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The costs of Basel II implementation
Dear Editor
I have been following the debate about Basel II in The Banker with interest. To use an insurance analogy, moving from a flat-rate method of assessing motor premiums to one in which premiums depend on the driver’s accident history inevitably provokes opposition from learner drivers and those with poor accident records. But safe drivers are not treated fairly by a flat rate approach. The Basel Committee has been exceptionally transparent in the development of its proposals and this has manifested itself in the controversy reflected in your columns.
Moscow tests multi-service smart card for added value
The Moscow Social Card is being used as a pilot to measure the added value of dual interface smart card technology, combining credit/debit and social payments applications on a single card. Wendy Atkins reports on the scheme.
IT spending outlook for 2004
TowerGroup estimates that total IT spending in the global financial services industry will rise 4% from nearly $334bn in 2003 to just over $347bn in 2004. Continuing this growth pattern, total IT spending will increase to $379.2bn by 2006, at a compound annual rate of 4.5% from 2004. Banking customers, both corporate and individual, demand superior service and are taking note of their institutions’ performance gaps vis-à-vis other service industries. Innovation will shift dramatically from the traditional, vertically focused dimension of banking products to a horizontal integration of new service breakthroughs by virtue of a federation of alliances and partnerships. Bank business strategy will shift from short-term cost cutting mandates to long-term value and revenue growth.
Read my fingers
The battle against money laundering and fraud is being fought on various fronts with various weapons, the most popular of which appears to be biometrics. But will this contactless form of payment eventually lead to a cashless society? Chris Skinner ponders the future.
Platform grows grid capability
Platform Computing is working to expand the grid computing market. The provider has developed grid capability for Microsoft Excel. The Adapter for Microsoft Excel is now a standard feature of Platform Symphony Suite, which includes software that accelerates online and batch operations for business-critical financial services applications. This new feature enables the supercharged processing of compute-intensive Microsoft Excel spreadsheets by distributing transparently the calculations through Platform Symphony to any number of internal compute clusters, rapidly decreasing calculation time while increasing server utilisation and guaranteeing trader service levels.
Online fraud solution found
Online payment fraud is 30 times higher than in the physical world, according to Celent Communications. But researchers at the University of Southern California in the US and Newcastle University in the UK have invented a solution for online credit card fraud prevention, called Trusted Email, a patent pending technology. Trusted Email prevents credit card fraud for intangible e-commerce products, such as multimedia. “Trusted Email is the natural replacement for your postal billing address,” said USC’s Nien Sui, a co-inventor. Online credit card fraud is ever increasing and merely using a billing address as a verification method is no longer sufficient, especially for intangible products, such as multimedia. “Trusted Email and its accompanying full address verification system present a simple yet elegant, full-service solution to a huge global problem,” said Rohit Shukla, president & CEO of Larta, a California-based think tank. Trusted Email solution can relieve the merchants from chargeback penalties and relieve the consumers from fraudulent transactions.
CheckFree buys heliograph
In a move to help it to become a global leader in enterprise financial transaction management, CheckFree, a provider of financial electronic commerce services and products, has acquired messaging and straight-through processing solutions provider HelioGraph. The acquisition reflects CheckFree’s commitment to grow its software business and strengthen its international presence. The combined product suite will offer a comprehensive global enterprise financial transaction management solution, including financial messaging, corporate actions and trade status tracking. The addition of these components to CheckFree’s enterprise reconciliation and matching platform will enable companies to realise more streamlined and efficient international transaction settlements, centralised information and exception management as well as greater risk management capabilities across global operations.
Milan bank makes Linux move
Banco Popolare di Milano is taking servers out of its 700 branches and moving to a web-based architecture. The move is driven by the desire for a single customer view while reducing complexity and operating costs. Using Jacada’s integration platform, the front office applications have been transferred to Linux Web applications. The bank’s original IBM mainframes have been partitioned to allow Linux to replace the functionality of its old branch servers. Apart from the cost savings involved, the new architecture allows branches to get a single customer view across the multiple channels.
