2003
2003 CAGR:
CAGR: +3.0%
+3.0%
•• Faced
Faced cultural
cultural conflict
conflict between
between retail/commercial
retail/commercial banking
banking and
and investment
investment bank
bank in
in
  2003
2003 Operating
Operating Margin:
Margin: 38%
38%
respects
respects to
to bonuses
bonuses andand entrepreneur
entrepreneur spirit,
spirit, leading
leading to
to massive
massive defections
defections in
in Client
Client coverage
coverage isis lead
lead by
by local
local and
and
2000/2001
2000/2001 regional
regional industry
industry teams
teams andand
HSBC business
business unit
unit management.
management. No No
•• Rebuilds
Rebuilds by
by consolidating
consolidating corporate
corporate and
and investment
investment bank
bank divisions
divisions to
to provide
provide balance
balance indication
indication of
of dedicated
dedicated client
client or
or
sheet
sheet support
support and
and by
by recruiting
recruiting ex
ex Morgan
Morgan Stanley
Stanley CEO
CEO and
and top
top management
management teamteam country
country coverage
coverage management
management
from
from the
the bulge
bulge bracket
bracket to
to spearhead
spearhead operations.
operations. Aggressively
Aggressively lays
lays off
off teams
teams
underperforming
underperforming personnel
personnel and
and recruits
recruits high
high performing
performing teams
teams from
from the
the bulge
bulge bracket
bracket

•• European
European growth
growth through
through aggressive
aggressive acquisitions
acquisitions generally
generally of
of medium
medium size
size local
local and
and •• Dual
Dual management
management reporting
reporting at
at the
the  No.
No. Employees:
Employees: N/A
N/A
regional
regional competitors,
competitors, with
with the
the exception
exception Bankers
Bankers Trust
Trust (U.S
(U.S based)
based) country/regional
country/regional level
level and
and global
global  2003
2003 Revenues:
Revenues: N/A
N/A
•• Key
Key success
success factor
factor –– large
large balance
balance sheet,
sheet, strong
strong dominance
dominance in in Germany
Germany business
business unit
unit level
level  2000
2000 –– 2003
2003 CAGR:
CAGR: N/A
N/A
Deutsche •• Long
Long and
and costly
costly integration
integration periods
periods that
that affects
affects moral
moral and
and productivity
productivity and
and lost
lost aa lot
lot of
of
 2003
2003 Operating
Operating Margin:
Margin: N/A
N/A
key  Total
Total Assets:
Assets: N/A
N/A
Bank key personnel
personnel over
over time
time
•• Geographical
Geographical concentration
concentration inin Germany
Germany (with
(with c50%
c50% of
of business
business exposure)
exposure) creating
creating
challenges
challenges for
for revenue
revenue growth
growth

- 92 -
ompetitive Landscape…

Summary

Summary of
Management and Client
Key Lessons European
Coverage Model
Business
•• Expansion
Expansion strategy
strategy based
based onon recruitment,
recruitment, human
human capital
capital development
development and and industry
industry  Global
Global management
management reporting
reporting model
model  No.
No. Employees:
Employees: c3,000
c3,000
expertise
expertise at
at business
business and
and product
product line
line level
level  2003
2003 Revenues:
Revenues: $1,865m,
$1,865m,
•• Developed
Developed capabilities
capabilities inin traditional
traditional secondary
secondary markets
markets before
before offering
offering full
full service
service with
with dual
dual reporting
reporting for
for major
major 1999
1999 –– 2003
2003 CAGR:
CAGR: +3.0%
+3.0%
advisory
advisory and
and origination
origination business
business units
units and
and product
product lines
lines
Lehman •• Expansion
Expansion into
into Continental
Continental Europe
Europe gradual
gradual lead
lead by
by product
product and
and industry
industry expertise
expertise  Client
Client coverage
coverage isis predominantly
predominantly
according
according to
to local
local market
market needs
needs and
and initially
initially out
out of
of the
the UK
UK or
or from
from small
small local
local offices
offices industry
industry specialist
specialist lead.
lead. Use
Use ofof client
client
•• Engagement
Engagement of of well
well respected
respected local
local business
business people
people and
and sponsorship
sponsorship of of industry
industry account
account management
management teamsteams varies
varies
conferences
conferences to to enhance
enhance client
client coverage
coverage andand credibility
credibility by
by country.
country. Active
Active use
use of
of high
high profile
profile
advisers
advisers to
to enhance
enhance relationships
relationships

•• Strategy
Strategy isis to
to target
target industry
industry and
and products
products itit has
has expertise
expertise in
in  Business
Business line
line reporting
reporting isis at
at the
the  No.
No. Employees:
Employees: c850
c850
−− Key
Key product
product segments
segments are are structured
structured finance
finance including
including asset
asset backed
backed regional
regional level
level where
where there
there isis scale,
scale,  2003
2003 Revenues:
Revenues: c$501m
c$501m 1999
1999
securities
securities andand prime
prime brokerage
brokerage services
services toto hedge
hedge funds
funds otherwise
otherwise is is at
at U.S.
U.S. HQHQ –– 2003
2003 CAGR:
CAGR: +6.0%
+6.0%
 Product
Product line
line reporting
reporting isis generally
generally at at  2003Operating
•• Growth
Growth through
through focused
focused recruitment
recruitment inin specialist
specialist industry
industry teams
teams lead
lead from
from London
London 2003Operating Margin:
Margin: 13%
13%
Bear and/or
and/or NY
NY (focussed
(focussed in in Telco,
Telco, Media
Media andand Pharma)
Pharma)
centralised
centralised U.S.
U.S. HQ
HQ level
level with
with dual
dual
reporting
reporting into
into regional
regional business
business line
line
Stearns* •• Key
Key success
success factors
factors are
are innovative
innovative ideas
ideas (industry
(industry driven)
driven) and
and good
good execution
execution –– where
where exists
exists
focus
focus on
on core
core competencies
competencies  Client
Client coverage
coverage is is led
led by
by industry
industry
•• Failed
Failed to
to retain
retain key
key personnel
personnel after
after expiry
expiry of
of guaranteed
guaranteed bonus
bonus periods
periods and
and business
business unitunit heads
heads with
with nono
dedicated
dedicated client
client management
management team team

•• Developed
Developed aa strategy
strategy around
around clear
clear customer
customer value
value proposition
proposition based
based on
on customer
customer •• Global
Global management
management reporting
reporting model
model  No.
No. Employees:
Employees: c5,700
c5,700
needs,
needs, market
market trends
trends and
and current
current capabilities.
capabilities. Defined
Defined business
business as
as providing
providing at
at business
business and
and product
product line
line level
level  2003
2003 Revenues:
Revenues: 4,732m
4,732m
corporate
corporate and
and government
government debt
debt and
and restructuring
restructuring solutions
solutions with
with dual
dual reporting
reporting for
for major
major 1999
1999 –– 2004
2004 CAGR:
CAGR: +16.7%
+16.7%
business
business units
units and
and product
product lines
lines  2003
2003 Operating
Operating Margin:
Margin: 30%
30%
•• Divest
Divest in
in unprofitable
unprofitable businesses
businesses and
and use
use capital
capital to
to strengthen
strengthen capabilities
capabilities in
in core
core
••  Total
Total Assets:
Assets: $204,832m
$204,832m
debt
debt and
and interest
interest rates
rates product
product and
and geographical
geographical coverage.
coverage. Geographical
Geographical client
client coverage
coverage with
with
global
global and
and local
local client
client coverage
coverage roles
roles
BarCap** •• Create
Create anan integrated
integrated delivery
delivery model
model from
from operations
operations infrastructure,
infrastructure, product
product execution
execution
to
to distribution
distribution and
and coverage.
coverage. Including
Including early
early investments
investments into
into IT
IT to
to integrate
integrate •• Some
Some useuse of
of high
high profile
profile advisers
advisers to
to
processes.
processes. build
build relationships
relationships with
with CEOs
CEOs
•• Recruited
Recruited top
top management
management from
from the
the bulge
bulge bracket
bracket to
to spearhead
spearhead businesses
businesses
•• Support
Support from
from parent
parent include
include early
early capital
capital injection
injection during
during restructuring,
restructuring, balance
balance sheet
sheet
support,
support, and
and strategic
strategic commitment
commitment

•Bear Stearns non US Operations

•** Barcap Global Operations

- 93 -
ompetitive Landscape…

Competitor Benchmark Summary

Revenue and Cost per Employee Europe Global Revenues Per Employee
Revenues and Cost Per Employee from Selected Case Studies Revenues Per Employee (Global Competitors)
1000 1000

