Never have forecasters been as lost in their predictions for the world economy as at present. The US is said to be in recovery mode but the burgeoning current account deficit was the major topic of concern at last month’s World Bank/IMF meetings in Washington. Fittingly, it is the subject of our lead editorial in this issue.
Recently I was looking at the mountain of stuffed toys that my two young children have and was comparing this to the lone, high-cost teddy bear I had when I was the same age in the 1960s. The mountain of stuffed, “made in China” toys of today probably, collectively, did not cost as much as that teddy of yore. Who will make the stuffed toys 40 years from now when the Chinese economy evolves into a higher wage economy than it is today?
As emerging markets enjoy today’s benign global environment, it is worth remembering that whereas lightning may seldom strike twice in the same place, the same cannot be said for international debt crises. Countries that default once on their external debts typically go on to do so again and again.
CHUCK PRINCE, CHIEF executive of Citigroup, placed his own personal stamp on the world’s largest banking group with the ousting of three senior executives, including the chairman of Citigroup International, Sir Deryck Maughan, following regulatory problems in Japan.
BRAZIL’S LONGEST EVER banking strike came to an end last month, four weeks after it commenced, as workers heeded their union bosses’ call to return to their jobs. Nearly half of the country’s 400,000 bank employees had walked off the job on September 15, when Brazil’s banks refused to give them a 25% salary increase.
ABN AMRO’s DIRECT custody, securities clearing and fund services businesses in selected European and Asian markets are to be purchased by Citigroup. Upon completion, these ABN AMRO businesses will join the Global Transaction Services unit (GTS) in Citigroup’s Global Corporate and Investment Banking Group.
DEUTSCHE KREDIT BÖRSE (DKB), a new exchange enabling banks and other financial institutions to trade single corporate loans so that they can better spread credit risk, has gone live in Germany.
Analysing The Banker’s Credit Risk 1000, Geraldine Lambe finds a pessimistic outlook on growth and few signs of a sustainable global recovery in corporate earnings.
This year has been a study in market psychology, as market participants and companies worldwide have attempted to make sense of a troubling and often conflicting mix of circumstances and events. As US non-farm payroll data made doubtful the strength and veracity of the country’s economic recovery, the Federal Reserve moved forcefully into tightening mode. Oil prices have continued their inexorable rise, with oil futures hitting their highest levels ever in August, although at the time of going to press, oil was showing signs of weakening. Driven by concerns about interrupted supplies, the balance of supply and demand, and the pace and durability of China’s economic growth, fears that the rising cost of oil would undermine the current recovery have been instrumental in pushing growth forecasts down.
Nomura may not be the swashbuckling firm that it was in the 1980s and 1990s but, according to Zenji Nakamura, head of global markets, Europe, that will not prevent it from regaining a more prominent position in the international capital markets. Geraldine Lambe finds out how it intends to flex its Asian advantage.
Arvind Bajaj: ‘Europe presents a fantastic growth opportunity and will ultimately reach US levels’
As the good times roll in the global real estate markets, the capital markets have been moving further and further into real estate lending. Natasha de Teran finds out who has the upper hand in commercial mortgage-backed securities.
Property financing was once the purview of commercial banks alone. However, a trend in which a handful of investment banks entered the US real estate markets following the doldrums of the late 1980s has since begun to extend to Europe and beyond.
The smooth progress of the Cemex deal is attributed to the particularly close co-operation between Goldman Sachs and Citigroup: (L-R) Simon Dingemans of Goldman Sachs, Basil Geoghegan of Goldman Sachs (seated), Philip Robert-Tissot of Citigroup and Jan Skarbek of Citigroup
Cross-border issues always add extra complexity to M&A deals. But in the Cemex acquisition of RMC, co-lead managed by Citigroup and Goldman Sachs, there was clearly no language barrier, writes Nick Kochan.
When you are doing a cross-border deal, it helps if your codename makes sense in your client’s language as well as your own. This was not quite the case in Cemex’s purchase of RMC in September. When the English-speaking bankers referred to the deal among themselves, they called it Bromium. When they talked to their Spanish-speaking clients, they called it Bromo.
And the bankers also had different interpretations of the name: one thought it was named Bromo after a volcano in Java, while another thought it was called Bromium after an ingredient in cement. Cross-border communication between bankers and client might have got horridly confused. In fact, relations were faultless.