E-mails create storage problem
Storage space is set to increase as worldwide e-mail traffic is expected to reach 35 billion a day by 2005. E-mails now account for up to 40% of the cost of storing data in many companies’ computers – and many IT directors fear that more than 20% are personal e-mails circulated by staff. The pressure on storage systems will be compounded by the possibility of European regulations following in the wake of the North American Sarbanes Oxley Act of 2002, which makes specific provisions for the retention of documents relating to the audit process for a period of years. Despite this, a survey of IT directors conducted by Hitachi Data Systems finds that most companies are failing to address the problem of archiving growing volumes of e-mail data.
Continuity is critical in a crisis
When disaster strikes, banks must get back into operation as fast as possible. That is where business continuity planning comes in, says Wendy Atkins.
Time to think out of the box
Bill Hartnett: “The financial services industry is stuck. There is a lack of understanding about their core business; they think they are in the business of transaction processing”
How should banks meet the challenge of growing competition from retailers for financial services? And where should their technology priorities lie? Bill Hartnett, financial services manager at Microsoft, gives Parveen Bansal some pointers.
Software giant Microsoft is well known not only in the consumer world, but it has also made serious inroads into the financial services sector, where it commands the majority market share in the server and desktop computer operating systems areas.
Smart moves in the developing world
Aplitec’s Serge Belamant: ‘We are waiting until we have 14 African countries. And then we will form a club so we can start transferring money from one user to another across borders’
South African company Aplitec saw a gap in the payments market and devised a cheaper alternative to the EMV standard. Stuart Theobald explains how this upstart company has stolen a march on the global card giants.
Smart cards have heralded a technical revolution in payments systems across the globe. But the industry smart card standard Europay Mastercard Visa (EMV) is not without its challengers. One that has caught the attention of Visa particularly is a small South African IT company called Aplitec.
Spanish behemoths court their clients
Spain’s two banking giants both suffered loss of market share after recent mergers. SCH’s Enrique García Candelas and BBVA’s Julio López talk to Karina Robinson about their new client-focused strategies, designed to gain lost ground.
Islamic Bank of Britain launch imminent
The financial sector is finally catching up with the demand for Islamic banking services. This year hopes to see the ground-breaking establishment of the IBB, which will cater to UK Muslims while also hoping to attract business from further afield.
Cameroon’s refreshing wind of change
Paul Fokam: “Management is a social science before being mathematics”
Helena Frith Powell talks to Paul Fokam, chairman of Afriland First Bank. He outlines how the bank intends to become a leader on the continent, while remaining relevant to Africans and working to reduce levels of poverty.
It is often said that there has been nothing new coming out of Africa in banking circles since the time of Pliny. Cynics say that if you substitute the mercantile might of the Romans for the multilateral lending of organisations such as the World Bank and the African Development Bank, nothing has changed at all.
Jordan makes best of it despite regional turmoil
Surrounding countries may be in turmoil but Jordan’s banks are laying expansion plans that include Iraq, as Rupert Wright reports from Amman.
HSBC takes local stake
After a long-term presence in India, HSBC has surprised everyone by buying into the local banking sector in an apparent strategic shift, writes Kala Rao in Mumbai.
Japan: not yet out of the woods
The government’s rescue of Ashikaga regional bank illustrates that, while Japan’s economic outlook has improved, there are still areas of concern.
East Europe
The east European grouping consists of 145 banks (22.4% of the total) and is essentially drawn from the European countries of the CIS.
The top 25 is dominated by Russian banks which, as previously mentioned, are achieving rapid growth rates in this post-crisis period in which the banking sector is under better management and the economy is expanding soundly.
South Europe
South Europe is the combination of the south-east Europe grouping (which includes Greece, Turkey, Romania, Bulgaria, Cyprus, Albania, Macedonia and Serbia & Montenegro) and the remaining countries of the former Yugoslavia (Slovenia, Croatia, Bosnia Herzegovina and including Republika Srpska, and Kosovo).
Central Europe
The group of banks from central Europe was the smallest sample in our analysis with 34 banks (5.3% of the total analysis). This reflects the penetration of large European banks into the region through the acquisition of domestic banks.
West Europe
Western Europe provides the largest group of banks in our analysis: 380 (58.9% of the total). However, smaller banks again predominate with only one bank from the region appearing in the European Top 30 (by Tier 1 capital) and only 10 making the Top 100. This is also perhaps indicative of the limited opportunity for growth in the more mature markets of western Europe and certainly indicative of the recent economic slowdown in the region.