900 900
Revenue/Employee
800 800
Cost/Employee 2001 2003
700
700
600

$USD '000
600
$USD '000

500
500
400
400
300
300
200

200 100

100 0
Merrill JP Goldman CSFB Barcap Citigroup Lehman Bear UBS HSBC Deutsche
0 Lynch Morgan Sachs Stearns Bank
Barcap Global Bear Stearns - Non US Lehman Europe Merrill Lynch EMEA Chase

Source: Annual Reports, SEC Filings, Deloitte Analysis Source: Annual Reports, SEC Filings, Deloitte Analysis

Global Cost per Employee Operating Margins

Cost Per Employee (Global Competitors) Operating Margin (Global Competitors)

700
HSBC
JP Morgan Chase 2003
600 2001
2003
Bear Stearns 2001
500 Citigroup
Merrill Lynch
400
$USD M

Morgan Stanley
300 Lehmann
Barcap
200
Goldman Sachs

100 UBS
CSFB
0
Deutsche Bank
Merrill Goldman JP CSFB Barcap Bear Lehman Deutsche Citigroup UBS HSBC
Lynch Sachs Morgan Stearns Bank
5% 10% 15% 20% 25% 30% 35% 40% 45% 50%
Chase

Source: Annual Reports, SEC Filings, Deloitte Analysis Source: Annual Reports, SEC Filings, Deloitte Analysis

- 94 -
ompetitive Landscape…

Lehman Brothers International Europe: Key Facts

European Revenue and Income Margin Size of European Operations

Lehman Brothers International Europe - Quarterly Net Revenues Size of European Operations
3,000 35% 3,500 3,500
European Net Revenues (LHS)
European Financial Resources LHS
($USD m)
European Net Revenues as a % of 30% 3,000 3,000
2,500 Total European Employees RHS
Total Firm (RHS)

25% 2,500 2,500

No. Employees
% of Global Revenues
2,000
2,000 2,000

USD M
20%
$USD m

1,500
1,500 1,500
15%

1,000 1,000 1,000

10%
500 500
500
5%
0 0
'97 '98 '99 '00 '01 '02 '03
0 0%
'99 '00 '01 '02 '03

Source: Annual Reports, SEC Filings, Deloitte Analysis

European revenues by Business Unit Global Cost Breakdown

2003 Global Revenues By Business Unit Global Cost Breakdown

100% 2% 1% Property
2% 2%
2%
Asset 4% 2%
Management, 2% 90% 4%
IB-Equity 17%
IB-M&A, 4%
Private Clients, 9% Underwriting, 4% Other Expenses
80%
IB-Debt 29%
Underwriting, 11% 70%

Fees
60%
Capital Markets-
Equity, 19%
50%

Communications and Technology

40%
76%

30% 59%
Employees
20%

10%
Interest Expense
0%
Capital Markets- 2003 2001
Fixed Income,
Source: Annual Reports, SEC Filings, Deloitte Analysis 51% Source: Annual Reports, SEC Filings, Deloitte Analysis

- 95 -
ompetitive Landscape…

Lehman Brothers: Historical Timeline

Pre
1999 1999 2000 2001 2002 2003

Pre-1999 1999 2000 2001 2002 2003

Opens office in Recruits 8 Deutsche Hires 8 member Oil Grows Convertibles Enhances commitment
London, Milan bank members for and Gas research team by hiring 4 senior of the credit business Recruits Head of
and Paris UK M&A advisory team from executives including by appointing European Emerging
team Commerzbank Head of European European Head of Markets with a focus on
Builds up Convertible Sales Credit and hosts Russian and Emerging
secondary Creates European Extends commitment European Credit Markets
markets Equity Capital to debt products by Opens offices in Conference
capabilities Markets and hiring Head of Frankfurt and Munich, Strengthens business
through European Foreign European Debt appoints CEO of Transfers team of development coverage by
recruitment of Exchange divisions Syndication and 9 German operations fixed income appointing Head of
local bankers and recruits senior executives, and Head of Client specialists to Milan in European Institutional
from competitors divisional heads from including 4 in fixed Account Management response to growing Client Group Sales which
competitors income derivatives Italian Fixed Income spans Equity and Wealth
Creates Japanese clientele. Asset Management
Launched dedicated Grows capabilities in Cash Equity Sales
European Private Spain and Portugal by Team in Europe Appoints high profile Strengthens fixed income
Equity Group hiring Head of Senior Advisors in and Real Estate
Investment Banking Becomes member of Italy, Germany, UK proposition by recruiting
Opens office in for Spain and Portugal the Amsterdam Stock and recently in Spain Head of European Interest
Rome and launching Equity Exchange to enhance client Rate Strategy and Head of
Sales team in Spain coverage. European Real Estate
Hosts several
Creates role and hires European Industry Recruits Head of
Head of German M&A Conferences to European Corporate
and creates 9 member enhance industry Broking Business
Swiss equity cash expertise credibility
team. Becomes
member of Swiss
Stock Exchange
- 96 -
ompetitive Landscape…

Lehman Brothers International Europe is organised around product lines

Lehman Brothers International Europe

European Investment European Fixed Income European Private

European Equities Banking Index Client
Group Services
European European European Debt
Equity Capital Capital Markets Capital Markets
Markets

European European UK, France,

Equity and Corporate UK, France, Credit, Germany,
Credit Trading Broking Germany, Emerging and Italy, Iberia
Capital Markets High Yield Real Estate

European European M&A European Real

Institutional Estate
Client Group Country
Sales Specific Sales
and Account
European European European Fixed Management
Equity Cash Trading Income Sales
Sales Leverage and Trading
Products Derivative
Sales
Pan European UK, France, UK, France,
Equity Cash Germany, Italy, Germany, Iberia
Iberia Investment Fixed Income European
Sales Dual Reporting Lines
Country Specific Banking European Businesses Product Line to Global Product Line
Client Account Financial Level Level may exist
Management Institutions European
UK Equity European Foreign
Group (France) Foreign
Cash Sales Private Equity Exchange Country Dual Reporting Lines
Exchange Specific
and Sales to Individual Country
European Product line CEOs where exists
Interest Rate Level

European European Strategy European Dual Reporting Lines

Country Sales
Equity Research Fixed Income and Account to Global Sales and
Research Research Management Account Management

- 97 -
Morgan Stanley Europe: Key Facts

European Revenue and Income Margin Size of European Operations

Morgan Stanley Europe - Annual Net Revenues Size of European Operations (Total Assets)
350000
6000 45%
European Revenues
40% 300000

C4,000 employees
Income Margin
5000
European Revenues as a % of Global 35%
250000

4000 30%
200000

$USD M
25%
$USD m

3000
150000
20%

2000 15% 100000

10%
50000
1000
5%
0
0 0% 1998 1999 2000 2001 2002 2003
1998 1999 2000 2001 2002 2003

Source: Annual Reports, SEC Filings, Deloitte Analysis Source: Annual Reports, SEC Filings, Deloitte
Analysis

European revenues by Business Unit Global Cost Breakdown

2003 Global Revenues By Business Unit Global Cost Breakdown

100% 3% 2%
5% 4%
90% 5%
7% Property
Credit 7%
9%
Services, 80%

16% Communications and Technology

70% 25%

60% 31%
Fees
Investment
Management, 50%
Institutional
12% Other Expenses
Securities, 40%
53%
56%
30%
Individual Employee

Investor 20% 46%

Group, 19% Interest Expense

10%

0%
Source: Annual Reports, SEC Filings, Deloitte Analysis 2003 2001
Source: Annual Reports, SEC Filings, Deloitte Analysis

