October - The Banker

Attendees at The Banker’s glittering awards ceremony, which was compered by BBC presenter John Humphrys, were treated to a keynote address on the global economy by Charles Dallara, managing director of Washington’s Institute of International Finance. And The Banker team which made it all possible.

Bankers from over 70 countries gathered at the Dorchester Hotel in London on September 9 for The Banker Awards 2003, the highlight of the global banking calendar. The Awards, sponsored by Oracle and Equant, include national Bank of the Year awards in 124 countries and 27 Bracken awards, named after The Banker’s founding editor, Brendan Bracken. These Bracken awards cover specialist investment banking categories, technology and regional excellence awards, including Global Bank of the Year, HSBC.

Banking companies will be spending an estimated $18.8bn in risk management systems globally in 2003. Already at $3.3bn, investments in operational risk management technology will become a major factor, and will climb to an estimated $6bn in 2006. Such new investments respond to the Basel II framework and other regulatory mandates. Key components of operational risk management are:

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The much-publicised pensions time bomb will hit banks hard unless they put in the ground work now. Chris Skinner advises that they consider how their future customers will behave before the rug is pulled out from under their feet.

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Outsourcing has spread to Asia, with Malaysia’s largest banking group being the latest to announce an IT outsourcing agreement. Maybank (Malayan Banking Berhad) has signed a 10-year IT outsourcing agreement with Computer Sciences Corporation (CSC) valued at approximately $340m. Around 320 Maybank employees will transfer to CSC, now responsible for providing comprehensive computing services to the bank.

Datuk Amirsham A Aziz, president and CEO of Maybank, said: “This is a strategic initiative to secure quality IT infrastructure services from experts in the business, to allow us to focus more of our energy and resources on offering enhanced financial products and services to our customers.”

To improve timeliness of fund prices and quality of service, JP Morgan FundsHub has selected MoneyMate’s new intraday fund pricing service. The service, recently launched by MoneyMate, a provider of European fund data solutions, provides pricing for more than 50,000 European funds, with most priced daily.

David Moffat, marketing director of JP Morgan FundsHub, said: “Strategically we wanted to outsource the collection, validation and redistribution of the fund prices. It was critical to us that MoneyMate was able to commit to 100% accuracy as we will be using these prices for dealing and valuation purposes.”

HP plans to help customers to simplify the use and management of distributed IT resources, by leveraging open grid standards. The initiative will integrate industry grid standards, including Globus Toolkit and Open Grid Services Architecture, as part of their Adaptive Enterprise strategy to synchronise business and IT perfectly.

“The grid has the potential to solve real business problems by simplifying global access to enterprise computing services,” said Shane Robinson, chief strategy and technology officer at HP. “For CIOs, the grid can help better synchronise business and technology demands in real time. To help realise that potential, HP has committed to grid-enable our IT systems. Over the next few years, this means products – ranging from HP’s smallest handhelds, printers and PCs to our most powerful storage arrays and supercomputers – will be able to connect with and serve as resources on the grid.”

The IMF estimates the size of money laundering to be 2%-5% of the world’s GDP, that is, $2000bn each year.

Whereas traditionally the complexity of the money laundering problem was considered too hard for systems to solve, today top banks are making use of artificial intelligence (AI) to remedy the problem. Using adaptive software to learn a customer’s individual characteristics, the solution can then spot and explain suspicious transactions. The AI solution, called Sentinel, has been developed by Searchspace, and works using a combination of high dimension statistics and adaptive technology. The system automatically builds mathematical models of people’s transaction behaviour and has a way of framing a context to actions.

ASPACE Solutions is offering banks the opportunity to cut the costs incurred from forgetful customers. Every time a customer forgets a password it costs the bank or building society Ł10-Ł30 to provide a new one. 4TRESS is a powerful multi-channel authentication and authorisation solution that gives customers secure access to account information and services across the different channels using the same login information and procedure. By providing a consistent, simplified way in which customers authenticate themselves to their financial services provider, 4TRESS improves the user experience and thus reduces churn.

Some banks in the emerging markets show a level of technological innovation that puts some institutions in the developed markets to shame. Parveen Bansal reports.

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Parveen Bansal talks with Mark Greene, general manager of IBM’s global banking unit, to learn more about the on-demand business vision that offers hope to the industry.

While the rest of San Francisco lay basking in the sunshine, bankers attending IBM’s Global Financial Services Forum at the Ritz Carlton were being warmed up with a lesson about the ‘on-demand financial institution’, a key strategy for value creation in achieving competitive advantage – the theme of the forum.