Russians lead on speed
Russian banks dominate the top ranks in The Banker’s first analysis of the fastest growing Europeans.
Deutsche Bank buys into UFG
Ben Aris spoke to the Russian bank’s CEO about the rationale behind the deal and the outlook for Russia.
Boomtime for covered bonds
Javier Blanco, BBVA: “The main [reason] why Spanish banks are issuing cedulas is because it is cheaper funding at close to Libor rates. It is not directly linked to the growth in mortgage lending”
Anthony O’Connor reports on why covered bonds are becoming a favourite funding tool for banks.
Although the legislation has been in place for Spanish banks and financial institutions to issue cedulas or covered bonds since the early 1980s, it is really only in the past couple of years that issuance has boomed. According to market data compiled by savings bank La Caixa, at mid-December 2003, nearly -60bn of cedulas hipotecarias – covered bonds backed by residential mortgages – are outstanding from nine issuers, with 32 transactions to date. Equally striking are figures for the end of 2003, which show that cedulas hipotecarias will account for about 13% of all mortgage funding, almost double that of 18 months ago. But opinion is split about why cedulas are becoming a favourite funding tool.
Making a splash with cedulas
‘Vigorous domestic competition ensures much tighter pricing for investors’ Carlos Stilianopoulos, Caja Madrid
A boom in Spanish covered bond issuance has been good news for the savings banks. Head of capital markets at Caja Madrid Carlos Stilianopoulos tells The Banker about dealing with commercial banks, cooperation with smaller cajas and plans to extend the market abroad.
“By definition, a triple-A market is relatively boring,” according to Carlos Stilianopoulos, head of capital markets at Spain’s Caja Madrid. But if he is right that Spanish covered bond issuance has grown by 90% in the past year, then a little excitement is surely justified – especially for Caja Madrid, which is at the heart of it.
Strategies for growth in 2004
The Banker asks 77 banks around the world what their outlook and strategies are for the next five years and the prospects for the banking system in the country in which they operate.
Exchanging over the counter
Alex Wilkinson: ‘The moment a product becomes standardised enough to be cleared centrally, the OTC market has moved on to new structures’
There are signs that volume in exchange-traded derivatives is growing faster than over-the-counter products. Frances Maguire examines the drivers behind this trend and the impact of clearing on trading in capital markets.
Standardised exchange-traded contracts have always represented the tip of the iceberg, dwarfed by the volumes carried out by banks over the counter in the form of complex, structured, customised instruments. While this is still the case and both continue to grow, a study – published by Morgan Stanley and Mercer Oliver Wyman in June 2003 – found that for the preceding 18 months, exchange-traded derivatives had grown faster than off-exchange products for the first time in a decade.
Emerging markets offer exotic exchange
William Essex examines the latest currencies presenting attractive opportunities to FX traders in the Eastern European, South American and Asian currency markets.
Chance to tell a giant to cut the crap
HSBC is advising Rosbank on its retail strategy and AT Kearney, which seems an unlikely choice, is advising HSBC on its investment banking model. The project reports to Mark Ramsey, acting head of global equities. Like every bank, HSBC has to figure out how to cover the high costs of research by means of paltry broking commissions, especially since research working with corporate finance is now a no-no. The answer is simply to cut the crap.
Rosbank spruces up for foreign investors
These days the thinking about who to sell a bank to is taking place even as the initial strategy is being thought through. After taking the flak for Unexim’s difficulties during the Russian crisis of 1998, Vladimir Potanin, the president of the financial industrial group Interros, became less than bullish about the banking business. Rosbank emerged as a repository for a lot of Unexim assets but at the outset there was never any intention to develop Rosbank beyond this role. Minds can be changed, however. At some point Mr Potanin had meetings with Citi chairman Sandy Weill and HSBC CEO Stephen Green, during which he was persuaded that a retail bank of the right size in Russia would be an attractive investment proposition for a foreign player. Hence, Rosbank is rapidly expanding its retail network.
Back in the shop for Christmas
Still M&A bankers can always look to Germany, where the long-awaited consolidation now seems imminent. However, those who were speculating on a Citi/Deutsche deal obviously were not listening to Citi CEO Chuck Prince, who had already said that the bank was more likely to do fill-in deals (witness the Washington Mutual deal) than transformational ones.
