Banking in the past was not usually associated with excitement, change and dynamism but at the start of the 21st century the industry is undergoing a revolution where traditional approaches are being torn apart.
Technology, shareholder pressure and greater customer demands are creating new dynamics in banking and the energy generated is palpable. In this exciting environment THE BANKER is launching its inaugural awards to reflect outstanding quality and innovation in financial services around the world.
The Winners
Bank of the Year
Global - Citigroup
Western Europe - HSBC Holdings
Central & Eastern Europe - Bank Austria Creditanstalt
Asia/Pacific - HSBC Holdings
North America - The Chase Manhattan Corporation
Latin America - Banco Santander Central Hispano
Middle East - Saudi American Bank
Africa - Standard Chartered
Investment Banks
Bond House of the Year - Morgan Stanley
Dean Witter Equity House of the Year - Merrill Lynch
FX House of the Year - Deutsche Bank
M&A House of the Year - Goldman Sachs
Derivatives House of the Year - J P Morgan
Global Custodian of the Year - The Bank of New York
Technology
Best Internet-only Bank - unofirst
Best Use of Technology - J P Morgan
Best Online Business Strategy - MeritaNordbanken
Best Bank Website - Credit Suisse First Boston
Global Bank of the Year
Citigroup
The new US financial conglomerate Citigroup is not only the largest and most profitable financial institution in the world with total assets of $717bn and pre-tax profits in 1999 of a staggering $15.9bn, its banking arm, Citibank, is also the most diverse and widely spread institution in the world enabling it to genuinely claim the mantle of global bank of the year.
Providing services for 100 million customers, corporations and governments in 100 countries, the Citi presence is all pervasive - from strength in the Middle East, Australia and Asia, including Japan, to recent acquisitions in Poland and strong retail presence in Europe and Latin America.
With massive capability in wholesale areas such as foreign exchange and custody as well as investment banking expertise through Schroder Salomon Smith Barney and its consumer banking facilities, Citi’s depth and reach are unchallenged.
And building on its position as the world’s leading payment processor, the alliance with America Online, the leading interactive services company, announced in July, again further emphasises Citigroup’s role as the premier global financial services company.
Bank of the Year- Western Europe
HSBC Holdings
HSBC wins our Bank of the Year award in Western Europe and the Asia/Pacific region. The third largest bank in the world, according to The Banker’s listings, it is the only bank that has demonstrated a long-term commitment to the Asia/ Pacific region through a geographical spread not shared by local banks and has also demonstrated an ability to expand cross-border in Europe, a difficult task.
From its base in Hong Kong, with over 135 years of history in the area, HSBC has taken advantage of long established relationships and local knowledge to raise its profitability.
It boasts a return on equity of almost 23 per cent, a credible cost/income ratio of 54.04 per cent and Tier One capital of $28,533m. It stuck to its guns throughout the Asian crisis and is now benefiting from the upturn, with a decrease in non-performing loans in much of the region and increased revenues.
The bank set aside only $368m for problem loans in the first half of 2000, a huge drop from the £1.08bn it was forced to set aside in the first half of 1999. Although interest is now focusing on its developed markets moves – such as the successful acquisition of Republic New York Corp and Crédit Commercial de France – it derives about 45 per cent of its profits from emerging markets.
Its strategy in developed markets is to increase its focus on wealthy customers, while in developing markets it offers retail and corporate services, the sort of profitable traditional banking which benefits from a relative lack of strong competition, as well as personal banking. An exception to the deficit of real competition is Hong Kong, where the bank still earns the bulk of its Asian profits.
However it managed to offset a mortgage war there by increasing market share and growing customer deposits. In the rest of the Asia Pacific region in the first half of 2000,excluding Hong Kong, HSBC saw its pre-tax profits shoot up to $738m from $180m as provisions plummetted and revenues increased. Providing the Asian recovery continues, HSBC will benefit from increased business volume and fee income.
HSBC’s developed market forays have not distracted it from continued expansion in the Asia Pacific area. It has agreed in principle to acquire Bangkok Metropolitan Bank in Thailand and is looking to buy the savings unit of Equitable PCI Bank, the Philippines’s third largest bank.
Meanwhile, on the Internet front in the region, HSBC.com, its mainstream online bank, launched in Hong Kong in August and by the end of the year will also be present in Malaysia, India and Singapore. In Europe, HSBC has established its base in the UK following the purchase of Midland Bank in the mid-1990s and Europe now accounts for 37.6per cent of its overall revenues.
