U.S.

Globally Active Banks And Future

American Growth
An increasingly global and interconnected economy benefits from
universal banks
2017
Executive Summary

Growing high-wage American jobs depends on large, medium, and

small businesses tapping the growth markets of the future.
Forecasts show emerging markets will lead growth across consumer
goods, professional services, healthcare, and more.

America's businesses rely on the scale and scope of America's

globally active banks to efficiently grow their operations
internationally. Managing currencies, payment systems, and supply
chain operations, while underwriting M&A activity and financing trade,
requires scale and scope only found in universal banks.

While global, large banks are necessary in a global economy, it's

important not to overstate the size of America's banks. U.S. banks
are smaller and less concentrated than those of other countries. And
recently, large banks have grown slower than other benchmarks with
some even shrinking. They are appropriately scaled to serve customers.
1
FUTURE GROWTH MARKETS & U.S. JOBS

Next Year, The U.S. Will Account For Only 12.5 Percent
Of Total Global Growth
IMF Global GDP Growth Rate Projections For 2018

EU Emerging &
1.8% Developing
Asia
6.4%
United States MENA
2.5% 3.4% Australia &
New Zealand
Latin America 2.4%
and Caribbean SSA
2.0% 3.5%

Source: April 2017 World Economic Outlook 2

FUTURE GROWTH MARKETS & U.S. JOBS

In The Next Decades, Emerging Markets Will Be The

Center Of Consumer Growth
Three billion people set to
change their consumption
The Asia Pacific market is now the
patterns massively
largest market for Prada. Gucci
expects China to become their No. 1
The Asia Pacific market
market within five years.
accounted for 7% of Apple's
net sales in 2009, 13% in
Between 2000 and 2012, almost
2010 and 21% in 2011.
17M Brazilians started using private
health care, essentially adding a
In Asia, growth in spending population equal to the Netherlands
on restaurants, recreation, to the private health care market.
and personal care will be at
least 25 times the level seen It's important for businesses now
today. to capture this rising tide of middle-
class spenders.
Source: HSBC 3
FUTURE GROWTH MARKETS & U.S. JOBS

Major U.S. Businesses Must Tap Global Markets To

Continue To Grow And Strengthen American Jobs
Sources Of Revenue For Major
U.S. Companies S&P Global: "Emerging markets
may offer the most potential for
100
the world's largest consumer-
focused companies."
80 35% Non-U.S.
Percent (%)

60 EY: "By 2030, we believe two-thirds of

the global middle class will live in the
40 Asia-Pacific regionThe emergence of
65% U.S. a wealthy middle class will open up new
20 markets not just in consumer goods, but
also for financial services or the health
sector"
0
Revenue
Source: Bloomberg, EY, S&P Global 4
FUTURE GROWTH MARKETS & U.S. JOBS

America's Middle Market Businesses Will Support More

High-Wage Jobs By Expanding Into Global Markets
Current Footprint
Brookings: "Middle market firms have

61% Are involved in

foreign markets
proven capacity for success
by exporting a range of goods and
services, but they underachieve as a
wholeAs a result of this unrealized
potential, these businesses forgo
Buy from
international
markets 48% greater profitability, diversification,
and other competitive advantages
derived from engaging internationally.
And regions lose a primary source
of sustainable, high-wage job

41% Sell
internationally
creation and economic growth."

Source: Bank of America, Brookings 5

FUTURE GROWTH MARKETS & U.S. JOBS

Globally Engaged Businesses Are Key Drivers Of U.S.

Growth And Wages

Globally engaged U.S. companies are critical to the U.S. economy,

generating 54 percent of private sector GDP and supporting 71.2 million
jobs.

For every $1 billion in exports of a metro area industry, workers in that

industry earn roughly 1 to 2 percent higher wages. Even those exporting
industry workers without high school diplomas earn a higher wage.

Global companies with U.S. subsidiaries employ 6.4 million Americans,

or 5.2 percent of private sector employment. They support an annual
payroll of $510 billion, paying U.S. workers an average of $80,041 -- 30
percent higher than the economy-wide average.

Source: BRT, Brookings, OFII 6

UNIQUE VALUE OF GLOBALLY ACTIVE BANKS

America's Globally Active Banks Are Essential To

Tapping These Growth Markets
"The largest banks are really operating a global platform where
theyre not just in the business of deposit-taking and lending."

"Theyre in the business of global relationship management for

global nonfinancial companies. Those global nonfinancial
companies need to perform transactions in scores of countries
and in hundreds of different products."