- 98 -
Morgan Stanley Europe: Historical Timeline

1995 - 1997 1998/1999 2000 2001/2002 2003/2004

Office
Office openings
openings 1995
1995 1998
1998 2000
2000 2001
2001 2003
2003
1997
1997 –– UK
UK Failed
Failed in
in bid
bid to
to merge
merge with
with Makes
Makes several
several high
high profile
profile Establishes
Establishes securitisation
securitisation Loses
Loses M&A
M&A professionals
professionals due
due Continues
Continues to
to lose
lose
1986 SG
SG Warburg,
Warburg, whowho owns
owns 75%
75% hires
hires to
to strengthen
strengthen operations
operations research
research team
team inin London
London as
as part
part to
to downturn
downturn in
in M&A
M&A activity
activity employees
employees across
across the
the
1986 –– Switzerland
Switzerland
of
of Mercury
Mercury Asset
Asset on
on the
the continent.
continent. Appoints
Appoints of
of building
building aa presence
presence inin board
board to
to key
key competitors
competitors
1987
1987 –– Germany
Germany Management
Management high
high profile
profile Russian
Russian oil European Recruits
Recruits two
two high
high profile
profile
oil European mortgage
mortgage backed
backed
executive
executive as as head
head of
of Russian market. senior
senior advisers
advisers Announces
Announces takeover
takeover of
of
1989
1989 –– Italy,
Italy, 1996
1996
Russian market. Team
Team isis headed
headed byby an
an
operations.
operations. Hires
Hires high
high profile experienced approach
approach of
of UK
UK property
property
Luxembourg
Luxembourg
profile experienced US US senior
senior banker
banker 2002
2002
Promotes bankers
bankers with
with prestigious
prestigious client group
group Canary
Canary Wharf
Wharf
Promotes John
John Studzinski
Studzinski client
1990 Enters
Enters into
into aa joint
joint venture
venture with
with Recruits
Recruits 450
450 staff
staff in
in Glasgow
Glasgow
1990 -- France
France from
from Head
Head of
of M&A
M&A to to COO
COO of
of relationships
relationships inin France
France and
and Restructures
Restructures client
client
Germany the
the Swedish
Swedish Stock
Stock exchange
exchange toto to
to build
build up
up stockbroking,
stockbroking,
1993
European
European Investment
Investment Germany fromfrom Barings
Barings and
and coverage
coverage model
model into
into aa
1993 –– Spain
Spain develop
develop aa single
single electronic
electronic administration
administration and
and accounting
accounting
banking
banking who
who isis later
later Deutsche
Deutsche Strategic
Strategic Engagement
Engagement
1994 platform
platform for
for equity
equity trading
trading across
across base
base
1994 –– Russia
Russia promoted
promoted to
to CEO
CEO in in 1997
1997 Group
Group allowing
allowing more
more
1999
1999 Europe
Europe
1997
1997 –– Netherlands
Netherlands 1997 Research
Research credibility
credibility tainted
tainted by
by bankers
bankers toto free
free up
up top
top deal
deal
1997 Expands
Expands Real
Real Estate
Estate Transfers
Transfers Head
Head ofof Global
Global Equity
Equity LVMH
LVMH suit
suit and
and USUS regulation
regulation makers
makers toto focus
focus onon client
client
1998
1998 –– Ireland
Ireland Mergers
Mergers with
with Dean
Dean Witter
Witter Investment
Investment Banking
Banking team
team with
with Markets
Markets and
and co-head
co-head toto Global
Global findings
findings on
on ties
ties to
to deal
deal flow
flow relationships
relationships
increasing
increasing Morgan
Morgan Stanley’s
Stanley’s senior
senior hires
hires M&A
M&A from
from NY
NY to
to London
London toto
1999
1999 -- Sweden
Sweden Creates
Creates aa new
new layer
layer of
of senior
senior 2004
2004
European
European capital
capital base
base and
and strengthen
strengthen European
European businesses
businesses
Consolidates
Consolidates management
management of of relationship
relationship managers
managers and and
distribution
distribution networks
networks Announced
Announced large
large scale
scale
worldwide
worldwide investment
investment banking
banking Restructures
Restructures European
European sets
sets up
up two
two dedicated
dedicated sales
sales
Promotes for
for asset
asset backed
backed securities, expansion
expansion of
of Russian
Russian
Promotes Head
Head ofof European
European securities, management
management into into separate
separate group
group toto cover
cover smaller
smaller and
and
Equity commercial
commercial MBSMBS and operations
operations committing
committing
Equity and
and Global
Global head
head of
of and reporting
reporting lines
lines between
between advisory
advisory medium
medium sized
sized investors
investors toto
bank residential
residential MBS
MBS under
under aa single $50m
$50m to
to build
build secondary
secondary
bank group
group toto vice
vice chairman
chairman single (Investment
(Investment Banking)
Banking) and
and sales
sales sharpen
sharpen focus
focus on
on bespoke
bespoke
positions global
global entity
entity The
The Securitised markets
markets platforms
platforms in
in debt
debt
positions in
in Europe
Europe to to Securitised and
and trading.
trading. Relocates
Relocates deputy
deputy services
services and
and rationalise
rationalise client
client
strengthen Products
Products Group and
and equities
equities
strengthen relationship
relationship Group head
head ofof Institutional
Institutional Securities
Securities coverage.
coverage. Clients
Clients are
are to
to have
have
development
development withwith more
more from
from New
New YorkYork to
to head
head up
up two
two points
points of
of contact
contact –– aa Poaches
Poaches 13 13 member
member UKUK
Purchases
Purchases AB AB Asesores,
Asesores,
senior
senior executives
executives Investment
Investment Banking
Banking and
and relationship
relationship manager
manager focusing
focusing corporate
corporate broking
broking team,
team, 77
Spain’s
Spain’s biggest
biggest independent
independent
international
international activities
activities on
on client
client strategy
strategy and
and aa from
from Merrill
Merrill Lynch,
Lynch, and
and top
top
financial
financial services
services group
group for
for
$340m
$340m toto break
break into
into the
the technical
technical person
person concentrating
concentrating rated
rated oil
oil analysts
analysts from
from UBS
UBS
Southern
Southern Europe
Europe mutual
mutual fund
fund on
on execution
execution Appoints
Appoints UKUK country
country head
head
and
and retail
retail market
market Mergers
Mergers debt
debt and
and equity
equity and
and assigns
assigns heads
heads of
of UK
UK
capital
capital markets
markets units
units Investment
Investment Banking
Banking and
and
senior
senior global
global capital
capital
markets
markets banker
banker to
to UK
UK
senior
senior client
client coverage
coverage roles
roles
Hires
Hires Chairman
Chairman for
for
Insurance
Insurance Group
Group in
in Europe
Europe

- 99 -
Morgan Stanley Europe: Organisational Structure

Morgan Stanley Europe

Institutional Individual Investor Consumer

Investment Management
Securities Group Banking Group

Equity Equity Fixed Investment Private

Research Income Banking Wealth
Management

Global Equity Global Debt Securitised Banking M&A Real Estate

Capital Capital Products Team Restructuring Group
Markets Markets

Product Teams Industry

Teams

Institutional Securities Joint Ventures Investment Banking Division

- 100 -
ompetitive Landscape…

Deutsche Bank: Key Facts

European Revenue and Income Margin Size of European Operations

European Revenue and Income Margin Size of European Operations
Euro/m
Euro/m
700 Total European Assets 70
30,000 90%
Net Revenues - LHS (Euro m) LHS (Euros m)
% Europe Revenue Over Global 600 Total European 60
25,000 Income Margin - RHS 75% Employees RHS

No. Employees ('000)

500 50
20,000 60%

Euros Bn
400 40

15,000 45% 300 30

10,000 30% 200 20

100 10
5,000 15%

0 0
0 0% 1997 1998 1999 2000 2001 2002 2003
'99 '00 '01 '02 '03

Source: Annual Reports, SEC Filings, Deloitte Analysis

Source: Annual Reports, SEC Filings, Deloitte Analysis

European revenues by Business Unit Global Cost Breakdown

2003 European Revenues By Business Unit Global Cost Breakdown
100% 2% 2%
3% 2%
Private &
6% 11%
Business 90%
6% Fees
Clients, 20% 5%
80%
• Sales and Trading
(Debt and others): 26% 70% 27% 19% Property

• Sales and Trading

60%
Equity: 13% Other
Corporate
• Loan Products: 6% and 50%
Asset and
Wealth Mgt,
• Origination: 5% Investment Communications and Technology
40%
17% • Advisory: 2% Bank, 52%
30% 63% Employees
56%

20%
Interest Expense
10%
Global
Transaction 0%
2003 2001
Banking,
11% Source: Annual Reports, SEC Filings, Deloitte Analysis