The successful purchase of CCF demonstrates both its ability and desire to push further into Europe and with growing presence elsewhere, as far west as Armenia, HSBC can genuinely lay claim to be a pan-European institution with its online joint venture with Merrill Lynch adding further emphasis.
Bank of the Year – Central & Eastern Europe
Bank Austria Creditanstalt
The end of communism, together with joining the European Union and the single currency area, have transformed Vienna and the Austrian banking system.
All three of the top banks have set their sights on establishing themselves as important players in the central and eastern European region.
They are well placed both geographically and historically. Given the underdeveloped nature of banking in most of the region’s former communist countries, and the fact that large chunks of the banking system in countries like Poland are in foreign ownership, they are also in a position to make the running. Bank Austria, now incorporating Creditanstalt, takes the Bank of the Year Award for central and eastern Europe as the institution which has moved furthest to create a viable presence across the region.
Now it is about to merge into HypoVereinsbank in neighbouring Bavaria. The combined group will have substantial market shares in southern Germany and Austria and important representation in Poland, the Czech Republic and Hungary as well as in Russia. The early involvement in Russia has not been plain sailing.
The 1998 turmoil in Russian markets brought severe profits setbacks for both Bank Austria and its compatriot Raiffeisen Zentralbank (RZB), the central bank for the Austrian rural credit co-operatives, which also has a significant commitment there.
The third leading group, Erste Bank, which has adopted a more focused approach by concentrating its expansion on Austria’s immediately neighbouring countries, escaped that problem. Bank Austria now reckons to have the largest asset base of any foreign bank represented in three or more countries in the region.
With its new German owner, it has the chance to accelerate its growth.
Bank of the Year- Asia/Pacific
HSBC Holdings
(See Bank of the Year – Western Europe)
Bank of the Year – North America
Chase Manhattan Bank
The wide diversity of the US financial system and in Canada and Mexico creates problems in comparing like with like even among the biggest groups.
Only the top few banks have anything resembling nationwide coverage, and even they have only a modest share of the total national deposit base. Among the top tier Chase Manhattan takes the Bank of the Year Award not so much for an outstanding recent profit performance but as for its success in quietly diversifying its sources of income and building a solid base for future growth.
The biggest, Citigroup, is unique on several counts. It inherits from Citicorp the only bank which has attempted to create retail banking operations on an international scale. From the Travelers side, the new conglomerate takes in extensive non-banking financial activities particularly in the insurance business.
Its progress so far in integrating those operations has been considerable. The top level banks are in almost all cases the results of recent large-scale mergers. Several have proved problematical. Both Bank One and First Union have been forced to make heavy special charges and moved into substantial losses in the second half of this year, while Bank of America, although not quite so hard-hit, is having to undertake substantial cost-cutting.
Chase Manhattan went through the merger process rather earlier, with the get-together of Chase and Chemical now over four years old. Since then, the group has been the subject of repeated rumours concerning possible large-scale acquisitions in areas such as investment banking.
So far, though, the buys have been on a more modest scale, but cumulatively they have substantially changed the balance of the group. Recently they have included last year the technology-oriented business of investment banking boutique Hambrecht & Quist.
This year has seen the acquisition of London-based family-owned merchant bank Robert Fleming and the small US merger and acquisition advisory and private investment firm The Beacon Group. Chase Manhattan’s new shape is being created without any major buys.
Bank of the Year-Latam
BSCH
Spain’s Banco Santander Central Hispano wins the Latin America bank of the year. With around one fifth of its assets in the region, its latest results show ever-increasing profits and revenues, a contribution from the continent which looks set to continue.
First half attributable net profit from Latin America rose 67 per cent to e467m in the first half of 2000 compared to the first half of 1999. Unlike its arch rival Banco Bilbao Vizcaya Argentaria, BSCH does not have a high exposure to countries like Peru and Colombia which are undergoing difficult times.
Over 80 per cent of its banking in the region is concentrated in Argentina, Brazil, Chile and Mexico. The bank has bitten the bullet in terms of increasing efficiency through major redundancies in its Latin American operations in the last year while consolidating its operations in Mexico and Argentina.
BSCH should see increased profits from the region over the next few years based on a continued strong fundamental macro environment, the emergence of even more restructuring benefits and increased margins as its pension business grows. The boost in profits will not only come from organic growth. BSCH recently completed a e3.7bn share issue, of which the major e2.4bn portion has been set aside to finance acquisitions in Latin America.