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Trade financing has undergone something of a revolution in the past decade, with an estimated 70% of all deals now being done via open market transactions.

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There are difficult questions to be answered about who should pay the bill for straight-through processing for the securities industry – especially when the original idea was that it would pay for itself.

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The introduction of the EU standard payment requirements, one more step along the SEPA roadmap, will be one of the hot topics at the Sibos 2003 conference in Singapore this month.

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Malcolm Ring explains how UK banks can provide financing to investors governed by Shari’ah law by using a specially approved leasing scheme and adhering to certain principles.

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Nordea is recognised as a leader in all the countries of the Nordic region and continues to show strengths in retail banking. The Banker talks to Kari Jordan about the secrets of its success.

To become a successful regional bank in a highly competitive market is extremely difficult but that is exactly what Nordea has done. The bank’s journey of Nordic success began as a merger between Sweden’s Nordbanken and Finland’s Merita Bank in 1998. However, this domestic consolidation was not considered enough for the successful future of the bank, so the renamed MeritaNordbanken merged with leading Danish bank Unidanmark in 2000, forming Nordic Baltic Holding (NGH). In 2001, the bank merged with the former Norwegian state bank Christiania Bank and a year later the Swedish post office bank, Postgirot Bank, became a fully owned subsidiary of Nordea, the new name of NBH.

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Calls for oil-dealing governments, companies and banks to be more transparent have moved beyond the fringe, write Jon Marks and Thalia Griffiths.

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Stephen Timewell looks at the US-led consortium charged with establishing the Trade Bank of Iraq which will have a major role in the reconstruction of the country.

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The government of Barbados is creating the right conditions to attract investors through regulation and a wealth of incentive schemes.

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The government of Barbados has toiled hard to make the country a safe haven for investors, enforcing high standards and strict laws on companies licensed there.

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Barbados fought hard to withstand the financial challenges of the last few years and is now set to take advantage of a healthy economic and regulatory environment. James Eedes reports.

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Luiz Inácio Lula da Silva: the present government has made much of its social policies yet it is Lula’s fiscal achievements that have made headlines.

When Lula swept to power in last year’s presidential elections it was seen as a vote for change. But, asks Jonathan Wheatley, has he lived up to the public’s expectations – and his own election promises?

When Luiz Inácio Lula da Silva of Brazil’s leftwing Workers’ Party (PT) won last October’s presidential election, it was clear that Brazilians were voting for change. They had had enough of former president Fernando Henrique Cardoso’s apparent obsession with low inflation. With unemployment and crime on a steady rise, with schools and hospitals at times literally crumbling away for lack of resources, it was time to forget the IMF and its demands for austerity. Brazilians wanted urgent action on the social issues that Mr Cardoso seemed to have pushed into second place.

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After nine months in office, many believe that Lula’s election promises are beginning to wear thin as growth falters and high interest rates hamper Brazil’s business sector.

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Brazil’s finance minister, Antônio Palocci, tells The Banker that the government’s attention is not just on economic policy but on social evolution.

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President Lula’s government has confounded critics with its fiscal restraint, yet the economy is still slow. Will Brazilians have the patience to see if this cautious approach pays off? Jonathan Wheatley reports.

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Asian banks’ continuing progress will depend on how the authorities of individual countries react to unforeseen events.

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Simon Montlake in Jakarta looks at how Indonesia is gearing up to life without the IMF and forthcoming democratic presidential elections.

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Russia’s only true project finance deal to date, Severtek – a joint venture between Lukoil and Finland’s Fortum – stands as a barometer for future deals of this nature.

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The Sakhalin Energy project, a massive undertaking to exploit some of the largest undeveloped oil and gas deposits in the world, is the largest single foreign investment into Russia to date.

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Ben Aris says that, although the economy is growing and sovereign ratings are improving, the last push towards investment grade will be hard going.

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As bond market conditions have deteriorated, corporates have turned increasingly to syndicated loans. Ben Aris reports from Moscow.

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Evgeny Ivanov: Improvement to investment grade will greatly enhance Russia’s prospects

Although it has improved, Russia’s banking system still has some way to go before it can fully recover from the financial crisis of 1998. Torrey Clark asks Rosbank’s president Evgeny Ivanov for his views.

Russia’s banking system is continuing to grow in strength, with syndicated loans taking off and a high demand for capital. However, raising resources remains difficult.

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Russia is gradually becoming a more attractive prospect for project finance, especially in the oil and gas industry. Ben Aris reports on progress and on old problems that still blight opportunities.