Source: Annual Reports, SEC Filings, Deloitte Analysis

- 101 -
ompetitive Landscape…

Deutsche Bank: Historical Timeline

1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

1989 1993 1994 1998 2000 2002

Acquisition of Acquisition of Acquisition of Acquisition of Crédit Cancellation of Announced the
Morgan Grenfell Banco de Madrid Sharps Pixley Lyonnais Belgium. the planned acquisition of a 40
Group S.A. and Banca Group (London Further Deutsche merger with per cent stake in
Majority Popolare di Lecco based metal Bank Polska S.A. Dresdner Bank. Axel Springer Verlag
acquired in SpA. traders) branches opened in AG at a price of Euro
Banco Poland. 667.3 million
Comercial Deutsche Bank
Transatlantico announces its
(Barcelona) 2003
intention to buy
Announced the
Bankers Trust.
acquisition of 40 per
cent stake in United
1997 1999 Financial Group.
Raises its stake in Completion of UFG provides
Grunelius to 100% and acquisition of 2001
Russian Investment
renames it Deutsche Bankers Trust $2.5bn acquisition of Zurich
banking services to
Bank Trust AG. with "closing Scudder Investments places
international and
day" on 4 DB in top 5 asset mangers
Russian investors
June globally
New Group structure is
Transfers 8 German
introduced focusing on two
Investment bankers
customer-oriented groups:
from London to
Corporate and Investment
Frankfurt
Banking and Private Clients
and Asset Management

- 102 -
Deutsche Bank: Organisational Structure

Global Markets

Americas
Americas
NY
Europe
Europe
L
Global
Global Head
Head COO
COO
Asia/Pacific-ex
Asia/Pacific-ex Japan
JapanS L L

Germany
Germany F
Japan
Japan

Global
Global Distressed
Distressed
Foreign
Foreign Global
Global Cash
Cash Global
Global Equity
Equity Global
Global Rates
Rates Global
Global Global
Global Integrated
Integrated Products
Products Emerging
Emerging
Exchange/
Exchange/ Equities
Equities Prime
Prime Derivatives
Derivatives Syndicate
Syndicate Research
Research Credit
Credit Markets
Markets
Commodities
CommoditiesNY Services
Services NY NY L NY L L

Global
Global Finance
Finance Structured
Structured Structured
Structured Latin
Latin America,
America,
Equity
Equity Trading
Trading Equity
Equity Trading
Trading Eastern
Eastern Europe,
Europe,
L L
Marketing
Marketing Middle
Middle East/
East/ NY
Africa
Africa
Global
Global Retail
Retail
Prime
Prime Services
Services Structureing
Structureing Asia/Pacific-
Asia/Pacific-
and
and Marketing
Marketing Non
Non Japan
Japan
NY

Client
Client Reporting
Reporting NY New York
L London
NY F Frankfurt
S S’Pore
Sw Switzerland

- 103 -
Deutsche Bank: Organisational Structure

Global Banking

Global
Global Head
Head L

COO
COO Global
F
Global Head
Head GTB
GTB
F Corporate
Corporate Finance
Finance L
COO
COO L

Business
Business Support
Support Relationship
Relationship Management
Management Product
Product Units
Units
Business
Business Management
Management
NY

TBD
TBD
Business
Business Area
Area Controlling
Controlling German
German Midcaps
Midcaps Global
Global Cash
Cash Management
Management
F
FIs/Trust
FIs/Trust and
and L NY New York
Securities
Securities Services
Services L London
F Frankfurt
S S’Pore
Human
Human Resources
Resources Global
Global Corporates
Corporates Sw Switzerland
L
Global
Global Cash
Cash Management
Management F
Corporates
Corporates and
and
Financial
Financial Institutions
Institutions Trade
Trade Finance
Finance
IT/Ops
IT/Ops
F
Asset
Asset Financing
Financing &
& Leasing
LeasingF

L
Product
Product Development
Development
Corporates/FIs
Corporates/FIs

- 104 -
ompetitive Landscape…

Merrill Lynch EMEA: Key Facts

European Revenue and Income Margin Size of European Operations

Merrill Lynch Europe - Annual Net Revenues Size of European Operations

7000 10,000
6,000 35%
Europe Net Revenues (RHS) Financial Resources LHS ($USD m)
9,000
6000 Total Employees RHS
Income Margin (LHS) 30%
5,000 8,000
% Europe Revenues over Global
Revenues (LHS) 25% 5000 7,000

No. of Employees
% of Global Revenues
4,000 6,000
20% 4000

$USD M
5,000
$USD m

3,000 15% 3000

4,000

10% 3,000
2000
2,000
2,000
5%
1000
1,000 1,000
0%
0 0
'98 '99 '00 '01 '02 '03
0 -5%
'98 '99 '00 '01 '02 '03
*Financial Resources as measured for FSA capital
Source: Annual Reports, SEC Filings, Deloitte and financial resources requirement
Source: Annual Reports, SEC Filings, Deloitte Analysis
Analysis

European revenues by Business Unit Global Cost Breakdown

2003 Global Revenues By Business Unit Global Cost Breakdown

100% 0%
4% 6%
6% 3%
90% 4%
6% Restructuring
Merrill Lynch 6%
80% 7%
Global Investment 6%
Property
Private Managers,
70%
Client, 44% 7%
Fees
60% 34%

45% Other Expenses

50%

Communications and Technology

40%
Global
Markets and 30% Interest Expense
Investment
Banking, 20% 43% Employees
30%
50%
10%

Source: Annual Reports, SEC Filings, Deloitte Analysis

0%
2003 2001

- 105 - Source: Annual Reports, SEC Filings, Deloitte Analysis

ompetitive Landscape…

Merrill Lynch EMEA: Historical Timeline

1995 1997 1998 1999 2000 2001 2002 2003/

2004

1998 1999 2000 2001 2002 2003

1995
Acquires Smith Acquires Mercury Sets up Private Recruits 5 member Restructures Pays $100m to Recruits 5 European
New Court PLC Asset Equity business in small cap equities global settle charges debt specialists from
in the UK, Management Europe with a team sales team from ING responsibilities that analysts Goldman Sachs
Carnegie Italia in Expands of 20 and fund size across New misled investors
Expands Investment Hires high profile
Italy and FG in Frankfurt M&A of between Euro York and to win IB
Banking team with German shadow
Spain as team from 2 to 20 1bn to 2bn with London contracts –
senior appointments in economics minister as
and recruits 2 offices in London, combining reputation
European Emerging Europe Vice Chairman to help
senior execs Paris and Frankfurt industry teams negatively
equities platform M&A, Financial grow German’s capital
from DMG to to strengthen affected
Opens retail Institutional Group, markets business
head up France client coverage
branches across Head of Iberian Cuts around 150
IB Pays $80m in penalties
1997 Britain, Spain operations, and senior Merges senior investment
relating to involvement in
Begins sector Germany, France industry specialists country bankers banking jobs in
Receives £188m capital Enron scandal
based trading and Italy to expand to industry Europe while
injection from parent private client Appoints ex Air France hiring equity Recruits new Emerging
rather than by sector teams to
distribution and President as Chairman analysts in Markets specialist team
Recruits top UK Utilities country cut cost
geographical reach of France operations specific sectors – specifically in FX,
team from NatWest in
Appoints former and recruits French Acquires 80% of poached 6 oil and interest rates, derivatives
Adopts 3 dimensional US Ambassador Recruits high profile client coverage German High gas research and structured products
matrix structure of client as Chairman of senior executives director Net Worth firm team from SSSB
coverage-country/regional Italian operations from Citibank and to open cross 2004
Bankers Trust to Streamlines European Real estate group
and industry specialists as selling
securities processing Hires former Credit
sales leads followed by strengthen FX and opportunities increases its
from several Lyonnais CEO as senior
product specialists Leveraged Finance between IB and European
proprietary systems to advisor
teams PC portfolio size from
Doubles European credit a single settlement £215m to £430m Opens Moscow office
team to 10 members Recruits 5 person system Pulls out of £1bn
index fund takeover after Expands back office and
Opens Frankfurt Capital managers from Poaches senior support services
advance stages
Markets office creating a Deutsche Bank structured finance capacity in Dublin
of discussions
230 workforce team from Deutsche

- 106 -
ompetitive Landscape…

Bear Stearns – Non US Operations: Key Facts

Non-US Revenue and Income Margin Size of Non-US Operations

Bear Stearns Non US Annual Net Revenues Size of Non US Operations

900 60% 50,000 900
Non US Net Revenues Non US Assets LHS
45,000 European Employees RHS (approx) 800
800 Non US Income Margin
% Non US to Total 50% 40,000
700
700
35,000
600

% of Global Revenues

No. of Employees
600 40%
30,000
500

$USD M
500
$USD m

25,000
30% 400
400 20,000
300
15,000
300 20%
200
10,000
200
10% 5,000 100
100
0 0
0 0% '98 '99 '00 '01 '02 '03
Source: Annual Reports, SEC Filings, Deloitte
1998 1999 2000 2001 2002 2003
Source: Annual Reports, SEC Filings, Deloitte Analysis Analysis