Cynthia Ranzilla: ‘The auto industry has seen pressure on its ratings’
The US car maker’s over-subscribed bond issue was a triumph of diversifying fund sources, writes Edward Russell-Walling.
It is not often that General Motors Acceptance Corporation (GMAC) sets the corporate bond market alight. But as dealers trooped back to their desks after the summer holidays, it managed to do exactly that, in a display of well-judged opportunism.
Its two-tranche e2bn jumbo bond attracted bids worth an extraordinary e9bn in one day, even though the GM finance subsidiary had been put on negative outlook by Standard & Poor’s and a downgrade was expected by many. Such was the demand for the paper that lead managers Barclays Capital, Commerzbank and Deutsche Bank could price both tranches a whole 7bp within price guidance.
Banks are feeling weighed down by the strain of complying with Basel II. Yet it is becoming clear that the compliant bank could be a very smart player indeed.
After Basel II comes Basel III. Andrew Crockett, former general manager of the Bank of International Settlements (BIS) and now president of JP Morgan Chase International, admits that his former colleagues at the BIS become a little tetchy when he talks about Basel III.
Once again, the future of the world economy hinges on whether Asian central banks will retain their appetite for US treasury bonds and allow the US to continue running a current account deficit.
One of the more unusual economic theories of late holds that the financing of the US trade deficit by Asian central banks is not a cause for concern but a natural outcome of a successful development strategy in emerging markets.
Mansoor Mohi-uddin: ‘No-one expected the jump to be this much’
Gauging the health of the world’s foreign exchange market is an awkward business, but every three years the Bank for International Settlements takes its pulse as best it can. Edward Russell-Walling reports.
The last time the Bank for International Settlements (BIS) brought out its stethoscope, in 2001, the FX heart was found to be beating rather feebly. But the bank’s latest survey shows it to be pounding. Daily turnover shot up from an average of $1200bn in 2001 to nearly $1900bn this year, according to BIS.
That represented a rise of 57% (36% at constant exchange rates), which was rather more than most anticipated. The consensus had been for closer to $1500bn. “We were all surprised,” admits Mansoor Mohi-uddin, UBS chief currency strategist. “No-one expected the jump to be this much.”
A swathe of outsourcing deals has seen global custodians moving into the middle offices of investment managers – and even edging towards the front offices. However, FrancesMaguire finds that the global custodians are not taking their own advice on outsourcing.
The custody market has already undergone a great deal of consolidation. Several Tier 1 banks have sold up their custody arms to one of the banks that now make up the top five largest global custodians, as custody was deemed a product offering that needed both scale and to be part of a wider business relationship to be profitable (see news story on Citigroup’s purchase of ABN Amro’s custody operation).
Berthold Bonanni: ‘The paradigm for Mittelstand finance is changing, as the Mittelstand increasingly looks for alternatives to bank loans’
Germany’s small and medium-sized enterprises are turning to structured finance products to provide the credit they sometimes struggle to find, says Jan F Wagner.
German bankers may not like to admit it, but for the first time in post-war German history, the country’s small and medium-sized enterprises (SMEs), known collectively as the Mittelstand, face a credit crunch.
According to a new survey by KfW, the government-owned development bank, nearly half the Mittelstand say that obtaining a bank loan – its main means of finance – has become “considerably more difficult”. KfW also found that three-quarters of the SMEs turned down for a loan would have paid a higher interest rate to get it.
A report by Austria’s Raiffeisen International on the banking markets in 20 central and European countries paints a picture of privatisation and enormous potential. Stephen Timewell reports.
Central Europeans’ appetite for more sophisticated and varied products is growing, providing the region’s big retail banks with an opportunity to cash in. The mutual fund business, in particular, could benefit, reports Nicholas Spiro.
Prime Minister John Howard’s re-election is a reflection of the conservatism that pervades the country and its banking sector, says Stephen Timewell in Melbourne.
Cynthia Pérez, a Mexican American who owns Las Manitas diner: ‘Latinos are the last bastion. There’s a lot of money to be made from us’
Welcome to Texas, where global banking heavyweights are racing to cater to the banking needs of the fast-growing Hispanic population. Monica Campbell reports.