"The platform thats necessary to physically deliver that has to

be global and it has to have huge overhead costs associated
with it; and therefore, to be in all those places and to absorb all
that overhead, global banks have to be huge."

-Yale Finance Professor Charles Calomiris

Source: Cleveland Fed Interview With Yale Finance Professor Charles Calomiris 7
UNIQUE VALUE OF GLOBALLY ACTIVE BANKS

Nearly 90 Percent Of American Multinational

Companies Use Large Banks For Overseas Operations
Percent Of Business Roundtable Companies That Use Large U.S.
Banks For Domestic And Overseas Services

100 2% Large U.S. banks

11% Dont
Use frequently serve as trusted
80 partners to globally
Percent (%)

engaged U.S. companies,

60 helping them grow,
98% sustaining their
89% Use
40
competitiveness, and
20 providing economic
benefits, both at home and
0 abroad.
Use for U.S. Use for
Operations Overseas
Operations
Source: Business Roundtable 8
UNIQUE VALUE OF GLOBALLY ACTIVE BANKS

Large U.S. Banks Are Meeting The Credit Needs Of U.S.

Businesses In Loans, Markets, And Bonds
Sources Of Credit For U.S. Businesses
The largest U.S. banks account
Money Markets 11% for 48 percent of loans to U.S.
businesses
Loans 25%
The largest U.S. banks are the
anchors of our capital markets,
making markets in good and
Capital Markets 32% bad times

The largest U.S. banks

underwrite 50 percent of
Corporate Bonds 32% corporate bonds, facilitating
credit to fuel growth

Source: U.S. Treasury, HPS Analysis 9

UNIQUE VALUE OF GLOBALLY ACTIVE BANKS

As Global Markets Expand, So Does The Need For

Global Financial Services
Total Value Of World Exports Foreign Exchange Turnover
And Imports Daily Average
+299%
50 +230% 7 6.51
41.88

U.S. Dollars (Trillions)

U.S. Dollars (Trillions)

6
40
5
30 4

20 3
12.68 2 1.63
10
1
0 0
1995 2015 1995 2016
Source: Bureau Of International Settlements, The World Bank 10
UNIQUE VALUE OF GLOBALLY ACTIVE BANKS

Global Banks' Trade And Supply Chain Finance

Services Facilitate Global Commerce
America's globally active banks
are uniquely positioned

To provide global supply chain and fill gaps in trade finance to

finance services
Globalization has lengthened
supply chains, increasing the
number of suppliers and
transactions.
With scale, global banks account
for roughly ~85 percent of the
supply chain finance market.
Adoption of new technologies will
expand this market over next
decade.
Source: McKinsey, BIS
drive growth.
Large banks underwrite around
one-third of trade financing, which
supports one-third of global trade.
In 2012, the top five U.S. banks
held 92 percent of the country's
trade finance claims.
Up to one-fifth of the decline in
global trade volumes may have
been attributable to disruptions in
trade finance.
11
UNIQUE VALUE OF GLOBALLY ACTIVE BANKS

Meanwhile, Cross-Border Capital Flows Are

Rebounding From Post-Crisis Levels
Global Financial Account Balances In Net Global Balance
Billions Of U.S. Dollars Advanced Economies
800 Emerging Economies
600
U.S. Dollars (Billions)

400
200
0
-200
-400
-600
-800
2008 2009 2010 2011 2012 2013 2014 2015
Source: Institute Of International Finance (IIF), European Central Bank, IMF 12
UNIQUE VALUE OF GLOBALLY ACTIVE BANKS

Total Financial Assets Have Increased By 65 Percent

Over The Past 10 Years
Total Global Financial Assets In Trillions Of U.S. Dollars
+65%
300 294
285
U.S. Dollars (Trillions)

272
270 261 262
242 243
240
222
211
210
178
0

2013
2005

2006

2007

2008

2009

2010

2012
2011

2014*
*Estimated
Source: Deutsche Bank, IIF, Bureau Of International Settlements, HSBC 13
UNIQUE VALUE OF GLOBALLY ACTIVE BANKS

Economies Of Scale Allow Large Banks To Provide

More Services At Lower Costs
Large Banks Would Be 262% Less Efficient As Smaller Institutions

20 "If these 17 banks were

16% broken into smaller
Average Cost Per
Dollar Of Assets

15 banks with $100 billion in

assets but with no
+262% change in their output
10 mix, costs would
increase from $410
5 5% billion to $1.48 trillion."
- Joseph Mester and
Loretta Hughes, Wharton
0
Current Size* Broken Up As
$100B Banks
Source: Wharton (2013); Federal Reserve Bank of New York (2014); *Based on 2013 financial data 14
UNIQUE VALUE OF GLOBALLY ACTIVE BANKS