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Mr von Köller: targeting the US for growth

Jan Wagner talks to Karsten von Köller, CEO of German real estate bank Eurohypo, about the prospects for the fledgling bank and breaking out of the German market.

Even after the disastrous year that was 2002, it would be misleading to think that Germany’s big commercial banks have lost their ability to compete internationally. It is true that Hypovereinsbank (HVB), Dresdner and Commerzbank plunged into crisis amid huge losses last year. But they have since returned to profitability and, hence, remain a force to be reckoned with on the international scene.

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At the 24th international meeting of the Swiss Futures & Options Association in Buergenstock last month, panellists discussing whether internalisation and non-fungibility were in the interests of the customer pointed to the market’s structures as the culprit.

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John Romeo: “To further limit the use of internalisation is simply trading off risk management for transparency”

In the latest round of debate about the pros and cons of internalisation, the UK’s Financial Services Authority has entered the fray with new rules governing alternative trading systems, while the US regulator is reviewing the filing for the Boston Options Exchange. Frances Maguire asks if this is about politics or truly in the best interests of the investor.

A storm is brewing over the securities market, on both sides of the Atlantic, and in both the equities and the derivatives markets. The row about internalisation is one that threatens to strike at the very heart of how securities are traded, and centres on somewhat academic arguments as to whether transparency, liquidity and best execution can sit comfortably together. Put simply, the argument against internalisation is this: internalisation – the practice of matching large orders outside of the main market mechanisms so that the orders can be executed with minimal market impact – impairs transparency, which must therefore be bad news for investors.

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Technology can provide banks with the answers to their FX trading problems but only if they ask the right questions, says Mark Pelham.

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John Conolly: seeing a return to CME futures

Only a few years ago even those working in the Chicago Mercantile Exchange believed that the currency futures market was heading for a dive. How wrong they were, says Jim Kharouf.

It was a humbling experience, but former currency futures trader John Conolly isn’t ashamed to admit he was wrong about the prospect for Chicago Mercantile Exchange’s (CME) currency contracts.

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Still on the subject of risk: the big problem facing banks tasked with holding capital for new-fangled operational risks – a central feature of the Basel II capital accord – is a lack of forecasting data. What is the probability of a fraud, a blackout or some other kind of disaster occurring? And where should efforts to prevent disasters be concentrated?

Insurance company Aon has spent the past two years trawling through its records to come up with a database containing information on 10,000 financial sector losses and a further 3,000 events in the public domain going back 10 years. Now Aon OpBase is on the market, allowing banks to navigate their way through the maze.

“We have pulled together the information we had from all around the globe and put it into a format allowing comparison to be made between events,” says Aon’s executive director Daniel Butler. “OpBase is the first truly scaleable product, allowing banks to calculate possible losses by asset size, earnings size and business line.”

Fixing IT problems used to be simple: the trader just walked round the corner to the techie’s desk and yelled in his ear. Brave was the anorak that argued the point with a Dick in a decidedly unswinging mood – the problem got fixed the trader’s way even if there was a better solution.

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Matteo Arpe is Italy’s most famous investment banker. During 14 years at Mediobanca and Lehman Brothers he worked on key deals such as the privatisation of Telecom Italia and Olivetti’s subsequent takeover of Telecom Italia. It is strange then that, according to his friends, Mr Arpe no longer likes to be described as an investment banker. These days, they say, he stresses his other activities at Mediobanca, such as lending and asset management.

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Natasha de Teran looks at the explosion in demand for capital guaranteed products as pension and insurance fund managers seek to stem losses.

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The pressure placed on tobacco bond spreads by class action litigation appears to be weakening in the wake of a spate of recent court rulings in favour of the tobacco giants. Geraldine Lambe reports.

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When the Bank of England quietly announced its $3bn, five-year dollar bond, everyone wanted a part of it. The lucky banks who won a share quickly put the usual rivalry behind them to pool expertise and pull off a star-quality deal. Geraldine Lambe reports.

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Karsten von Köller: Moody’s concerns put the brakes on new issuance

Germany’s Pfandbriefe could be the ideal product for US investors but they remain hesitant, says Suzanne Miller.

The German Pfandbriefe has been more reliable than a Duracell battery. First issued 230 years ago, the bonds have survived the Napoleonic wars, World War II and the collapse of the Berlin Wall with no known defaults, proponents say. Yet most US bond investors have scant interest in the Pfandbriefe, a covered bond collateralised by long-term assets that has traditionally been issued by German mortgage banks. Shouldn’t US investors reconsider, given that Pfandbriefe have toughed out one of the worst credit cycles since the Great Depression?