Global revenues by Business Unit Global Cost Breakdown

2003 Global Revenues By Business Unit
Wealth Global Cost Breakdown
Management, Capital 100% 2% 2%
8% Markets: 6% 4% Property
90% 6%
Institutional 6%
Global 7%
Equities, 15% 80% 9%
Clearing Fees

Services, 70%
13% 25%
60% Communications and Technology
49%
50%

40% Other Expenses

Capital 30%
Capital
Markets: 51%
Interest Expense
Markets: 20% 33%
Fixed
Investment
Income, 48% 10%
Banking, 16%
Employee
0%
2003 2001

Source: Annual Reports, SEC Filings, Deloitte Analysis Source: Annual Reports, SEC Filings, Deloitte Analysis

- 107 -
ompetitive Landscape…

Bear Stearns: Historical Timeline

1997 1998 1999 2000 2001 2002 2003/

2004

1997 1998 2000 2001 2002 2003

Recruits senior MD in Recruits senior MD in M&A Hires 2 senior Hires senior
Opens office in Dublin IB to expand Recruits Lazard’s Head of ECM to to focus in Telecoms and bankers to develop banker in UK M&A
with Fixed Income telecommunication oversee European IB expansion Media, and 3 VPs in French IB business – hired for his
Derivatives sector Teleoms and Media IB relationships and
Staff – c450 Staff 500-550 Recruits 11 member investment 852 staff, advisory skills
banking telecoms team from Head of Debt Corp Finance
Dresdner Kleinwort Benson, for Southern Europe, Head Cuts B team by Losses key senior
research team from Morgan of debt syndication in 50% to 60 execs after expiry
Stanley, and Financial institution northern Europe, head of of 3 year
research team from Schroders equity linked, Leveraged Hires head of high guaranteed bonus
Finance, European Real grade fixed income package –
Recruits MD for European Media, Estate, hotels and leisure. research. including Head of
Head of European Fixed Income, European ECM,
Head of European Equity Capital c800 European staff and global co-head
Markets, Head of European Equity of telecoms M&A
Research, team of Leverage
Finance, fixed income analysts,
Head of Chemical Industries

Co-sponsors Ferrari races across

the US and Europe to gain access
to wealthy clients and their
networks to drive deal flow

c600 European staff

- 108 -
ompetitive Landscape…

HSBC CIBM Europe: Key Facts

Revenue and Margin Size of Operations

HSBC CIBM Europe Size of European CIBM Operations
250,000
4,500 45%
European Net Revenues European CIB Total Assets
4,000 44%
European Income Margin
200,000
43%
3,500

42%
3,000
150,000
41%

$USD M
2,500
$USD m

40%
2,000 100,000
39%
1,500
38%
1,000 50,000
37%

500 36%
0
0 35% '01 '02 '03
2000 2001 2002 2003

Source: Annual Reports, SEC Filings, Deloitte Analysis Source: Annual Reports, SEC Filings, Deloitte
Analysis

Business Mix

2003 European CIBM Revenues By Type

Dividend Income,
3%
Other Income,
13%

Net Interest
Income, 36%

Dealing Profits,
20%
Net Fees and
Commissions,
28%

Source: Annual Reports, SEC Filings, Deloitte Analysis

- 109 -
ompetitive Landscape…

HSBC CIBM: Historical Timeline

Pre-
2000 2000 2001 2002 2004 2004

1986 2000 2002 2003 2004

Acquires London Acquires CCF Merges Investment Appoints Stephen Green Continues heavy recruitment
based international Charterhouse Banking operations (former Head of IB) as CEO of drive.
securities firm Securities as part of into the main HSBC Holdings PLC
Recruitment in corporate
James Capel purchase of French commercial bank
Appoints Stuart Gulliver (former advisory includes Goldman
Bank, CCF, which it giving IB operations
1991 Head of Global Markets) and Sachs banker as head of
subsequently balance sheet support
John Studzinski formerly vice- EMEA Corporate Finance
James Capel disposes due to for larger deals
chariman of Morgan Stanley and Advisory, another to
purchases seat on lack of synergies. Suffers a wave of International as co-head of head Global Consumer
the NYSE Gains ties to bankers defections as CIBM Brands Team, Citigroup
1992 French blue chip a consequence of no banker as co-head FIG team,
companies as a Studzinski earmarks Energy,
year end bonus policy CSFB banker as head of
Acquires Midlands result of acquisition Consumers, Autos, Financial
European Technology team,
Bank together with Spins off Private Institutions, Pharma and
Recruits Merrill another to head up
Samuel Montagu Equity arm but retains Industrials as key M&A
Lynch’s Head of chemicals, and ex-Lazard
capital markets minority holding industries
French IB to head banker to build relationships
operations with Private Equity and
up its own French Recruits European Begins hiring senior bankers
1996 operations Head of Institutional from Goldman, Lazard, Financial Sponsors
Sales from Morgan Citigroup, Morgan Stanley and
Purchases small Within capital markets, hires
Stanley, responsible CSFB capital markets to
Polish brokerage teams across sales, trading
2001 for pan European expand CIBM presence.
firm and research- FX, Interest
fixed income, FX and
Combines debt origination Appoints senior coverage Rates and Equities Cash
1997 Central Bank Sales
and advisory in Europe into officer for German and Austrian
Team Restructures CIBM
Merges James a single unit run from Financial Institutions to push
separating Investment
Capel and Samuel London to extract synergies debt capital products
Banking into Advisory
Montagu operations and higher fees (Corporate Finance and
Transfers Head of Global
to form HSBC Advisory) and Financing
Appoints Head of Italian Equities and Corporate Finance
Investment Banking (ECM and Debt Financing
Corporate Finance to build to Head up CIBM in Central and
up Italian M&A business Eastern Europe. Rumoured to Advisory)
be in talks to acquire a stake in
a Moscow Investment Bank
- 110 -
ompetitive Landscape…

Barclays Capital: Key Facts

Revenue and Margin Size of Operations

Barclays Capital - Annual Net Revenues Size of Global Operations
3000 35% 300000 6000
Net Revenues Total Assets LHS (£m)
Total Employees RHS
Income Margin 250000 5000
2500

2000 30% 200000 4000

No. of Employees
$USD M
$USD m

150000 3000
1500

100000 2000
1000 25%

50000 1000
500

0 0
0 20% '98 '99 '00 '01 '02 '03
1999 2000 2001 2002 2003

Source: Annual Reports, SEC Filings, Deloitte Analysis Source: Annual Reports, SEC Filings, Deloitte
Analysis

