IFR Review of the Year 2015

Miles Davis is reputed to have said that jazz is not about the notes you play, but those you don’t play.

And in a similar vein, investment banking has become increasingly about the businesses and geographies banks choose not to compete in.

That is one of the lessons of the ascent of UBS from the great basket case of the post-crisis era to one that has become a benchmark for others to follow.

Before the onset of the financial crisis, Goldman Sachs was the institution that everyone else in the industry sought to emulate (some banks even had people whose job it was to follow what Goldman was up to and to work out how to copy it).

But the mantle of being the investment bank that the rest of the industry is watching has passed in the past couple of years to UBS (though of course everyone still keeps a careful eye on Goldman). And how much or how little other banks are “doing a UBS” has become a recurrent question (whether UBS itself really “did a UBS” or actually retained some operations that it said it was going to cut, is a question too meta even for banking navel-gazers such as IFR to get into).

One thing above all causes the fascination with the Swiss bank: returns. The investment bank has achieved a return on attributed equity way above its peers (although those figures are helped by the fact that it splits out its bad bank in reporting RoAE). Adding the fact that such returns have proved resilient and sustainable means other banks would be foolish not to sit up and take notice.

Of course, not all of its rivals can easily emulate UBS, even if they wanted to. It has the undisputable advantage of having a world-class wealth management operation that perfectly complements its investment bank.

Rivals also point out that in slimming down, UBS’s investment bank has become a niche player. Its profits in the first nine months of 2015, for example, were US$1.8bn – much less than a third of the US$6.3bn JP Morgan’s own investment bank, for instance, brought in.

UBS insiders will point to their RoAE – and happy shareholders who price the bank at a book value of 1.2 – in response. But those running the bank have an undeniable problem in working out where future growth will come from, or at least ensuring that future growth doesn’t come with a return to less profitable activities.

Others – the money-centre banks and those that have franchises based around trading – can only go so far in applying the lessons of UBS’s success. But the lessons are there nonetheless.

Of course, none of this is to say that other banks haven’t had barnstorming years. Barclays, for example, has won IFR’s Bond House of the Year award thanks to an impressive span of profitable DCM business, while Goldman is IFR’s Equity House of the Year and Adviser of the Year as its dominance of ECM activity and M&A advice continued. Citigroup scoops several of our top awards – Loan House, Derivatives House and EM Bond House – as a testament to its impressive post-crisis return to form.

Our congratulations go to them – and all the other winners featured in our Review of the Year. And we wish them all the best for 2016.

One thing is clear as we go into the new year: banking remains in a considerable state of flux, with the industry seeking business models that will allow it to return, if not to the pre-crisis go-go days, then at least to respectable levels of profitability.

And that brings to mind another Miles Davis quote: “To keep creating you have to be about change.”