Widget swapping makes sense
In this “conservative” economic recovery, the last thing any CEO relishes is a mega merger.
Parmalat dive reveals failures over financial disclosure
Parmalat’s fall from grace in December indicates inadequate disclosure by the company – at best. The markets are spooked and the company’s five-year spreads have widened to 2408.8 basis points. Geraldine Lambe reports.
A long line of firsts
Putting in the ground-work and reaping the rewards: (back row, left to right) Alvaro Camara, Martin Mills, Patrick O'Connell, Jonathan Winstanley and Steve Black; (front row, left to right) Amir Hoveyda, Marian Kesseler, Marc Tempelman and Olivier de Lamarliere
Timing conspired to line up three back-to-back, ground-breaking deals for Merrill Lynch’s Financial Institutions Group, allowing it to clinch 10 firsts in three markets within five days. Geraldine Lambe reports on the team’s many reasons to celebrate.
US ready for increase in OTC derivatives appetite
Thomas Benison: ‘The relative value of credit derivatives is becoming more apparent’
Europe has become the home of OTC derivatives innovation but, as Natasha de Teran reports, European houses are gearing up for a predicted upswing in demand on the other side of the Atlantic, and will give US firms a fight on their own turf.
Bob Diamond
Bob Diamond: “It’s very invigorating being the underdog”
Barclays Capital’s CEO explains how proving itself in Europe is an ideal platform for building its US business. By Geraldine Lambe and Brian Caplen
When Barclays Capital CEO Bob Diamond was passed over for the top position at Barclays last October, there was a lot of media speculation that if a good offer came from another firm, he would be happy to jump ship. Mr Diamond’s rebuttal is adamant and he says his “enriched mandate” to combine the wholesale and institutional businesses gives him a good enough reason to stay.
Crumbling away behind a facade of optimism
Social unrest and a government that turns a blind eye to problems means Argentina’s future looks bleak, reports Karina Robinson from Buenos Aires.
Finance Minister of The Year 2004
2003 saw benefits flow from fiscal austerity. Finance ministers who got tough on public spending got just rewards. It is this trend that flavours The Banker’s choice of finance ministers for 2004.
Central Banker of The Year 2004
It has been a chequered year for central bankers, with most responding to sluggish growth or tackling the aftermath of crises. Strong, decisive leadership was the hallmark of The Banker’s choice of central bankers for 2004.
The sacred and the mundane
‘People think we are very conservative [but in fact] we have been in Latin America, had the experience and because of it we did not return’
Javier Valls, chairman of Banco Popular Espańol, tells Karina Robinson about the strategy he and his brother Luis are using to ensure the bank remains successful and efficient.
There was an absence from the table as I lunched with Javier Valls, chairman of Banco Popular Espańol, one of the best banks in the world. His brother, Luis Valls, is a member of the Opus Dei religious order and eschews a public profile.
“Luis Valls does the strategy. [He is all about] frugality and austerity. The best banker the country has had,” says the president of a top Spanish bank.
Striking out Fannie Mae
Geraldine Lambe reports on the storm that is raging over proposals to introduce US-style government-sponsored agencies in Europe to aid the integration of the mortgage-backed securities market.
European financial markets are usually chastised for taking the interventionist rather than the market route. Europe’s bureaucracy-heavy approach is blamed for slower growth and lower production levels compared with the leaner, meaner US financial machine. But in the case of a proposal from the European Mortgage Finance Agency project group (EMFA) to create a pan-European institution, sponsored by the EU, red-tape wielding Eurocrats cannot be held responsible.
Austria’s RZB buys Albania’s biggest bank
albania’s largest bank, the Savings Bank of Albania (Banka e Kursimeve e Shqipërisë – BK), has been bought by Austria’s Raiffeisen Zentralbank Österreich (RZB) in a tender offer for a total of $126m. The Savings Bank of Albania has the largest branch network in the country with 92 outlets, around 1000 employees and a balance sheet of $1.4bn. It also has a 56% market share of the banking sector’s assets and 63% market share of deposits.