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Though Germany and Spain remain the main issuers of covered bonds, this product is now receiving attention from investors across Europe. Michael Marray finds out why.

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Global head of capital markets origination, DrKW

Joe Dryer talks to Geraldine Lambe about the major restructuring at Dresdner Kleinwort Wasserstein and the advantages he believes it has given the bank.

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Karina Robinson talks to some of Hong Kong’s most influential business leaders about the prospects for sustained recovery and the effect that issues such as Article 23 and mainland China’s growth prospects are having on the economy.

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Sir John Bond: “The way a company behaves is going to be of crucial importance, the dominant feature of life in the 21st century.”

HSBC chairman Sir John Bond talks to Karina Robinson about the transformational impact of the bank’s acquisition of Household International.

The last time in its 138 year history that the Hong Kong and Shanghai Banking Corporation (HSBC) took such a transformational step was in 1992 when it bought Midland Bank, one of the UK’s main banks, vaulting it into the major league from its Hong Kong base. Its latest move, buying US consumer group Household International, is arguably even more revolutionary, as it brings a totally new business into the bank which executives see as being at the forefront of its expansion plans.

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HSBC has struggled with investment banking which in many ways doesn’t fit well with its culture. But competitors feel the bank has now got its act together, having integrated investment and corporate banking last year; having moved into the debt and capital markets business; and having climbed up the mergers and acquisitions league tables, albeit just scraping into the top 10.

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Kenyan president Mwai Kibaki outlines progress towards an East Africa Common Market from which the region can develop and flourish.

Fifty years ago I set off from my hilly countryside home of Othaya, boarded a train in Nairobi, and headed to Kampala to establish my new scholarly home at Makerere University. Travelling through the central Kenya countryside by bus, hearing the train’s engine roar through the vast Rift Valley, then briefly anchoring on the shores of Lake Victoria, before finally arriving in Kampala, the sounds of East Africa began reverberating through my mind.

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Richard Laubscher has taken heavy criticism for Nedcor’s performance.

South African banking group Nedcor is shouldering the pressure of the biggest banking merger in the country in a decade, but without a leader. CEO Richard Laubscher shocked the market last month when he announced he would be stepping down as CEO after 10 years at the helm, writes Stuart Theobald in Johannesburg.

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until recently, the Industrial and Commercial Bank of China (ICBC) could be easily mistaken in Hong Kong for another bank with the same initials, the International Commercial Bank of China, from Taiwan. ICBC is the biggest bank in China but had only two branches in Hong Kong.

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Argentina’s creditors have slammed a three-year, $12.5bn debt roll-over plan between the country and the International Monetary Fund.

The IMF announced the agreement at September’s meeting in Dubai, which followed Argentina’s $2.9bn default on an IMF loan in August. One condition is that the government runs a primary fiscal surplus and ministers said the only way this could be achieved was by reneging on 75% of $103bn debt.

“All the creditors will be treated in an equal manner. The Argentine government guarantees this,” said economy minister Robert Lavagna.

After a decade of waiting, the Russian Duma has finally passed the deposit insurance bill in the first of three readings, restarting the stalled banking reforms.

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The long-awaited privatisation of Pakistan’s largest bank, Habib Bank, is moving into its final stages and is on target to be completed by the end of the year. The bank, which has 1430 branches in Pakistan and the most extensive international network covering 25 countries, has undergone significant restructuring in recent years and attracted international and local interest.

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Iraq has announced a wave of financial reforms, including the entrance of foreign banks and allowing 100% foreign ownership in all sectors, except natural resources, which will form the basis for the rebuilding of the country’s financial infrastructure.

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South Africa’s premier industrial family responds to criticisms of its black economic empowerment initiative.

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Some critics say that big US players will be the main beneficiaries of the latest cross-border regulations.

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Banks, regulators and the Basel Committee seem as far apart as ever, which doesn’t bode well for the new Capital Accord timetable.

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Americans who are pushing for a renminbi flotation should remember it will bring rising prices and higher national debt costs.

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Citigroup says its latest move does not impair its commitment to the region – but it is unlikely that its local customers will view the decision in the same light.

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When banking historians look back, they may conclude that HSBC’s acquisition of Household International was the deal of the first decade of the 21st century. The risks are high but moving into consumer finance is definitely the method by which HSBC can close the gap on Citigroup.

HSBC chairman Sir John Bond talks to The Banker about the group’s strategy, and the results of the interview are featured in our cover story.

Talking of deals, this month’s Team of the Month pulled off a coup with a rare underwriting for the Bank of England. Bankers from Citigroup, Goldman Sachs, Deutsche and Morgan Stanley were all involved.

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