Business Mix

2003 Global Revenues By Type

Other Operating
Income, 4% Net Interest Income,
36%

Net Fees and

Commissions, 20%

Dealing Profits, 39%

Source: Annual Reports, SEC Filings, Deloitte Analysis

- 111 -
ompetitive Landscape…

Barclays Capital: Historical Timeline

2003/
1997 1998 1999 2000 2001 2002 2004

1997
1997 1998
1998 1999
1999 2000
2000 2001
2001 2002
2002 2003
2003
Barclays
Barclays Bank
Bank PLC
PLC Builds
Builds proprietary
proprietary debt
debt Recruits
Recruits Morgan
Morgan Appoints
Appoints head
head of
of Aggressively
Aggressively expands
expands Continues
Continues toto expand
expand Expands
Expands prime
prime
sells
sells BZW
BZW and
and trading
trading and
and high
high yield
yield Stanley
Stanley veteran
veteran to
to European
European Leveraged
Leveraged telecoms
telecoms research,
research, in
in debt
debt capital
capital brokerage
brokerage toto include
include
reorganises
reorganises treasury,
treasury, business
business and
and integrates
integrates integrate
integrate US
US Finance
Finance origination,
origination, credit
credit research,
research, markets
markets and
and FXFX fixed
fixed income
income inin
foreign
foreign exchange
exchange and
and credit
credit and
and capital
capital markets
markets government
government finance
finance head
head of
of European
European convertible
convertible bonds,
bonds, sales
sales and
and trading
trading response
response toto demand
demand
fixed
fixed income
income business,
business, offering
offering with
with equity
equity and
and bond
bond Corporate
Corporate Debt
Debt commodities
commodities andand with
with recruits
recruits from
from the
the for
for corporate
corporate and
and
operations
operations under
under syndicated
syndicated lending
lending and
and business
business Markets
Markets and
and head
head of
of telecoms
telecoms research
research bulge
bulge brackets
brackets government
government bonds
bonds
Barclays
Barclays Capital
Capital bond
bond underwriting
underwriting Installs
Installs European
European Govt
Govt Bonds
Bonds teams
teams through
through from
from hedge
hedge funds
funds
Develops
Develops integrated
integrated Hires
Hires team
team in
in energy
energy
Group
Group software
software data
data warehousing
warehousing numerous
numerous hires
hires Expands
European
European debt
debt Expands
Expands leveraged
leveraged and
and gas
gas from
from Enron
Enron Expands energy
energy and
and
and
and analysis
analysis systems
systems toto gas
Appoints
Appoints Bob
Bob proposition
proposition with
with finance
finance teams
teams in
in Appoints
Appoints client
client and
and begins
begins trading
trading gas trading
trading to
to
integrate
integrate data
data include
Diamond
Diamond as as CEO
CEO corporate
corporate banking
banking arm
arm Germany
Germany coverage
coverage director
director for
for UK
UK power
power include German,
German,
management
management and and analysis
analysis French
who
who redefines
redefines Switzerland,
Switzerland, Financial
Financial French and
and Belgium
Belgium
across
across businesses
businesses Recruits
Recruits senior
senior bankers
bankers Appoints
Appoints chairman
chairman Appoints
Appoints former
former power
customer
customer focus
focus to
to Sponsor
Sponsor coverage
coverage power
in
in leverage
leverage finance
finance and
and heads
heads of
of British
British ambassador
ambassador
companies
companies andand Heavy
Heavy recruitment
recruitment at
at director
director for
for Spain
Spain and
and Appoints
team
team toto cover
cover US
US Investment
Investment andand to
to Japan
Japan and
and Korea
Korea Appoints head
head of
of
governments
governments needing
needing senior
senior level
level across
across product
product for
for UK
UK wholesale
Financial
Financial Sponsors
Sponsors and
and Corporate
Corporate Banking
Banking for
for as
as senior
senior advisor
advisor to
to wholesale solutions
solutions
debt
debt financing
financing or
or and
and management
management lineslines client
Germany
Germany debtdebt Americas
Americas and
and Poaches
Poaches debt
debt capital
capital boost
boost business
business in
in client coverage
coverage team,
team,
restructuring
restructuring globally
globally including
origination
origination and
and Germany
Germany to to markets
markets and
and credit
credit Asia
Asia including transitions
transitions
Parent
Parent provides
provides Recruits
Recruits former
former CSFB
CSFB strengthens
strengthens High
High Yield
Yield strengthen
strengthen local
local products
products team
team from
from management
management
£50million
£50million over
over two
two CEO
CEO andand chairman,
chairman, Team
Team with
with more
more senoir
senoir relationships
relationships and
and Deutsche
Deutsche Expands
Expands asset-
asset-
years
years to
to help
help Rudloff,
Rudloff, asas chair
chair of
of exec
exec hires.
hires. operations
operations backed
Builds
Builds energy
energy backed securities
securities
restructuring
restructuring committee
committee focusing
focusing onon with
Appoints
Appoints senior
senior banker
banker Opens
Opens marketing
marketing andand business
business with
with with hires
hires from
from
programme
programme strategy
strategy and
and developing
developing Morgan
to
to develop
develop local
local distribution
distribution office
office in
in appointment
appointment of of 21
21 Morgan Stanley
Stanley and
and
client
client relationships
relationships globally.
globally. Dresdner
Appoints
Appoints ex
ex UK
UK distribution
distribution channels
channels to
to Switzerland
Switzerland traders
traders and
and sales
sales Dresdner
Appoints,
Appoints, head
head of
of Global
Global
ambassador
ambassador to to China
China European
European institutional
institutional professionals
professionals based
based in
in Recruits
IB,
IB, CEO
CEO ofof Americas,
Americas, head
head Takes
Takes responsibility
responsibility Recruits head
head of
of
as
as senior
senior advisor
advisor investors
investors out
out of
of NY
NY Portugal
of
of investment
investment banking
banking inin for
for big
big corporate
corporate Portugal Investment
Investment
Frankfurt
Frankfurt and
and Paris
Paris banking
Recruits
Recruits head
head ofof France
France and
and VCVC of
of Asia.
Asia. clients
clients from
from Barclays
Barclays banking
derivatives
derivatives from
from Restructures
Restructures physical
physical Corporate
Corporate Banking
Banking 2004
Strengths
Strengths interest
interest rates
rates 2004
Bankers
Bankers Trusts,
Trusts, head
head metals
metals and
and
strategy
strategy team
team byby Forms
Forms currency
currency Recruits
of
of structured
structured finance
finance merchanting
merchanting business
business Recruits 1,100
1,100 new
new
appointing
appointing Head
Head ofof overlay
overlay team
team and
and staff
telecommunications
telecommunications to
to reduce
reduce operations
operations staff in
in the
the first
first 66
European
European andand Japanese
Japanese IR
IR launches
launches FX
FX months
months as as part
part ofof
strategy
strategy and
and recruits
recruits heads
heads outsourcing
outsourcing service
service expansion
expansion
of
of high
high yield
yield capital
capital programme
Begins
Begins building
building programme
markets
markets and
and heads
heads ofof
syndication telecoms
telecoms and
and media
media
syndication businesses
businesses
team
team
Purchases
Purchases Daiwas
Daiwas U.S.
U.S.
equity
equity prime
prime brokerage
brokerage
operations
operations to
to service
service
hedge
hedge funds
funds
- 112 -
ompetitive Landscape…

Middle And Back Office Operations Organisations Typically Reflect The Front Office Structures That
They Support

Merrill Lynch
 Middle Office function (+ desk support, docs, confirms) is client aligned
 Operations is functionally aligned (Transaction Services, Custody Services, Third
Party Clearing, Risk & Control, Product Dvlpmt) and located mainly in the GPCs
(Jacksonville & Dublin)
 Strong emphasis on cross-department cooperation

Morgan Stanley
 Operations is organised by product/platform (I.e. separate heads for Fixed
Income, Equities, Derivatives)

 Product control is client aligned

 Historically product control performed the client coverage role for the
Infrastructure division

Deutsche Bank
 Ops & IT are integrated through CIO executive management team and organised
by front office division (e.g. global head of Global Markets has FI Ops and IT
departments reporting to him)

 Major re-organisation and transformation programme announced to integrate

back and middle office functions for Capital Markets business

- 113 -
Regulation
egulation…

Cost Of Compliance With The Regulatory Burden Is Becoming An Increasingly Pressing Issue
Within The Investment Banking Industry. Five Key Regulations Are Identified (1/2)

Basel II  The Accord has a potential impact on internationally active Banks’ strategic options, competitive
position and shareholder value:-
 A reduction in regulatory capital resulting from more precise risk weighting of assets.
 Improved capital management such that product mix and pricing decisions can be
optimised
 Enhanced reputation in the financial markets that can impact share price and credit
rating.
 Enhanced competitive advantage and ability to growth through merger and acquisition

Sarbanes-Oxley  In response to Enron and other scandals, new regulations in place that affect all companies
with US listings as well as the roles on individuals and committees within them
 Regulations impact: management responsibility, disclosure practices, audit committees and
penalties for non-compliance
 Banking costs increased to meet compliance requirements. EU have responded with statutory
audit directives

European  42 initiatives identified to support the Community’s main objectives fro an integrated European
Financial Services financial services industry:
Action plan  Creating a single EU wholesale market by: facilitating raising of capital on an EU-wide
basis; establishing a common legal framework for integrated securities and derivatives
markets; containing systemic risk in securities settlement; creating a secure and
transparent environment for cross-border restructuring; creating a single market that
work for investors
 Enabling open and secure retail markets
 Setting state of the art prudential rules and supervision
 Facilitating wider conditions for an optimal single financial market

- 115 -
egulation…

Cost Of Compliance With The Regulatory Burden Is Becoming An Increasingly Pressing Issue
Within The Investment Banking Industry. Five Key Regulations Are Identified (2/2)

Anti-money  The key changes under the new legislation from the 3rd EC Money Laundering Directive
laundering (2003) dealt with in the guidance are:
1. Requirement to appoint a Money Laundering Reporting Officer (MLRO) to act as a point of
contact for internal reports of suspicions and to make reports
2. Requirement to train relevant personnel in how to identify potential money laundering, how
to report suspicions of money laundering to the MLRO, and how to identify clients in
conformity with the rules
3. Requirement to establish an maintain appropriate internal procedures and early warning
systems to prevent money laundering (e.g. no anonymous accounts)