In Texas, as in other Hispanic US states, such as California, Florida and New York, both foreign and US banks are rushing to cater to a Hispanic market that they merely dabbled in not so long ago.
It is easy to see why Hispanics are finally getting attention. The Hispanic population is the fastest-growing minority group in the US, and it is predicted to grow from 14% of the country’s population – 40 million people – to 24% by 2050, according to the US government.
Francisco de Paula Gutiérrez, president of Costa Rica’s central bank
Can Costa Rica – traditionally stable compared with its central American neighbours – preserve its tradition of consensus building and move ahead with liberal economic reforms? Jane Monahan reports.
The question mark over Costa Rica’s economic future came into sharp focus when the finance minister, Alberto Dent, resigned on September 3, at a time of mounting opposition to his package of economic reforms.
Anicet Georges Dologuélé: “We need to promote interest in the sub-region by our good functioning”
After years of mismanagement, the Central African States Development Bank has made a remarkable financial recovery in just three years, under the stewardship of president Anicet Georges Dologuélé. By Fabien Buliard.
The Central African States Development Bank (La Banque de Développement des Etats de l’Afrique Centrale – BDEAC) is sparing no effort to restore its credibility, following a period of dormancy throughout the 1990s in which it ceased all lending activities to focus on reimbursing its debt and recovering a staggering amount of outstanding payments.
Egypt has a new prime minister and a new economic reform programme, but will anything change? How will the new government of Dr Ahmed Nazif provide the economic stimulus the country desperately needs? Stephen Timewell reports.
Bahrain’s $1.3bn Financial Harbour project will incorporate the Bahrain International Insurance Centre
Against the background of its solid reputation as an international banking centre, Bahrain is expanding the scope of its activities with the development of its insurance market.
Massimo Arrighetti, head of retail at Italy’s Banca Intesa, talks to Stephen Timewell about the earthquake in his bank’s retail sector that has led not only to a radical rethink, but also to a step change in processes.
When Banco Ambrosiano Veneto, Cariplo and Banca Commerciale Italiana joined forces in late 2002 to form the largest bank in Italy, Banca Intesa, they also formed a bank with a staggering 1,500 different retail products.
JP Rangaswami, Dresdner Kleinwort Wasserstein’s (DrKW) global chief information officer, welcomes an exciting new opportunity with the reinvention of information technology. Interview by Dan Barnes.
Grid technology underlies many of the utility models of computing mooted to revolutionise industry. It is being put to use in financial services organisations and in some cases already providing compute power as a utility. Dan Barnes reports.
A range of reports have highlighted the fact that many banks will be losing money on their payments business by the end of the decade. These reports put such trends down to growing customer demands, increasing regulation and rising costs of technology to manage payment processes. If banks cannot make a profit out of money transmissions – their core business – how will they make it?
Banking business is showing renewed strength globally. An analysis of revenue velocity in selected banking institutions in the first half of 2004 reveals a healthy growth rate of 17% over the same period in 2003.
Although mobile banking services might appear to hold significant promise as an e-payment method, their development has so far failed to live up to expectations. Wendy Atkins reports.
Richard Kemmish: director, capital markets at Dresdner Kleinwort Wasserstein in London
Covered bonds continue to gain acceptance, with new issuers increasingly attracting the traditional pfandbriefe investor. Should they wait for covered bond legislation or go the structured route? Michael Marray finds out that there is a big market for both.
The volume of European covered bond issuance is on course to set a new record for 2004 and bankers believe this growth trend will continue next year, augmented by first-time issuers from countries with new covered-bond legislation.
Both Sweden and Norway have recently established covered-bond laws and the first deals are expected early next year.
Christoph Anhamm, senior covered bond analyst with ABN AMRO
Demand for covered bonds is rocketing, as the Bank of Ireland recently discovered. GerryO’Kane reports.
In the space of three and half hours, interested investors pledged E7.2bn for the Bank of Ireland’s first covered bond, according to an insider. Officials were ecstatic: not only was it their first crack at such an issue, but it had been received enthusiastically by international financial players and over-subscribed by three and a half times.
The deal, in September was a confirmation of something the sector has been aware of for a few years; covered bonds are hot. Their issuance is exploding and there is interest in the product across a broad range of investors, from central banks, through pension funds, right down to high-net-worth individuals.