Growth should also come from online banking in the region. In March it paid over $500m for a majority stake in Patagon.com, a Miami-based Internet company which is a leading financial services portal in the region. It has specific portals in the most important Latin American countries including Brazil, Mexico and Argentina. BSCH plans to merge Patagon with Open Bank, its online banking unit, while exploring further Internet ventures. BSCH’s strategy also focuses on investment banking, where it is looking to develop its corporate finance work for Latin American companies.
It is expanding its New York-based Santander Investment Securities while taking advantage of its acquisition of Banco Bozano, Simonsen, Brazil’s largest independent investment bank. However with BBVA’s acquisition of Bancomer in Mexico, a bank with a much better name and franchise than BSCH’s subsidiary Serfin, it has to watch its back.
The other unknown quantity – and this could go to either of the Spanish banks or to neither of them – is Banespa, Brazil’s fifth-largest bank whose much-delayed privatisation, would give the winner an overhelming mandate in that country.
Bank of the Year – Middle East
Saudi American Bank
The merger between Saudi American Bank (Samba) and United Saudi Bank not only formed the most profitable and one of the largest banks in Saudi Arabia and the Middle East but created a dynamic institution that rapidly started developing new products and producing better results.
The new Samba, which has assets of more than $20bn, an equity base of more than $2bn and operating profits approaching $500m, is already reaping the benefits of merger even though it only took place in July 1999. Profits for the first six months of the year were, at $262m, a record for a Saudi bank and up 12 per cent on the last six months of the previous year. Operating expenses have fallen by 8 per cent, giving an efficiency ratio of more than 67 per cent.
The merger is the culmination of a success story which has seen the bank grow at a dramatic pace since its formation in the mid 1970s. Today, its substantial local operation is supplemented by a branch in London, wholly-owned subsidiaries in the UK, Geneva and Luxembourg and a representative office in Beirut. It has also won a reputation for innovation, being the first bank in Saudi Arabia to offer, among other innovations, priority and phone banking, a dedicated investment department and a local equity fund.
London-based subsidiary Samba Capital Management International is viewed as a world class institution and the best of breed amongst the region’s banking institutions with $3bn in assets under management and strong capability in providing tailored Islamic investment products.
Samba faced stiff competition for the regional award from National Bank of Kuwait and Gulf International Bank.
Bank of the Year-Africa
Standard Chartered
Standard Chartered wins the Bank of the Year award in Africa. It does business in more African countries than any other one bank, with operations in Botswana, Cameroon, Gambia, Ghana, Kenya, Nigeria, South Africa, Tanzania, Uganda, Zambia and Zimbabwe.
Standard Chartered itself admits that the political and economic situation has been difficult in a number of countries in Africa, but this has not shaken its belief in the value of the franchise and the quality of the business.
In fact, proof of the bank’s commitment was Standard Chartered’s re-entry into Nigeria on the back of democratic elections and hopes for an improved economy. The bank’s first half results this year show the difficulties of banking in Africa. Although Standard Chartered’s pre-tax profit in the first half of 2000 rose 31 per cent to £356m compared to the same period last year, pre-tax profits for Africa halved to £25m from £50m, proof that banking in Africa is a risky business.
There were two main reasons. First, a 19 per cent increase in costs due to inflationary pressures, greater expenditure on technology and staff, and re-entry into Nigeria. Second, an increased debt charge, which zoomed up to £24m from £2m due to the deteriorating situation in Zimbabwe as its main industries suffered from the policies of Robert Mugabe’s regime.
By taking such a large hit, the bank hopes it has cleaned out its books in that country. Higher costs and debt charges together mean that Africa is responsible for only 7 per cent of the group’s pre-tax profit, from 18 per cent a year earlier.
Admittedly, this number was not helped by the increased Asian contribution due to a fall in non-performing loans as the economic recovery gathered pace. Net revenues for Africa did, however, increase 7 per cent to £118m in the first half with strong growth in interest and fee income.
And the net interest margin in Africa was 8.7 per cent, versus margins under 4 per cent for all other regions of the world, demonstrating the region’s capacity to deliver profits. The bank established its first branch in Zimbabwe (then Southern Rhodesia) in 1892, in a bell tent in Bulawayo.
Although the situation in that country is still deteriorating, Standard Chartered has demonstrated a willingness to stay through the bad times in order to take advantage of the good times, both in Zimbabwe and in Africa as a whole.