IAS, IFRS  The member states of the European Union have joined a growing list of countries, now
numbering more than 90, that will either require or accept International Financial Reporting
Standards (IFRS) for the purposes of financial reporting. Substantial time and investment will
be spent on preparing for the 2005 deadline
 IAS 39 has radically changed the accounting principles for the recognition and measurement of
financial instruments, especially derivatives. The new accounting rules will likely increase any
institution's reported income volatility
 IAS 32 is intended to enhance financial statement users’ understanding of the significance of
financial instruments to an entity’s financial position, performance and cash flows. It prescribes
requirements for the presentation of financial instruments and identifies information that should
be disclosed about them

- 116 -
egulation…

The Vast Majority Of International Banks In Europe Have Basel 2 Programmes Underway, Although
The Levels Of Complacency, Commitment And Progress Varies

Basel 2 Programmes Underway Globally11 Progress by Bank Size22 Progress by Institution And Geography44
Complacent
Complacent Preparing
Preparing
~All large banks surveyed progressing Basel 2, 40%
~14% increase in institutions with Basel 2 programmes  Strong
Strong risk  Business
of small banks progressing risk Business
data
data engaged
engaged
100 100 Slow
AW EW Clarity
Clarity of
 
Slow AW EW of
moving
moving purpose
purpose
Basel 2 Programmes

80 80 Large

Progressing Basel 2
Underway (%)

60 60 AR
AR
ER
ER

(%)
40 40
Challenged
Challenged
20 20 AR:
AR: Americas
Americas Retail
Retail  Weak
Weak data
data
Small  QIS
QIS 33
AW:
AW: Americas
Americas Wholesale
Wholesale
0 0 ER: challenging
challenging
ER: Europe
Europe Retail
Retail
2002 2003 2002 2003
EW:
EW: Europe
Europe Wholesale
Wholesale ILLUSTRATIVE

Capital Impact2,3
2,3 Credit Risk – Adoption of Advanced IRB1,2
1,2 Operational Risk – Clarity Around Approach11
~Banks that adopt Advanced IRB are expected to ~20% increase in number of banks expected to adopt ~Increasingly banks are opting for the AMA approach
benefit from capital release Advanced IRB approach over 2002-3 rather than the standardised approach
100 100
Advanced IRB (% change)

10 Expected capital Impact Undecided Undecided

Adoption of Advanced IRB
Capital required using

Approach decision made

80 Standardised 80
5 Uncertain
0 10% 60 Foundation IRB 60
Decrease Standardised
(%)

(%)
-5 Increase 45% 40 40
Capital release 45%
-10
20 20
AIRB AMA
0 0
2002 2003 2002 2003

Data Sources:
1
DC independent survey 2003; KPMG's 2nd global survey– 190 institutions surveyed in 19 countries (Basel Readiness Assessment), 2003
2
Adsatis Consulting, “Survey On Banks’ Preparation” – international banks down domestic banks surveyed across a range of countries, 2002
3
Basel Committee, 2nd Impact Study, Deloitte independent survey 2003
4
Deloitte Research, 2003

- 117 -
egulation…

Deloitte Research Suggests That Basel 2 Is Impacting Investment Banks On Many Levels

Basel 2 programme drivers Components of the solution to meet these challenges

 Reduced Capital Levels

 Capital Optimisation Strategic

Competitive Adv.

Layer Group
Group Risk
Risk Levels
Levels Shareholder
Shareholder Returns
Returns Business
Business Objectives
Objectives

 Credit Optimisation
Policy Layer
 Pricing
Pricing &
& IT
IT &
& Data
Data Enterprise
Enterprise Risk
Risk Tax
Tax Controls
Controls &
&
Improved CRM Revaluation
Revaluation Management
Management Management
Management Management
Management Compliance
Compliance
Policy
Policy Policy
Policy Policy
Policy Policy
Policy Policy
Policy
 Strategic Pricing
Organisational
Organisational Management
Management Economic
Economic Capital
Capital
Management
Management &
& Disclosure
Disclosure
 Optimisation
Optimisation
Economic Capital Application Policy
Policy Reporting
Reporting

 Risk-Based Management Process

Compliance

Layer Risk
Risk Pricing
Pricing &
& Accounting
Accounting
Data
Data Controls
Controls &
& Organisation
Organisation IT
IT &
& Data
Data
Management
Management Revaluation
Revaluation Transform.
Transform. Compliance
Compliance Management
Management Management
Management
Rules
Rules
 IAS Integration Methodology
Methodology Methodology
Methodology Rules
Rules Methodology
Methodology Procedures
Procedures Policy
Policy

 Single-View Transformation Data

Data Source
Source
Layer Regulatory
Regulatory Financial
Financial Financial
Financial MIS
MIS
Exception
Exception and
and Disclosure
Disclosure Reporting
Reporting Reporting
Reporting Reporting
Reporting Reporting
Reporting
Reporting
Reporting Transformation
Transformation Packs
Packs Engines
Engines Engine
Engine Engine
Engine Tools
Tools
 STP Benefits Engine
Engine
Operational Efficiency

Compliance
Compliance Reporting
Reporting Capital
Capital Optimisiation
Optimisiation
 Risk
Risk Engines
Engines Reference
Reference Data
Data Engine
Engine
Improved MIS Engines
Engines Engine
Engine

 M&A Optimisation
Physical Reference
Reference Additional
Additional MIS
MIS Data
Data
Transaction
Transaction Reporting
Reporting GL
GL (Pillar
(Pillar 3)
3)
Layer Data
Data Model
Model Data
Data Data
Data Transformation
Transformation
 Cost Reduction Repository
Repository Repository
Repository Repository
Repository Infrastructure
Infrastructure
Tools
Tools Repository
Repository

 Group-Consolidation

- 118 -
egulation…

Regulation Of Hedge Funds In Europe Is Not Yet Standardised

Regulation of Europe-based hedge fund managers: Fixed amount as minimum capital requirement in most countries
Country Name of the Regulator Minimum Capital Requirement

Austria Finanzmarktaufsicht (FMA) Varies2

Belgium None NM3

Denmark Danish Financial Supervisory Authority NA

Finland Financial Supervision Authority €169,000

France Commission des Operations de Bourse (COB) 25% of operating expenses with a minimum of €50,000

Germany None NM4

Gibraltar Financial Services Commission €50,000 to €750,000. Depends on nature and scope of activities

Guernsey Guernsey Financial Services Commission £10,000 or £25,000 plus 3 months expenditure

Ireland Irish Financial Services Regulatory Authority Usually €50,000 of initial capital plus 3 months of annualized expenditure

Isle of Man Financial Supervision Commission Greater of £75,000 net tangible assets or 3 months’ expenditure

Italy Bank of Italy; Commissione Naziole per le Societa e la Borsa (CONSOB) €1,000,000

Jersey Jersey Financial Services Commission (JFSC) £25,000

Luxembourg Commission de Surveillance du Secteur Financier (CSSF) €125,000 (Type 2 managers) €1,500,000 (Type 3 managers)5

Netherlands Netherlands Authority for the Financial Markets €226,890

Norway Securities Market Commission €125,000

Portugal Portuguese Securities Market Commission (CMVM) €250,0006

Spain Comisión Nacional del Mercado de Valores (CNMV) €300,000 plus an own fund requirement7

Sweden Swedish Financial Supervision Authority (FSA) SEK 1,000,000

Switzerland Swiss Federal Banking Commission (FBC) (if regulated) CHF 1-10 million (if regulated)8

UK Financial Services Authority (FSA) €50,000 own funds plus liquid capital of 3 months’ annualised expenditure.