Large U.S. Banks Play A Critical Role As Major

American Companies Earn More Revenue Abroad
Change In Portion Of Sales From Abroad For Global
Fortune 50 Companies (2006-2016)
27%
22%
16%
10%
9%
7%
6%
3%
3%
1%
-7%

Source: 2017 Fortune 500, Bloomberg, HPS Analysis 15

PROPERLY MEASURING U.S. BANK SIZE

U.S. Commercial Banking Sector Is Less Concentrated

Than Many Other Major Industries
Largest Four Firms' Percentage of Total Industry Revenue, 2012

100
80
Percent

60
40

20
0
Aircraft

Insurance

Insurance
Telecom

CPU

& Coal

Software

P&C
Telecom

Autos

Banking
Commercial
Wireless

Wired

Petroleum

Health
Source: U.S. Economic Census 16
PROPERLY MEASURING U.S. BANK SIZE

U.S. Banks Maintain A Global Reach, Though

Smaller And Less Concentrated Than Their Peers
Total Banking System Assets As Top Five Banks By Assets As
A Percentage Of GDP In 2011 A Percentage Of GDP In 2011

300
258% 200
250 164%
Percent (%)

200 150

Percent (%)
162%
105%
150 100
117%
100 56%
50
50
0 0
G7 G20 U.S. G7 G20 U.S.
Avg. Avg. Avg. Avg.
Source: The Clearing House 17
PROPERLY MEASURING U.S. BANK SIZE

The 20 Largest Banks Globally Represent A Mix Of

Asian, North American, And European Countries
Banks By Asset Size Accounting Principle Total Assets (US$B) Ranking By IFRS Assets*
Industrial & Commercial Bank of China IFRS 3,473 1
China Construction Bank IFRS 3,017 3
Agricultural Bank of China IFRS 2,816 4
Bank of China IFRS 2,604 6
Mitsubishi UFJ Financial Group Japanese GAAP 2,590 7
JPMorgan Chase U.S. GAAP 2,491 2
HSBC Holdings IFRS 2,374 8
BNP Paribas IFRS 2,190 10
Bank of America U.S. GAAP 2,188 5
Wells Fargo U.S. GAAP 1,930 11
Crdit Agricole IFRS 1,817 12
Japan Post Bank Japanese GAAP 1,802 13
Citigroup U.S. GAAP 1,791 9
Mizuho Financial Group Japanese GAAP 1,752 14

Deutsche Bank IFRS 1,676 15

Sumitomo Mitsui Financial Group Japanese GAAP 1,649 16
Barclays IFRS 1,496 18
Socit Gnrale IFRS 1,454 19
Banco Santander IFRS 1,414 20
Groupe BPCE IFRS 1,303 21

Source: SNL Financial, *IFRS accounting standards gross derivatives, U.S. GAAP nets derivatives 18
PROPERLY MEASURING U.S. BANK SIZE

The Asset Share Of The Largest U.S. Banks Is Smaller

Than That Of Their Peers In Europe And China
Asset Share Of The Top 5 Banks Asset Share Of The Top 20 Banks
Globally By Country Globally By Region
70 +52% 30% 28% 27% 27%
60%
Share Of Total Assets (%)

Share Of Total Assets (%)

60 25%
50
20% 18%
40%
40
15%
30
10%
20
10 5%

0 0%
U.S. China Europe U.S. China Japan
No. Of Top 2 3 No. Of Top 7 5 4 4
5 Banks 20 Banks
Source: SNL Financial, April 2017, All Banks Under IFRS Accounting Standards 19
PROPERLY MEASURING U.S. BANK SIZE

America's Largest Banks Are Growing More Slowly

Than Other Benchmarks
Changes Since Q3'10

80 74.8%

60
Percent (%)

-79%
40 37.1%

21.4%
20
7.7%
0
S&P500 All Commercial U.S. Economy Largest Banks
Banks
Source: St. Louis Federal Reserve, Bloomberg, HPS Analysis 20
Conclusion

Growing high-wage American jobs depends on large,

medium, and small businesses tapping the growth markets
of the future.

America's businesses rely on the scale and scope of

globally active U.S. banks to efficiently grow their
operations internationally.

While large global banks are necessary in a global

economy, it's important not to overstate the size of
Americas banks. They are appropriately scaled to serve
customers.

21