Herbert Stepic, RZB deputy chairman, said the acquisition will complement the group’s extensive network in south central Europe, which includes Bosnia, Croatia, Romania and Bulgaria.
Brazilians set up base in China as exports boom
Edemar Cid Ferreira: “We have successfully competed with big banks”
Brazilian banks are leaping onto the bandwagon of soaring Brazilian exports to China – up 90% to $3.4bn in the first nine months of 2003,compared with the previous year – by opening offices in Shanghai.
Banco do Brazil, Latin America’s largest commercial bank, is opening an office there, as is small Banco Santos, a Săo Paolo-based bank with assets of $1.76bn. The bank, which has 10 branches in Brazil, insists it can compete with giants such as HSBC, which recently got approval to expand its Renminbi business in China and has about 1,500 branches in Brazil.
“We have successfully competed with the big banks in Brazil since Banco Santos was founded in 1994,” said Banco Santos president Edemar Cid Ferreira. “We have done it though investing in technology and the best talent in banking.”
Banco Santos’ record in re-lending financing from BNDES (the large state-controlled development bank, which makes subsidised loans to Brazilian companies) gives it an advantage in its Shanghai office, which will break even in three years, Dr Ferreira said. “We are the fifth-largest agent bank for BNDES.”
Banco Santos’ balance sheet shows soaring provisions for bad loans for the first half of 2003, jumping more than six-fold to R63m ($21.5m) compared with the previous year. The bank decided to be “conservative and raise the provisions in view of the long period of economic stagnation,” said Mario Martinelli, a bank managing director.
Brazil’s economy was expected to grow less than 0.3% in 2003 and about 3.5% in 2004.
Banking on Romania
Investors learned about positive prospects for Romania (5.5% growth in 2004 and 9% inflation) at The Banker’s Banking on Romania seminar in London in December, sponsored by Banca Comerciala Romana (BCR). Pictured above from left to right is keynote speaker Mugur Isarescu, governor of the National Bank of Romania, The Banker’s editor Brian Caplen, who chaired the session, and BCR’s chairman and CEO Nicolae Danila, who spoke about the Romanian banking system.
GE financial services rules of engagement
In 1987 ge had 7,500 employees in Europe. It now has 75,000, split between financial and industrial services. Andrew Moore from GE Consumer Finance (a division with $77bn of total assets) and Ivan Royle, director of communications for financial services at GE Capital Europe, gave The Banker a few tips from this serial acquirer:
Stronger companies give Spain hope of busy 2004
Investment bankers in Spain are looking forward to an active 2004 as Spanish companies lift their heads above the parapet with repaired balance sheets and more positive stockmarket sentiment. This follows two years, 2001 and 2002, which Antonio Rodriguez-Pina, president of Credit Suisse First Boston (Espana) calls “the worst and most difficult of the last 20 years”.
China expands foreign access to local markets
China’s top banking regulator played Santa Claus to foreign banks weeks before Christmas last year, announcing measures that gave them greater access to the local market.
Past lessons learnt, hope for the future
Henrique de Campos Meirelles assesses the achievements of the Lula administration in leading Brazil out of crisis.
Brazil is living through a time of hope, in which it is re-discussing its past and its present in order to create a new future. Today, it is clear that this new future may be quite different and much better than the one envisaged at the beginning of 2003.
Regime change in commodity markets
Michael Lewis assesses the chances of continued strong commodity prices and links with the dollar.
Taking care of business ethically must be priority for new year
Banks have only themselves to blame for the burgeoning weight of regulation. It’s time to do some corporate spring cleaning.
Optimistic outlook tempered with reservations on regulation
The Banker talked to bank chiefs around the world to get their predictions, hopes and concerns for the year ahead.
Turkey deserves recognition for hard-won success
Turkey has come a long way in achieving stability in the past year, a fact that recent events threaten to overshadow.
US legislators likely to delay Basel II signing
US concern over domestic banks looks set to put back the Capital Accord again, and may jeopardise hopes of a level playing field.
Europe must use a different mortgage model to Fannie Mae
Fannie Mae may be popular in the US but can this mortgage model cross the Atlantic? This month Geraldine Lambe analyses why Europe must choose a different approach.
Seventy-seven bank chairmen/chief executives from 77 different countries are bound to produce a variety of opinions and strategies.