USA Securities and Exchange Commission (SEC), Commodity Futures Trading Commission (CFTC) None9
Source: PwC, May 2003
Footnotes:
1. The FMA is only responsible for Austrian banks and Austrian ISD firms, and branches of foreign banks and foreign ISD firms in Austria. If a bank is the manager, the capital requirement is €5 million; if an ISD firm is the manager: €50,000 or €125,000 depending on
scope of services provided.
2. There is no regulation of hedge funds in Belgium and hedge funds are not publicly distributed. Hedge funds managers are therefore only private hedge funds (with a minimum investment per investor of €250,000).
3. Hedge fund managers in Germany are not regulated and therefore there is no capital requirement.
4. Type 2 and Type 3 managers manage non-UCITS funds domiciled inside and outside of Luxembourg respectively.
5. Hedge funds domiciled in Portugal are not allowed. To manage funds other than those mentioned in the local legislation, entities need to request authorisation from CMVM, and there is a restriction on the managing of such funds, even domiciled outside Portugal. In
practice therefore there are few hedge fund managers in Portugal.
6. The own fund requirements may vary depending on the level of assets under management
7. Generally, hedge fund managers in Switzerland are not regulated unless they manage a Swiss domiciled hedge fund regulated under the Investment Funds Act (IFA) and at the same time act as the hedge fund’s legal fund management company. There is currently
only one Swiss domiciled single-manager hedge fund.
8. Hedge fund managers in the USA can apply for a “private adviser” exemption from registration under the Investment Advisors Act of 1940 as long as, among other things, the adviser has fewer than 15 clients and does not hold itself out to the public as an investment
adviser (although it is important to note that the anti-fraud provisions of this Act apply to all investment advisers, whether or not exempt under the private adviser exemption). In most cases, each “fund” will count as a client and a “look-through” to the number of investors
will not be required. For a US adviser, each client, whether US or not, will be counted; for a non-US adviser, only US clients are counted. The Commodity Exchange Act provides rules for those advisers that are registered as commodity pool operators or commodity
trading advisers; registration with the CFTC is required for managers of funds trading certain futures contracts or commodity options. - 119 -
egulation…

Regulatory Aspects Of Distribution Of Hedge Funds In Europe

Country Regulatory Environment

Austria Similar arrangements to Germany . See the note on Germany.

Denmark Danish investors face a tax disincentive if they invest in hedge funds. EU Commission is presently undertaking a study to determine whether the Danish tax rules are discriminatory.

Finland Sales of hedge funds in Finland are governed by the Act on Common Funds, and hedge funds are often formed as special common funds. Foreign funds can also be marketed in
Finland under the terms of this act. However, if the constitution of the foreign fund only permits professional investors to become unitholders, marketing is governed by the Securities
Market Act (eg a prospectus shall be prepared if the fund is marketed to over 100 investors).

Germany a) If a foreign hedge fund qualifies as an “investment fund” within the meaning of the German law, the public distribution of its units requires permission by the fund regulator (BaFin).
This permission will not be granted for a foreign fund. For this reason and the tax reasons named below, foreign hedge funds are repackaged in Germany. There are no limitations for
the public distribution of domestic hedge funds (“hedge funds” in the generally used sense of the term). b) In Germany, foreign-domiciled hedge funds usually qualify as investment
funds within the meaning of the German regulatory and tax rules for foreign funds and, if so, are classified as low-level/ black, medium-level/ grey or high-level/ white funds for tax
purposes, depending on a combination of factors such as whether the fund has a local tax representative, whether it has a local listing, and the tax information that it prepares for
investors. Investors in low-level funds are subject to an extremely disadvantageous lump-sum taxation, and investors in medium-level funds are also heavily taxed. Some foreign
domiciled hedge funds have successfully gained the status as high-level funds in Germany.

Ireland Hedge funds domiciled outside Ireland, seeking to market in Ireland, must be approved by the Central Bank of Ireland. The fund must apply in writing providing full information,
including details of the arrangements for marketing the units in Ireland. In practice very few foreign domiciled hedge funds have sought to do this. Those that have, have been
distributed by way of private placement through stockbrokers to high-net-worth individuals.

Italy There is a high minimum investment level of €500,000. The tax treatment for individuals investing in a foreign hedge fund is less favourable than Italian hedge funds

Luxembourg Retail investors and pension funds can invest in hedge funds and funds-of-hedge funds domiciled in any country, as long as the funds are approved by the CSSF for public offering.
Only funds which are subject to adequate prudential supervision in their country of origin will be approved. Acceptable countries are countries in the EU, Canada, USA, Japan, Hong
Kong and Switzerland. The CSSF must pre-approve all new advertisements.

Netherlands Foreign funds can be authorised for distribution in the Netherlands subject to the same rules as for ordinary investment funds, which require the fund to obtain a licence pursuant to
the Dutch Act on the Supervision of Investment Institutions (Wet toezicht beleggingsinstellingen, “Wtb”). This licence is required if the fund is to be distributed beyond a restricted
circle of professional parties. In summary, the Authority of the Financial Markets of the Netherlands (“AFM”) will grant a licence if the foreign hedge fund meets certain requirements
relating to expertise and trustworthiness, financial resources, management and the supply of information to unit holders and the public, including a prospectus and continuous
reporting. In assessing the requirements, the AFM distinguishes between foreign investment funds which are subject to adequate supervision elsewhere and those that are not
subject to adequate supervision elsewhere, with additional requirements being required of the latter category.

Switzerland There are no restrictions for retail investors to invest in shares of closed-ended non-regulated listed investment companies (funds-of-hedge funds). IFA-regulated open-ended Swiss
hedge funds or funds-of-hedge funds and foreign regulated hedge funds approved for distribution in Switzerland can be sold to retail, high-net-worth and institutional investors based
on a formal contract with appropriate risk disclosures. Alternatively, a bank or other professional asset manager can distribute hedge funds and funds-of-hedge funds within the
scope of an approved and disclosed formal asset allocation policy based on a discretionary management contract with the client. The distributor of IFA-regulated funds generally is
either a FBC-regulated institution or else has to obtain the FBC’s approval as a distributor. Furthermore, hedge funds and funds-of-hedge funds not approved for distribution in
Switzerland can be sold to high-net-worth, sophisticated and institutional investors on a one-to-one basis, but such funds must not be publicly advertised and promoted.

UK In March 2003, the FSA published its conclusions following consultation with the hedge fund industry about increasing the access of retail investors to hedge funds. The FSA
concluded that it would be premature at this stage to offer any type of hedge fund to retail investors.

USA Persons marketing hedge funds are covered by: a. rules of the Investment Advisers Act of 1940, which governs use of third party marketers; b. State Blue Sky laws and regulations,
which vary widely in scope and are often superseded by federal rules if an advisor is a registered investment advisor (an advisor will often register as a federally regulated investment
advisor in order to be subject to one set of federal rules rather than various state rules); and c. the rules of the NASD, which regulate offering of hedge funds by registered
representatives of broker-dealers who offer hedge funds. Hedge funds are available to retail public only if registered under Investment Company Act 1940 and Securities Act of 1933.

- 120 -
egulation…

Distribution Of Hedge Funds In Europe: Regulation Of Europe-based Hedge Fund Managers: Fixed
Amount As Minimum Capital Requirement In Most Countries
Country Main Distribution Channels Tax penalties for investors investing in a foreign domiciled hedge fund

Austria Banks, Via wrappers, Fund distribution companies Yes. On funds that do not have a tax representative in Austria

Belgium Banks, By private placements, Via wrappers Yes. The dividends are taxed at 25% compared to 20% for Belgian
public funds; realised capital gains may be taxed if seen as speculative.

Denmark Uncommon Yes

Finland Direct sales by the management company No

France Via wrapper instruments 25% of operating expenses with a minimum of €50,000

Germany Foreign hedge funds: via banks who are the issuers of wrapper Yes. The tax rules are disadvantageous for direct investment in certain
instruments (e.g structured bond hedge fund certificates) foreign investment funds.

Ireland Private banks, Brokers No

Italy Private placement Yes. Tax treatment for investments in foreign funds not as favorable as
for investments in domestic funds.

Luxembourg Private banks and Universal Banks No

Netherlands Direct sales by managers on a private basis, Brokers, Via issuers of No

structured notes

Norway Uncommon NA

Portugal Uncommon NA

Spain Vía issuers of structured notes Yes. Tax treatment is disadvantageous for investments in foreign non-
UCITS funds.

Sweden Direct sales by managers on a private basis No

Switzerland Via banks (publicly and by private placement), Direct sales by managers No
(private placements to mainly institutional clients), Via independent asset
managers, Issuers of structured investments

UK Via IFAs, Via wrapper instruments Yes. Tax treatment unfavorable for funds which do not have distributor
status.

USA Historically private placements, but more recently, emergence of No

registered single-manager and fund-of-hedge fund product which may be
sold to a significantly wider investor base

Source: PwC, May 2003, May 2004 publications on hedge funds, GRC Analysis
Note: See Appendix 1 at the end of the presentation for detailed information on the regulatory aspects of the hedge fund distribution.
- 121 -